    [House Report 104-736]
    [From the U.S. Government Publishing Office]

    104th Congress                                                   Report
                            HOUSE OF REPRESENTATIVES

     2d Session                                                     104-736
    _______________________________________________________________________

          HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

                                    _______

                     July 31, 1996.--Ordered to be printed

    _______________________________________________________________________

     Mr. Hastert, from the committee of conference, submitted the following

                               CONFERENCE REPORT

                            [To accompany H.R. 3103]

          The committee of conference on the disagreeing votes of
    the two Houses on the amendment of the Senate to the bill (H.R.
    3103), 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, having met, after
    full and free conference, and agreed to recommend and do
    recommend to their respective Houses as follows:
          That the House recede from its disagreement to the
    amendment of the Senate and agree to the same with an amendment
    as follows:
          In lieu of the matter proposed to be inserted by the
    Senate amendment, insert the following:

    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

    Sec. 1. Short title; table of contents.

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

                         Subtitle A--Group Market Rules

           Part 1--Portability, Access, and Renewability Requirements

    Sec. 101. Through the Employee Retirement Income Security Act of 1974.

       ``Part 7--Group Health Plan Portability, Access, and Renewability
                                  Requirements

        ``Sec. 701. Increased portability through limitation on preexisting
                  condition exclusions.
        ``Sec. 702. Prohibiting discrimination against individual
                  participants and beneficiaries based on health status.
        ``Sec. 703. Guaranteed renewability in multiemployer plans and
                  multiple employer welfare arrangements.
        ``Sec. 704. Preemption; State flexibility; construction.
        ``Sec. 705. Special rules relating to group health plans.
        ``Sec. 706. Definitions.
        ``Sec. 707. Regulations.
    Sec. 102. Through the Public Health Service Act.

     ``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
                            HEALTH INSURANCE COVERAGE

                         ``Part A--Group Market Reforms

         ``Subpart 1--Portability, Access, and Renewability Requirements

        ``Sec. 2701. Increased portability through limitation on preexisting
                  condition exclusions.
        ``Sec. 2702. Prohibiting discrimination against individual
                  participants and beneficiaries based on health status.

       ``Subpart 2--Provisions Applicable Only to Health Insurance Issuers

        ``Sec. 2711. Guaranteed availability of coverage for employers in
                  the group market.
        ``Sec. 2712. Guaranteed renewability of coverage for employers in
                  the group market.
        ``Sec. 2713. Disclosure of information.

            ``Subpart 3--Exclusion of Plans; Enforcement; Preemption

        ``Sec. 2721. Exclusion of certain plans.
        ``Sec. 2722. Enforcement.
        ``Sec. 2723. Preemption; State flexibility; construction.

                 ``Part C--Definitions; Miscellaneous Provisions

        ``Sec. 2791. Definitions.
        ``Sec. 2792. Regulations.
    Sec. 103. Reference to implementation through the Internal Revenue Code
              of 1986.
    Sec. 104. Assuring coordination.

                       Subtitle B--Individual Market Rules

    Sec. 111. Amendment to Public Health Service Act.

                        ``Part B--Individual Market Rules

        ``Sec. 2741. Guaranteed availability of individual health insurance
                  coverage to certain individuals with prior group coverage.
        ``Sec. 2742. Guaranteed renewability of individual health insurance
                  coverage.
        ``Sec. 2743. Certification of coverage.
        ``Sec. 2744. State flexibility in individual market reforms.
        ``Sec. 2745. Enforcement.
        ``Sec. 2746. Preemption.
        ``Sec. 2747. General exceptions.

                Subtitle C--General and Miscellaneous Provisions

    Sec. 191. Health coverage availability studies.
    Sec. 192. Report on medicare reimbursement of telemedicine.
    Sec. 193. Allowing Federally-qualified HMOs to offer high deductible
              plans.
    Sec. 194. Volunteer services provided by health professionals at free
              clinics.
    Sec. 195. Findings; severability.

        TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
                    SIMPLIFICATION; MEDICAL LIABILITY REFORM

    Sec. 200. References in title.

                   Subtitle A--Fraud and Abuse Control Program

    Sec. 201. Fraud and abuse control program.
    Sec. 202. Medicare integrity program.
    Sec. 203. Beneficiary incentive programs.
    Sec. 204. Application of certain health anti-fraud and abuse sanctions
              to fraud and abuse against Federal health care programs.
    Sec. 205. Guidance regarding application of health care fraud and abuse
              sanctions.

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

    Sec. 211. Mandatory exclusion from participation in medicare and State
              health care programs.
    Sec. 212. Establishment of minimum period of exclusion for certain
              individuals and entities subject to permissive exclusion from
              medicare and State health care programs.
    Sec. 213. Permissive exclusion of individuals with ownership or control
              interest in sanctioned entities.
    Sec. 214. Sanctions against practitioners and persons for failure to
              comply with statutory obligations.
    Sec. 215. Intermediate sanctions for medicare health maintenance
              organizations.
    Sec. 216. Additional exception to anti-kickback penalties for risk-
              sharing arrangements.
    Sec. 217. Criminal penalty for fraudulent disposition of assets in order
              to obtain medicaid benefits.
    Sec. 218. Effective date.

                           Subtitle C--Data Collection

    Sec. 221. Establishment of the health care fraud and abuse data
              collection program.

                      Subtitle D--Civil Monetary Penalties

    Sec. 231. Social security act civil monetary penalties.
    Sec. 232. Penalty for false certification for home health services.

                      Subtitle E--Revisions to Criminal Law

    Sec. 241. Definitions relating to Federal health care offense.
    Sec. 242. Health care fraud.
    Sec. 243. Theft or embezzlement.
    Sec. 244. False Statements.
    Sec. 245. Obstruction of criminal investigations of health care
              offenses.
    Sec. 246. Laundering of monetary instruments.
    Sec. 247. Injunctive relief relating to health care offenses.
    Sec. 248. Authorized investigative demand procedures.
    Sec. 249. Forfeitures for Federal health care offenses.
    Sec. 250. Relation to ERISA authority.

                    Subtitle F--Administrative Simplification

    Sec. 261. Purpose.
    Sec. 262. Administrative simplification.

                     ``Part C--Administrative Simplification

        ``Sec. 1171. Definitions.
        ``Sec. 1172. General requirements for adoption of standards.
        ``Sec. 1173. Standards for information transactions and data
                  elements.
        ``Sec. 1174. Timetables for adoption of standards.
        ``Sec. 1175. Requirements.
        ``Sec. 1176. General penalty for failure to comply with requirements
                  and standards.
        ``Sec. 1177. Wrongful disclosure of individually identifiable health
                  information.
        ``Sec. 1178. Effect on State law.
        ``Sec. 1179. Processing payment transactions.
    Sec. 263. Changes in membership and duties of National Committee on
              Vital and Health Statistics.
    Sec. 264. Recommendations with respect to privacy of certain health
              information.

       Subtitle G--Duplication and Coordination of Medicare-Related Plans

    Sec. 271. Duplication and coordination of medicare-related plans.

                          Subtitle H--Patent Extension

    Sec. 281. Patent extension.

                    TITLE III--TAX-RELATED HEALTH PROVISIONS

    Sec. 300. Amendment of 1986 Code.

                      Subtitle A--Medical Savings Accounts

    Sec. 301. Medical savings accounts.

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

    Sec. 311. Increase in deduction for health insurance costs of self-
              employed individuals.

                Subtitle C--Long-Term Care Services and Contracts

                           Part I--General Provisions

    Sec. 321. Treatment of long-term care insurance.
    Sec. 322. Qualified long-term care services treated as medical care.
    Sec. 323. Reporting requirements.

                     Part II--Consumer Protection Provisions

    Sec. 325. Policy requirements.
    Sec. 326. Requirements for issuers of qualified long-term care insurance
              contracts.
    Sec. 327. Effective dates.

               Subtitle D--Treatment of Accelerated Death Benefits

    Sec. 331. Treatment of accelerated death benefits by recipient.
    Sec. 332. Tax treatment of companies issuing qualified accelerated death
              benefit riders.

                        Subtitle E--State Insurance Pools

    Sec. 341. Exemption from income tax for State-sponsored organizations
              providing health coverage for high-risk individuals.
    Sec. 342. Exemption from income tax for State-sponsored workmen's
              compensation reinsurance organizations.

                Subtitle F--Organizations Subject to Section 833

    Sec. 351. Organizations subject to section 833.

                 Subtitle G--IRA Distributions to the Unemployed

    Sec. 361. Distributions from certain plans may be used without
              additional tax to pay financially devastating medical
              expenses.

     Subtitle H--Organ and Tissue Donation Information Included With Income
                               Tax Refund Payments

    Sec. 371. Organ and tissue donation information included with income tax
              refund payments.

     TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS

          Subtitle A--Application and Enforcement of Group Health Plan
                                  Requirements

    Sec. 401. Group health plan portability, access, and renewability
              requirements.
    Sec. 402. Penalty on failure to meet certain group health plan
              requirements.

     Subtitle B--Clarification of Certain Continuation Coverage Requirements

    Sec. 421. COBRA clarifications.

                            TITLE V--REVENUE OFFSETS

    Sec. 500. Amendment of 1986 Code.

                    Subtitle A--Company-Owned Life Insurance

    Sec. 501. Denial of deduction for interest on loans with respect to
              company-owned life insurance.

     Subtitle B--Treatment of Individuals Who Lose United States Citizenship

    Sec. 511. Revision of income, estate, and gift taxes on individuals who
              lose United States citizenship.
    Sec. 512. Information on individuals losing United States citizenship.
    Sec. 513. Report on tax compliance by United States citizens and
              residents living abroad.

    Subtitle C--Repeal of Financial Institution Transition Rule to Interest
                                Allocation Rules

    Sec. 521. Repeal of financial institution transition rule to interest
              allocation rules.

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

                         Subtitle A--Group Market Rules

           Part 1--Portability, Access, and Renewability Requirements

    SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.

        (a) In General.--Subtitle B of title I of the Employee
    Retirement Income Security Act of 1974 is amended by adding at
    the end the following new part:

       ``Part 7--Group Health Plan Portability, Access, and Renewability
                                  Requirements

    ``SEC. 701. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
                        CONDITION EXCLUSIONS.

        ``(a) Limitation on Preexisting Condition Exclusion Period;
    Crediting for Periods of Previous Coverage.--Subject to
    subsection (d), a group health plan, and a health insurance
    issuer offering group health insurance coverage, may, with
    respect to a participant or beneficiary, impose a preexisting
    condition exclusion only if--
                ``(1) such exclusion relates to a condition
            (whether physical or mental), regardless of the cause
            of the condition, for which medical advice, diagnosis,
            care, or treatment was recommended or received within
            the 6-month period ending on the enrollment date;
                ``(2) such exclusion extends for a period of not
            more than 12 months (or 18 months in the case of a late
            enrollee) after the enrollment date; and
                ``(3) the period of any such preexisting condition
            exclusion is reduced by the aggregate of the periods of
            creditable coverage (if any, as defined in subsection
            (c)(1)) applicable to the participant or beneficiary as
            of the enrollment date.
        ``(b) Definitions.--For purposes of this part--
                ``(1) Preexisting condition exclusion.--
                        ``(A) In general.--The term `preexisting
                    condition exclusion' means, with respect to
                    coverage, a limitation or exclusion of benefits
                    relating to a condition based on the fact that
                    the condition was present before the date of
                    enrollment for such coverage, whether or not
                    any medical advice, diagnosis, care, or
                    treatment was recommended or received before
                    such date.
                        ``(B) Treatment of genetic information.--
                    Genetic information shall not be treated as a
                    condition described in subsection (a)(1) in the
                    absence of a diagnosis of the condition related
                    to such information.
                ``(2) Enrollment date.--The term `enrollment date'
            means, with respect to an individual covered under a
            group health plan or health insurance coverage, the
            date of enrollment of the individual in the plan or
            coverage or, if earlier, the first day of the waiting
            period for such enrollment.
                ``(3) Late enrollee.--The term `late enrollee'
            means, with respect to coverage under a group health
            plan, a participant or beneficiary who enrolls under
            the plan other than during--
                        ``(A) the first period in which the
                    individual is eligible to enroll under the
                    plan, or
                        ``(B) a special enrollment period under
                    subsection (f).
                ``(4) Waiting period.--The term `waiting period'
            means, with respect to a group health plan and an
            individual who is a potential participant or
            beneficiary in the plan, the period that must pass with
            respect to the individual before the individual is
            eligible to be covered for benefits under the terms of
            the plan.
        ``(c) Rules Relating to Crediting Previous Coverage.--
                ``(1) Creditable coverage defined.--For purposes of
            this part, the term `creditable coverage' means, with
            respect to an individual, coverage of the individual
            under any of the following:
                        ``(A) A group health plan.
                        ``(B) Health insurance coverage.
                        ``(C) Part A or part B of title XVIII of
                    the Social Security Act.
                        ``(D) Title XIX of the Social Security Act,
                    other than coverage consisting solely of
                    benefits under section 1928.
                        ``(E) Chapter 55 of title 10, United States
                    Code.
                        ``(F) A medical care program of the Indian
                    Health Service or of a tribal organization.
                        ``(G) A State health benefits risk pool.
                        ``(H) A health plan offered under chapter
                    89 of title 5, United States Code.
                        ``(I) A public health plan (as defined in
                    regulations).
                        ``(J) A health benefit plan under section
                    5(e) of the Peace Corps Act (22 U.S.C.
                    2504(e)).
            Such term does not include coverage consisting solely
            of coverage of excepted benefits (as defined in section
            706(c)).
                ``(2) Not counting periods before significant
            breaks in coverage.--
                        ``(A) In general.--A period of creditable
                    coverage shall not be counted, with respect to
                    enrollment of an individual under a group
                    health plan, if, after such period and before
                    the enrollment date, there was a 63-day period
                    during all of which the individual was not
                    covered under any creditable coverage.
                        ``(B) Waiting period not treated as a break
                    in coverage.--For purposes of subparagraph (A)
                    and subsection (d)(4), any period that an
                    individual is in a waiting period for any
                    coverage under a group health plan (or for
                    group health insurance coverage) or is in an
                    affiliation period (as defined in subsection
                    (g)(2)) shall not be taken into account in
                    determining the continuous period under
                    subparagraph (A).
                ``(3) Method of crediting coverage.--
                        ``(A) Standard method.--Except as otherwise
                    provided under subparagraph (B), for purposes
                    of applying subsection (a)(3), a group health
                    plan, and a health insurance issuer offering
                    group health insurance coverage, shall count a
                    period of creditable coverage without regard to
                    the specific benefits covered during the
                    period.
                        ``(B) Election of alternative method.--A
                    group health plan, or a health insurance issuer
                    offering group health insurance coverage, may
                    elect to apply subsection (a)(3) based on
                    coverage of benefits within each of several
                    classes or categories of benefits specified in
                    regulations rather than as provided under
                    subparagraph (A). Such election shall be made
                    on a uniform basis for all participants and
                    beneficiaries. Under such election a group
                    health plan or issuer shall count a period of
                    creditable coverage with respect to any class
                    or category of benefits if any level of
                    benefits is covered within such class or
                    category.
                        ``(C) Plan notice.--In the case of an
                    election with respect to a group health plan
                    under subparagraph (B) (whether or not health
                    insurance coverage is provided in connection
                    with such plan), the plan shall--
                                ``(i) prominently state in any
                            disclosure statements concerning the
                            plan, and state to each enrollee at the
                            time of enrollment under the plan, that
                            the plan has made such election, and
                                ``(ii) include in such statements a
                            description of the effect of this
                            election.
                ``(4) Establishment of period.--Periods of
            creditable coverage with respect to an individual shall
            be established through presentation of certifications
            described in subsection (e) or in such other manner as
            may be specified in regulations.
        ``(d) Exceptions.--
                ``(1) Exclusion not applicable to certain
            newborns.--Subject to paragraph (4), a group health
            plan, and a health insurance issuer offering group
            health insurance coverage, may not impose any
            preexisting condition exclusion in the case of an
            individual who, as of the last day of the 30-day period
            beginning with the date of birth, is covered under
            creditable coverage.
                ``(2) Exclusion not applicable to certain adopted
            children.--Subject to paragraph (4), a group health
            plan, and a health insurance issuer offering group
            health insurance coverage, may not impose any
            preexisting condition exclusion in the case of a child
            who is adopted or placed for adoption before attaining
            18 years of age and who, as of the last day of the 30-
            day period beginning on the date of the adoption or
            placement for adoption, is covered under creditable
            coverage. The previous sentence shall not apply to
            coverage before the date of such adoption or placement
            for adoption.
                ``(3) Exclusion not applicable to pregnancy.--A
            group health plan, and health insurance issuer offering
            group health insurance coverage, may not impose any
            preexisting condition exclusion relating to pregnancy
            as a preexisting condition.
                ``(4) Loss if break in coverage.--Paragraphs (1)
            and (2) shall no longer apply to an individual after
            the end of the first 63-day period during all of which
            the individual was not covered under any creditable
            coverage.
        ``(e) Certifications and Disclosure of Coverage.--
                ``(1) Requirement for certification of period of
            creditable coverage.--
                        ``(A) In general.--A group health plan, and
                    a health insurance issuer offering group health
                    insurance coverage, shall provide the
                    certification described in subparagraph (B)--
                                ``(i) at the time an individual
                            ceases to be covered under the plan or
                            otherwise becomes covered under a COBRA
                            continuation provision,
                                ``(ii) in the case of an individual
                            becoming covered under such a
                            provision, at the time the individual
                            ceases to be covered under such
                            provision, and
                                ``(iii) on the request on behalf of
                            an individual made not later than 24
                            months after the date of cessation of
                            the coverage described in clause (i) or
                            (ii), whichever is later.
                    The certification under clause (i) may be
                    provided, to the extent practicable, at a time
                    consistent with notices required under any
                    applicable COBRA continuation provision.
                        ``(B) Certification.--The certification
                    described in this subparagraph is a written
                    certification of--
                                ``(i) the period of creditable
                            coverage of the individual under such
                            plan and the coverage (if any) under
                            such COBRA continuation provision, and
                                ``(ii) the waiting period (if any)
                            (and affiliation period, if applicable)
                            imposed with respect to the individual
                            for any coverage under such plan.
                        ``(C) Issuer compliance.--To the extent
                    that medical care under a group health plan
                    consists of group health insurance coverage,
                    the plan is deemed to have satisfied the
                    certification requirement under this paragraph
                    if the health insurance issuer offering the
                    coverage provides for such certification in
                    accordance with this paragraph.
                ``(2) Disclosure of information on previous
            benefits.--In the case of an election described in
            subsection (c)(3)(B) by a group health plan or health
            insurance issuer, if the plan or issuer enrolls an
            individual for coverage under the plan and the
            individual provides a certification of coverage of the
            individual under paragraph (1)--
                        ``(A) upon request of such plan or issuer,
                    the entity which issued the certification
                    provided by the individual shall promptly
                    disclose to such requesting plan or issuer
                    information on coverage of classes and
                    categories of health benefits available under
                    such entity's plan or coverage, and
                        ``(B) such entity may charge the requesting
                    plan or issuer for the reasonable cost of
                    disclosing such information.
                ``(3) Regulations.--The Secretary shall establish
            rules to prevent an entity's failure to provide
            information under paragraph (1) or (2) with respect to
            previous coverage of an individual from adversely
            affecting any subsequent coverage of the individual
            under another group health plan or health insurance
            coverage.
        ``(f) Special Enrollment Periods.--
                ``(1) Individuals losing other coverage.--A group
            health plan, and a health insurance issuer offering
            group health insurance coverage in connection with a
            group health plan, shall permit an employee who is
            eligible, but not enrolled, for coverage under the
            terms of the plan (or a dependent of such an employee
            if the dependent is eligible, but not enrolled, for
            coverage under such terms) to enroll for coverage under
            the terms of the plan if each of the following
            conditions is met:
                        ``(A) The employee or dependent was covered
                    under a group health plan or had health
                    insurance coverage at the time coverage was
                    previously offered to the employee or
                    dependent.
                        ``(B) The employee stated in writing at
                    such time that coverage under a group health
                    plan or health insurance coverage was the
                    reason for declining enrollment, but only if
                    the plan sponsor or issuer (if applicable)
                    required such a statement at such time and
                    provided the employee with notice of such
                    requirement (and the consequences of such
                    requirement) at such time.
                        ``(C) The employee's or dependent's
                    coverage described in subparagraph (A)--
                                ``(i) was under a COBRA
                            continuation provision and the coverage
                            under such provision was exhausted; or
                                ``(ii) was not under such a
                            provision and either the coverage was
                            terminated as a result of loss of
                            eligibility for the coverage (including
                            as a result of legal separation,
                            divorce, death, termination of
                            employment, or reduction in the number
                            of hours of employment) or employer
                            contributions towards such coverage
                            were terminated.
                        ``(D) Under the terms of the plan, the
                    employee requests such enrollment not later
                    than 30 days after the date of exhaustion of
                    coverage described in subparagraph (C)(i) or
                    termination of coverage or employer
                    contribution described in subparagraph (C)(ii).
                ``(2) For dependent beneficiaries.--
                        ``(A) In general.--If--
                                ``(i) a group health plan makes
                            coverage available with respect to a
                            dependent of an individual,
                                ``(ii) the individual is a
                            participant under the plan (or has met
                            any waiting period applicable to
                            becoming a participant under the plan
                            and is eligible to be enrolled under
                            the plan but for a failure to enroll
                            during a previous enrollment period),
                            and
                                ``(iii) a person becomes such a
                            dependent of the individual through
                            marriage, birth, or adoption or
                            placement for adoption,
                    the group health plan shall provide for a
                    dependent special enrollment period described
                    in subparagraph (B) during which the person
                    (or, if not otherwise enrolled, the individual)
                    may be enrolled under the plan as a dependent
                    of the individual, and in the case of the birth
                    or adoption of a child, the spouse of the
                    individual may be enrolled as a dependent of
                    the individual if such spouse is otherwise
                    eligible for coverage.
                        ``(B) Dependent special enrollment
                    period.--A dependent special enrollment period
                    under this subparagraph shall be a period of
                    not less than 30 days and shall begin on the
                    later of--
                                ``(i) the date dependent coverage
                            is made available, or
                                ``(ii) the date of the marriage,
                            birth, or adoption or placement for
                            adoption (as the case may be) described
                            in subparagraph (A)(iii).
                        ``(C) No waiting period.--If an individual
                    seeks to enroll a dependent during the first 30
                    days of such a dependent special enrollment
                    period, the coverage of the dependent shall
                    become effective--
                                ``(i) in the case of marriage, not
                            later than the first day of the first
                            month beginning after the date the
                            completed request for enrollment is
                            received;
                                ``(ii) in the case of a dependent's
                            birth, as of the date of such birth; or
                                ``(iii) in the case of a
                            dependent's adoption or placement for
                            adoption, the date of such adoption or
                            placement for adoption.
        ``(g) Use of Affiliation Period by HMOs as Alternative to
    Preexisting Condition Exclusion.--
                ``(1) In general.--In the case of a group health
            plan that offers medical care through health insurance
            coverage offered by a health maintenance organization,
            the plan may provide for an affiliation period with
            respect to coverage through the organization only if--
                        ``(A) no preexisting condition exclusion is
                    imposed with respect to coverage through the
                    organization,
                        ``(B) the period is applied uniformly
                    without regard to any health status-related
                    factors, and
                        ``(C) such period does not exceed 2 months
                    (or 3 months in the case of a late enrollee).
                ``(2) Affiliation period.--
                        ``(A) Defined.--For purposes of this part,
                    the term `affiliation period' means a period
                    which, under the terms of the health insurance
                    coverage offered by the health maintenance
                    organization, must expire before the health
                    insurance coverage becomes effective. The
                    organization is not required to provide health
                    care services or benefits during such period
                    and no premium shall be charged to the
                    participant or beneficiary for any coverage
                    during the period.
                        ``(B) Beginning.--Such period shall begin
                    on the enrollment date.
                        ``(C) Runs concurrently with waiting
                    periods.--An affiliation period under a plan
                    shall run concurrently with any waiting period
                    under the plan.
                ``(3) Alternative methods.--A health maintenance
            organization described in paragraph (1) may use
            alternative methods, from those described in such
            paragraph, to address adverse selection as approved by
            the State insurance commissioner or official or
            officials designated by the State to enforce the
            requirements of part A of title XXVII of the Public
            Health Service Act for the State involved with respect
            to such issuer.

    ``SEC. 702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
                        AND BENEFICIARIES BASED ON HEALTH STATUS.

        ``(a) In Eligibility to Enroll.--
                ``(1) In general.--Subject to paragraph (2), a
            group health plan, and a health insurance issuer
            offering group health insurance coverage in connection
            with a group health plan, may not establish rules for
            eligibility (including continued eligibility) of any
            individual to enroll under the terms of the plan based
            on any of the following health status-related factors
            in relation to the individual or a dependent of the
            individual:
                        ``(A) Health status.
                        ``(B) Medical condition (including both
                    physical and mental illnesses).
                        ``(C) Claims experience.
                        ``(D) Receipt of health care.
                        ``(E) Medical history.
                        ``(F) Genetic information.
                        ``(G) Evidence of insurability (including
                    conditions arising out of acts of domestic
                    violence).
                        ``(H) Disability.
                ``(2) No application to benefits or exclusions.--To
            the extent consistent with section 701, paragraph (1)
            shall not be construed--
                        ``(A) to require a group health plan, or
                    group health insurance coverage, to provide
                    particular benefits other than those provided
                    under the terms of such plan or coverage, or
                        ``(B) to prevent such a plan or coverage
                    from establishing limitations or restrictions
                    on the amount, level, extent, or nature of the
                    benefits or coverage for similarly situated
                    individuals enrolled in the plan or coverage.
                ``(3) Construction.--For purposes of paragraph (1),
            rules for eligibility to enroll under a plan include
            rules defining any applicable waiting periods for such
            enrollment.
        ``(b) In Premium Contributions.--
                ``(1) In general.--A group health plan, and a
            health insurance issuer offering health insurance
            coverage in connection with a group health plan, may
            not require any individual (as a condition of
            enrollment or continued enrollment under the plan) to
            pay a premium or contribution which is greater than
            such premium or contribution for a similarly situated
            individual enrolled in the plan on the basis of any
            health status-related factor in relation to the
            individual or to an individual enrolled under the plan
            as a dependent of the individual.
                ``(2) Construction.--Nothing in paragraph (1) shall
            be construed--
                        ``(A) to restrict the amount that an
                    employer may be charged for coverage under a
                    group health plan; or
                        ``(B) to prevent a group health plan, and a
                    health insurance issuer offering group health
                    insurance coverage, from establishing premium
                    discounts or rebates or modifying otherwise
                    applicable copayments or deductibles in return
                    for adherence to programs of health promotion
                    and disease prevention.

    ``SEC. 703. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND MULTIPLE
                        EMPLOYER WELFARE ARRANGEMENTS.

        ``A group health plan which is a multiemployer plan or
    which is a multiple employer welfare arrangement may not deny
    an employer whose employees are covered under such a plan
    continued access to the same or different coverage under the
    terms of such a plan, other than--
                ``(1) for nonpayment of contributions;
                ``(2) for fraud or other intentional
            misrepresentation of material fact by the employer;
                ``(3) for noncompliance with material plan
            provisions;
                ``(4) because the plan is ceasing to offer any
            coverage in a geographic area;
                ``(5) in the case of a plan that offers benefits
            through a network plan, there is no longer any
            individual enrolled through the employer who lives,
            resides, or works in the service area of the network
            plan and the plan applies this paragraph uniformly
            without regard to the claims experience of employers or
            any health status-related factor in relation to such
            individuals or their dependents; and
                ``(6) for failure to meet the terms of an
            applicable collective bargaining agreement, to renew a
            collective bargaining or other agreement requiring or
            authorizing contributions to the plan, or to employ
            employees covered by such an agreement.

    ``SEC. 704. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

        ``(a) Continued Applicability of State Law With Respect to
    Health Insurance Issuers.--
                ``(1) In General.--Subject to paragraph (2) and
            except as provided in subsection (b), this part shall
            not be construed to supersede any provision of State
            law which establishes, implements, or continues in
            effect any standard or requirement solely relating to
            health insurance issuers in connection with group
            health insurance coverage except to the extent that
            such standard or requirement prevents the application
            of a requirement of this part.
                ``(2) Continued preemption with respect to group
            health plans.--Nothing in this part shall be construed
            to affect or modify the provisions of section 514 with
            respect to group health plans.
        ``(b) Special Rules in Case of Portability Requirements.--
                ``(1) In general.--Subject to paragraph (2), the
            provisions of this part relating to health insurance
            coverage offered by a health insurance issuer supersede
            any provision of State law which establishes,
            implements, or continues in effect a standard or
            requirement applicable to imposition of a preexisting
            condition exclusion specifically governed by section
            701 which differs from the standards or requirements
            specified in such section.
                ``(2) Exceptions.--Only in relation to health
            insurance coverage offered by a health insurance
            issuer, the provisions of this part do not supersede
            any provision of State law to the extent that such
            provision--
                        ``(i) substitutes for the reference to `6-
                    month period' in section 701(a)(1) a reference
                    to any shorter period of time;
                        ``(ii) substitutes for the reference to `12
                    months' and `18 months' in section 701(a)(2) a
                    reference to any shorter period of time;
                        ``(iii) substitutes for the references to
                    `63' days in sections 701(c)(2)(A) and
                    701(d)(4)(A) a reference to any greater number
                    of days;
                        ``(iv) substitutes for the reference to
                    `30-day period' in sections 701(b)(2) and
                    701(d)(1) a reference to any greater period;
                        ``(v) prohibits the imposition of any
                    preexisting condition exclusion in cases not
                    described in section 701(d) or expands the
                    exceptions described in such section;
                        ``(vi) requires special enrollment periods
                    in addition to those required under section
                    701(f); or
                        ``(vii) reduces the maximum period
                    permitted in an affiliation period under
                    section 701(g)(1)(B).
        ``(c) Rules of Construction.--Nothing in this part shall be
    construed as requiring a group health plan or health insurance
    coverage to provide specific benefits under the terms of such
    plan or coverage.
        ``(d) Definitions.--For purposes of this section--
                ``(1) State law.--The term `State law' includes all
            laws, decisions, rules, regulations, or other State
            action having the effect of law, of any State. A law of
            the United States applicable only to the District of
            Columbia shall be treated as a State law rather than a
            law of the United States.
                ``(2) State.--The term `State' includes a State,
            the Northern Mariana Islands, any political
            subdivisions of a State or such Islands, or any agency
            or instrumentality of either.

    ``SEC. 705. SPECIAL RULES RELATING TO GROUP HEALTH PLANS.

        ``(a) General Exception for Certain Small Group Health
    Plans.--The requirements of this part shall not apply to any
    group health plan (and group health insurance coverage offered
    in connection with a group health plan) for any plan year if,
    on the first day of such plan year, such plan has less than 2
    participants who are current employees.
        ``(b) Exception for Certain Benefits.--The requirements of
    this part shall not apply to any group health plan (and group
    health insurance coverage) in relation to its provision of
    excepted benefits described in section 706(c)(1).
        ``(c) Exception for Certain Benefits If Certain Conditions
    Met.--
                ``(1) Limited, excepted benefits.--The requirements
            of this part shall not apply to any group health plan
            (and group health insurance coverage offered in
            connection with a group health plan) in relation to its
            provision of excepted benefits described in section
            706(c)(2) if the benefits--
                        ``(A) are provided under a separate policy,
                    certificate, or contract of insurance; or
                        ``(B) are otherwise not an integral part of
                    the plan.
                ``(2) Noncoordinated, excepted benefits.--The
            requirements of this part shall not apply to any group
            health plan (and group health insurance coverage
            offered in connection with a group health plan) in
            relation to its provision of excepted benefits
            described in section 706(c)(3) if all of the following
            conditions are met:
                        ``(A) The benefits are provided under a
                    separate policy, certificate, or contract of
                    insurance.
                        ``(B) There is no coordination between the
                    provision of such benefits and any exclusion of
                    benefits under any group health plan maintained
                    by the same plan sponsor.
                        ``(C) Such benefits are paid with respect
                    to an event without regard to whether benefits
                    are provided with respect to such an event
                    under any group health plan maintained by the
                    same plan sponsor.
                ``(3) Supplemental excepted benefits.--The
            requirements of this part shall not apply to any group
            health plan (and group health insurance coverage) in
            relation to its provision of excepted benefits
            described in section 706(c)(4) if the benefits are
            provided under a separate policy, certificate, or
            contract of insurance.
        ``(d) Treatment of Partnerships.--For purposes of this
    part--
                ``(1) Treatment as a group health plan.--Any plan,
            fund, or program which would not be (but for this
            subsection) an employee welfare benefit plan and which
            is established or maintained by a partnership, to the
            extent that such plan, fund, or program provides
            medical care (including items and services paid for as
            medical care) to present or former partners in the
            partnership or to their dependents (as defined under
            the terms of the plan, fund, or program), directly or
            through insurance, reimbursement, or otherwise, shall
            be treated (subject to paragraph (2)) as an employee
            welfare benefit plan which is a group health plan.
                ``(2) Employer.--In the case of a group health
            plan, the term `employer' also includes the partnership
            in relation to any partner.
                ``(3) Participants of group health plans.--In the
            case of a group health plan, the term `participant'
            also includes--
                        ``(A) in connection with a group health
                    plan maintained by a partnership, an individual
                    who is a partner in relation to the
                    partnership, or
                        ``(B) in connection with a group health
                    plan maintained by a self-employed individual
                    (under which one or more employees are
                    participants), the self-employed individual,
            if such individual is, or may become, eligible to
            receive a benefit under the plan or such individual's
            beneficiaries may be eligible to receive any such
            benefit.

    ``SEC. 706. DEFINITIONS.

        ``(a) Group Health Plan.--For purposes of this part--
                ``(1) In general.--The term `group health plan'
            means an employee welfare benefit plan to the extent
            that the plan provides medical care (as defined in
            paragraph (2) and including items and services paid for
            as medical care) to employees or their dependents (as
            defined under the terms of the plan) directly or
            through insurance, reimbursement, or otherwise.
                ``(2) Medical care.--The term `medical care' means
            amounts paid for--
                        ``(A) the diagnosis, cure, mitigation,
                    treatment, or prevention of disease, or amounts
                    paid for the purpose of affecting any structure
                    or function of the body,
                        ``(B) amounts paid for transportation
                    primarily for and essential to medical care
                    referred to in subparagraph (A), and
                        ``(C) amounts paid for insurance covering
                    medical care referred to in subparagraphs (A)
                    and (B).
        ``(b) Definitions Relating to Health Insurance.--For
    purposes of this part--
                ``(1) Health insurance coverage.--The term `health
            insurance coverage' means benefits consisting of
            medical care (provided directly, through insurance or
            reimbursement, or otherwise and including items and
            services paid for as medical care) under any hospital
            or medical service policy or certificate, hospital or
            medical service plan contract, or health maintenance
            organization contract offered by a health insurance
            issuer.
                ``(2) Health insurance issuer.--The term `health
            insurance issuer' means an insurance company, insurance
            service, or insurance organization (including a health
            maintenance organization, as defined in paragraph (3))
            which is licensed to engage in the business of
            insurance in a State and which is subject to State law
            which regulates insurance (within the meaning of
            section 514(b)(2)). Such term does not include a group
            health plan.
                ``(3) Health maintenance organization.--The term
            `health maintenance organization' means--
                        ``(A) a Federally qualified health
                    maintenance organization (as defined in section
                    1301(a) of the Public Health Service Act (42
                    U.S.C. 300e(a))),
                        ``(B) an organization recognized under
                    State law as a health maintenance organization,
                    or
                        ``(C) a similar organization regulated
                    under State law for solvency in the same manner
                    and to the same extent as such a health
                    maintenance organization.
                ``(4) Group health insurance coverage.--The term
            `group health insurance coverage' means, in connection
            with a group health plan, health insurance coverage
            offered in connection with such plan.
        ``(c) Excepted Benefits.--For purposes of this part, the
    term `excepted benefits' means benefits under one or more (or
    any combination thereof) of the following:
                ``(1) Benefits not subject to requirements.--
                        ``(A) Coverage only for accident, or
                    disability income insurance, or any combination
                    thereof.
                        ``(B) Coverage issued as a supplement to
                    liability insurance.
                        ``(C) Liability insurance, including
                    general liability insurance and automobile
                    liability insurance.
                        ``(D) Workers' compensation or similar
                    insurance.
                        ``(E) Automobile medical payment insurance.
                        ``(F) Credit-only insurance.
                        ``(G) Coverage for on-site medical clinics.
                        ``(H) Other similar insurance coverage,
                    specified in regulations, under which benefits
                    for medical care are secondary or incidental to
                    other insurance benefits.
                ``(2) Benefits not subject to requirements if
            offered separately.--
                        ``(A) Limited scope dental or vision
                    benefits.
                        ``(B) Benefits for long-term care, nursing
                    home care, home health care, community-based
                    care, or any combination thereof.
                        ``(C) Such other similar, limited benefits
                    as are specified in regulations.
                ``(3) Benefits not subject to requirements if
            offered as independent, noncoordinated benefits.--
                        ``(A) Coverage only for a specified disease
                    or illness.
                        ``(B) Hospital indemnity or other fixed
                    indemnity insurance.
                ``(4) Benefits not subject to requirements if
            offered as separate insurance policy.--Medicare
            supplemental health insurance (as defined under section
            1882(g)(1) of the Social Security Act), coverage
            supplemental to the coverage provided under chapter 55
            of title 10, United States Code, and similar
            supplemental coverage provided to coverage under a
            group health plan.
        ``(d) Other Definitions.--For purposes of this part--
                ``(1) COBRA continuation provision.--The term
            `COBRA continuation provision' means any of the
            following:
                        ``(A) Part 6 of this subtitle.
                        ``(B) Section 4980B of the Internal Revenue
                    Code of 1986, other than subsection (f)(1) of
                    such section insofar as it relates to pediatric
                    vaccines.
                        ``(C) Title XXII of the Public Health
                    Service Act.
                ``(2) Health status-related factor.--The term
            `health status-related factor' means any of the factors
            described in section 702(a)(1).
                ``(3) Network plan.--The term `network plan' means
            health insurance coverage offered by a health insurance
            issuer under which the financing and delivery of
            medical care (including items and services paid for as
            medical care) are provided, in whole or in part,
            through a defined set of providers under contract with
            the issuer.
                ``(4) Placed for adoption.--The term `placement',
            or being `placed', for adoption, has the meaning given
            such term in section 609(c)(3)(B).

    ``SEC. 707. REGULATIONS.

        ``The Secretary, consistent with section 104 of the Health
    Care Portability and Accountability Act of 1996, may promulgate
    such regulations as may be necessary or appropriate to carry
    out the provisions of this part. The Secretary may promulgate
    any interim final rules as the Secretary determines are
    appropriate to carry out this part.''.
        (b) Enforcement with Respect to Health Insurance Issuers.--
    Section 502(b) of such Act (29 U.S.C. 1132(b)) is amended by
    adding at the end the following new paragraph:
        ``(3) The Secretary is not authorized to enforce under this
    part any requirement of part 7 against a health insurance
    issuer offering health insurance coverage in connection with a
    group health plan (as defined in section 706(a)(1)). Nothing in
    this paragraph shall affect the authority of the Secretary to
    issue regulations to carry out such part.''.
         (c) Disclosure of Information to Participants and
    Beneficiaries.--
                (1) In general.--Section 104(b)(1) of such Act (29
            U.S.C. 1024(b)(1)) is amended in the matter following
            subparagraph (B)--
                        (A) by striking ``102(a)(1),'' and
                    inserting ``102(a)(1) (other than a material
                    reduction in covered services or benefits
                    provided in the case of a group health plan (as
                    defined in section 706(a)(1))),''; and
                        (B) by adding at the end the following new
                    sentences: ``If there is a modification or
                    change described in section 102(a)(1) that is a
                    material reduction in covered services or
                    benefits provided under a group health plan (as
                    defined in section 706(a)(1)), a summary
                    description of such modification or change
                    shall be furnished to participants and
                    beneficiaries not later than 60 days after the
                    date of the adoption of the modification or
                    change. In the alternative, the plan sponsors
                    may provide such description at regular
                    intervals of not more than 90 days. The
                    Secretary shall issue regulations within 180
                    days after the date of enactment of the Health
                    Insurance Portability and Accountability Act of
                    1996, providing alternative mechanisms to
                    delivery by mail through which group health
                    plans (as so defined) may notify participants
                    and beneficiaries of material reductions in
                    covered services or benefits.''.
                (2) Plan description and summary.--Section 102(b)
            of such Act (29 U.S.C. 1022(b)) is amended--
                        (A) by inserting ``in the case of a group
                    health plan (as defined in section 706(a)(1)),
                    whether a health insurance issuer (as defined
                    in section 706(b)(2)) is responsible for the
                    financing or administration (including payment
                    of claims) of the plan and (if so) the name and
                    address of such issuer;'' after ``type of
                    administration of the plan;''; and
                        (B) by inserting ``including the office at
                    the Department of Labor through which
                    participants and beneficiaries may seek
                    assistance or information regarding their
                    rights under this Act and the Health Insurance
                    Portability and Accountability Act of 1996 with
                    respect to health benefits that are offered
                    through a group health plan (as defined in
                    section 706(a)(1))'' after ``benefits under the
                    plan''.
        (d) Treatment of Health Insurance Issuers Offering Health
    Insurance Coverage to Noncovered Plans.--Section 4(b) of such
    Act (29 U.S.C. 1003(b)) is amended by adding at the end (after
    and below paragraph (5)) the following:
    ``The provisions of part 7 of subtitle B shall not apply to a
    health insurance issuer (as defined in section 706(b)(2))
    solely by reason of health insurance coverage (as defined in
    section 706(b)(1)) provided by such issuer in connection with a
    group health plan (as defined in section 706(a)(1)) if the
    provisions of this title do not apply to such group health
    plan.''.
        (e) Reporting and Enforcement with Respect to Certain
    Arrangements.--
                (1) In general.--Section 101 of such Act (29 U.S.C.
            1021) is amended--
                        (A) by redesignating subsection (g) as
                    subsection (h), and
                        (B) by inserting after subsection (f) the
                    following new subsection:
        ``(g) Reporting by Certain Arrangements.--The Secretary
    may, by regulation, require multiple employer welfare
    arrangements providing benefits consisting of medical care
    (within the meaning of section 706(a)(2)) which are not group
    health plans to report, not more frequently than annually, in
    such form and such manner as the Secretary may require for the
    purpose of determining the extent to which the requirements of
    part 7 are being carried out in connection with such
    benefits.''.
                (2) Enforcement.--
                        (A) In general.--Section 502 of such Act
                    (29 U.S.C. 1132) is amended--
                                (i) in subsection (a)(6), by
                            striking ``under subsection (c)(2) or
                            (i) or (l)'' and inserting ``under
                            paragraph (2), (4), or (5) of
                            subsection (c) or under subsection (i)
                            or (l)''; and
                                (ii) in the last 2 sentences of
                            subsection (c), by striking ``For
                            purposes of this paragraph'' and all
                            that follows through ``The Secretary
                            and'' and inserting the following:
        ``(5) The Secretary may assess a civil penalty against any
    person of up to $1,000 a day from the date of the person's
    failure or refusal to file the information required to be filed
    by such person with the Secretary under regulations prescribed
    pursuant to section 101(g).
        ``(6) The Secretary and''.
                        (B) Technical and conforming amendment.--
                    Section 502(c)(1) of such Act (29 U.S.C.
                    1132(c)(1)) is amended by adding at the end the
                    following sentence: ``For purposes of this
                    paragraph, each violation described in
                    subparagraph (A) with respect to any single
                    participant, and each violation described in
                    subparagraph (B) with respect to any single
                    participant or beneficiary, shall be treated as
                    a separate violation.''.
                (3) Coordination.--Section 506 of such Act (29
            U.S.C. 1136) is amended by adding at the end the
            following new subsection:
        ``(c) Coordination of Enforcement with States with Respect
    to Certain Arrangements.--A State may enter into an agreement
    with the Secretary for delegation to the State of some or all
    of the Secretary's authority under sections 502 and 504 to
    enforce the requirements under part 7 in connection with
    multiple employer welfare arrangements, providing medical care
    (within the meaning of section 706(a)(2)), which are not group
    health plans.''.
        (f) Conforming Amendments.--
                (1) Section 514(b) of such Act (29 U.S.C. 1144(b))
            is amended by adding at the end the following new
            paragraph:
        ``(9) For additional provisions relating to group health
    plans, see section 704.''.
                (2)(A) Part 6 of subtitle B of title I of such Act
            (29 U.S.C. 1161 et seq.) is amended by striking the
            heading and inserting the following:

      ``Part 6--Continuation Coverage and Additional Standards for Group
                                Health Plans''.

                (B) The table of contents in section 1 of such Act
            is amended by striking the item relating to the heading
            for part 6 of subtitle B of title I and inserting the
            following:

       ``Part 6--Continuation Coverage and Additional Standards for Group
                                 Health Plans''.

                (3) The table of contents in section 1 of such Act
            (as amended by the preceding provisions of this
            section) is amended by inserting after the items
            relating to part 6 the following new items:

       ``Part 7--Group Health Plan Portability, Access, and Renewability
                                  Requirements

    ``Sec. 701. Increased portability through limitation on preexisting
              condition exclusions.
    ``Sec. 702. Prohibiting discrimination against individual participants
              and beneficiaries based on health status.
    ``Sec. 703. Guaranteed renewability in multiemployer plans and multiple
              employer welfare arrangements.
    ``Sec. 704. Preemption; State flexibility; construction.
    ``Sec. 705. Special rules relating to group health plans.
    ``Sec. 706. Definitions.
    ``Sec. 707. Regulations.''.

        (g) Effective Dates.--
                (1) In general.--Except as provided in this
            section, this section (and the amendments made by this
            section) shall apply with respect to group health plans
            for plan years beginning after June 30, 1997.
                (2) Determination of creditable coverage.--
                        (A) Period of coverage.--
                                (i) In general.--Subject to clause
                            (ii), no period before July 1, 1996,
                            shall be taken into account under part
                            7 of subtitle B of title I of the
                            Employee Retirement Income Security Act
                            of 1974 (as added by this section) in
                            determining creditable coverage.
                                (ii) Special rule for certain
                            periods.--The Secretary of Labor,
                            consistent with section 104, shall
                            provide for a process whereby
                            individuals who need to establish
                            creditable coverage for periods before
                            July 1, 1996, and who would have such
                            coverage credited but for clause (i)
                            may be given credit for creditable
                            coverage for such periods through the
                            presentation of documents or other
                            means.
                        (B) Certifications, etc.--
                                (i) In general.--Subject to clauses
                            (ii) and (iii), subsection (e) of
                            section 701 of the Employee Retirement
                            Income Security Act of 1974 (as added
                            by this section) shall apply to events
                            occurring after June 30, 1996.
                                (ii) No certification required to
                            be provided before june 1, 1997.--In no
                            case is a certification required to be
                            provided under such subsection before
                            June 1, 1997.
                                (iii) Certification only on written
                            request for events occurring before
                            october 1, 1996.--In the case of an
                            event occurring after June 30, 1996,
                            and before October 1, 1996, a
                            certification is not required to be
                            provided under such subsection unless
                            an individual (with respect to whom the
                            certification is otherwise required to
                            be made) requests such certification in
                            writing.
                        (C) Transitional rule.--In the case of an
                    individual who seeks to establish creditable
                    coverage for any period for which certification
                    is not required because it relates to an event
                    occurring before June 30, 1996--
                                (i) the individual may present
                            other credible evidence of such
                            coverage in order to establish the
                            period of creditable coverage; and
                                (ii) a group health plan and a
                            health insurance issuer shall not be
                            subject to any penalty or enforcement
                            action with respect to the plan's or
                            issuer's crediting (or not crediting)
                            such coverage if the plan or issuer has
                            sought to comply in good faith with the
                            applicable requirements under the
                            amendments made by this section.
                (3) Special rule for collective bargaining
            agreements.--Except as provided in paragraph (2), in
            the case of a group health plan maintained pursuant to
            1 or more collective bargaining agreements between
            employee representatives and one or more employers
            ratified before the date of the enactment of this Act,
            part 7 of subtitle B of title I of Employee Retirement
            Income Security Act of 1974 (other than section 701(e)
            thereof) shall not apply to plan years beginning before
            the later of--
                        (A) the date on which the last of the
                    collective bargaining agreements relating to
                    the plan terminates (determined without regard
                    to any extension thereof agreed to after the
                    date of the enactment of this Act), or
                        (B) July 1, 1997.
            For purposes of subparagraph (A), any plan amendment
            made pursuant to a collective bargaining agreement
            relating to the plan which amends the plan solely to
            conform to any requirement of such part shall not be
            treated as a termination of such collective bargaining
            agreement.
                (4) Timely regulations.--The Secretary of Labor,
            consistent with section 104, shall first issue by not
            later than April 1, 1997, such regulations as may be
            necessary to carry out the amendments made by this
            section.
                (5) Limitation on actions.--No enforcement action
            shall be taken, pursuant to the amendments made by this
            section, against a group health plan or health
            insurance issuer with respect to a violation of a
            requirement imposed by such amendments before January
            1, 1998, or, if later, the date of issuance of
            regulations referred to in paragraph (4), if the plan
            or issuer has sought to comply in good faith with such
            requirements.

    SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.

        (a) In General.--The Public Health Service Act is amended
    by adding at the end the following new title:

    ``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
                           HEALTH INSURANCE COVERAGE

                         ``Part A--Group Market Reforms

        ``Subpart 1--Portability, Access, and Renewability Requirements

    ``SEC. 2701. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
                        CONDITION EXCLUSIONS.

        ``(a) Limitation on Preexisting Condition Exclusion Period;
    Crediting for Periods of Previous Coverage.--Subject to
    subsection (d), a group health plan, and a health insurance
    issuer offering group health insurance coverage, may, with
    respect to a participant or beneficiary, impose a preexisting
    condition exclusion only if--
                ``(1) such exclusion relates to a condition
            (whether physical or mental), regardless of the cause
            of the condition, for which medical advice, diagnosis,
            care, or treatment was recommended or received within
            the 6-month period ending on the enrollment date;
                ``(2) such exclusion extends for a period of not
            more than 12 months (or 18 months in the case of a late
            enrollee) after the enrollment date; and
                ``(3) the period of any such preexisting condition
            exclusion is reduced by the aggregate of the periods of
            creditable coverage (if any, as defined in subsection
            (c)(1)) applicable to the participant or beneficiary as
            of the enrollment date.
        ``(b) Definitions.--For purposes of this part--
                ``(1) Preexisting condition exclusion.--
                        ``(A) In general.--The term `preexisting
                    condition exclusion' means, with respect to
                    coverage, a limitation or exclusion of benefits
                    relating to a condition based on the fact that
                    the condition was present before the date of
                    enrollment for such coverage, whether or not
                    any medical advice, diagnosis, care, or
                    treatment was recommended or received before
                    such date.
                        ``(B) Treatment of genetic information.--
                    Genetic information shall not be treated as a
                    condition described in subsection (a)(1) in the
                    absence of a diagnosis of the condition related
                    to such information.
                ``(2) Enrollment date.--The term `enrollment date'
            means, with respect to an individual covered under a
            group health plan or health insurance coverage, the
            date of enrollment of the individual in the plan or
            coverage or, if earlier, the first day of the waiting
            period for such enrollment.
                ``(3) Late enrollee.--The term `late enrollee'
            means, with respect to coverage under a group health
            plan, a participant or beneficiary who enrolls under
            the plan other than during--
                        ``(A) the first period in which the
                    individual is eligible to enroll under the
                    plan, or
                        ``(B) a special enrollment period under
                    subsection (f).
                ``(4) Waiting period.--The term `waiting period'
            means, with respect to a group health plan and an
            individual who is a potential participant or
            beneficiary in the plan, the period that must pass with
            respect to the individual before the individual is
            eligible to be covered for benefits under the terms of
            the plan.
        ``(c) Rules Relating to Crediting Previous Coverage.--
                ``(1) Creditable coverage defined.--For purposes of
            this title, the term `creditable coverage' means, with
            respect to an individual, coverage of the individual
            under any of the following:
                        ``(A) A group health plan.
                        ``(B) Health insurance coverage.
                        ``(C) Part A or part B of title XVIII of
                    the Social Security Act.
                        ``(D) Title XIX of the Social Security Act,
                    other than coverage consisting solely of
                    benefits under section 1928.
                        ``(E) Chapter 55 of title 10, United States
                    Code.
                        ``(F) A medical care program of the Indian
                    Health Service or of a tribal organization.
                        ``(G) A State health benefits risk pool.
                        ``(H) A health plan offered under chapter
                    89 of title 5, United States Code.
                        ``(I) A public health plan (as defined in
                    regulations).
                        ``(J) A health benefit plan under section
                    5(e) of the Peace Corps Act (22 U.S.C.
                    2504(e)).
            Such term does not include coverage consisting solely
            of coverage of excepted benefits (as defined in section
            2791(c)).
                ``(2) Not counting periods before significant
            breaks in coverage.--
                        ``(A) In general.--A period of creditable
                    coverage shall not be counted, with respect to
                    enrollment of an individual under a group
                    health plan, if, after such period and before
                    the enrollment date, there was a 63-day period
                    during all of which the individual was not
                    covered under any creditable coverage.
                        ``(B) Waiting period not treated as a break
                    in coverage.--For purposes of subparagraph (A)
                    and subsection (d)(4), any period that an
                    individual is in a waiting period for any
                    coverage under a group health plan (or for
                    group health insurance coverage) or is in an
                    affiliation period (as defined in subsection
                    (g)(2)) shall not be taken into account in
                    determining the continuous period under
                    subparagraph (A).
                ``(3) Method of crediting coverage.--
                        ``(A) Standard method.--Except as otherwise
                    provided under subparagraph (B), for purposes
                    of applying subsection (a)(3), a group health
                    plan, and a health insurance issuer offering
                    group health insurance coverage, shall count a
                    period of creditable coverage without regard to
                    the specific benefits covered during the
                    period.
                        ``(B) Election of alternative method.--A
                    group health plan, or a health insurance issuer
                    offering group health insurance, may elect to
                    apply subsection (a)(3) based on coverage of
                    benefits within each of several classes or
                    categories of benefits specified in regulations
                    rather than as provided under subparagraph (A).
                    Such election shall be made on a uniform basis
                    for all participants and beneficiaries. Under
                    such election a group health plan or issuer
                    shall count a period of creditable coverage
                    with respect to any class or category of
                    benefits if any level of benefits is covered
                    within such class or category.
                        ``(C) Plan notice.--In the case of an
                    election with respect to a group health plan
                    under subparagraph (B) (whether or not health
                    insurance coverage is provided in connection
                    with such plan), the plan shall--
                                ``(i) prominently state in any
                            disclosure statements concerning the
                            plan, and state to each enrollee at the
                            time of enrollment under the plan, that
                            the plan has made such election, and
                                ``(ii) include in such statements a
                            description of the effect of this
                            election.
                        ``(D) Issuer notice.--In the case of an
                    election under subparagraph (B) with respect to
                    health insurance coverage offered by an issuer
                    in the small or large group market, the
                    issuer--
                                ``(i) shall prominently state in
                            any disclosure statements concerning
                            the coverage, and to each employer at
                            the time of the offer or sale of the
                            coverage, that the issuer has made such
                            election, and
                                ``(ii) shall include in such
                            statements a description of the effect
                            of such election.
                ``(4) Establishment of period.--Periods of
            creditable coverage with respect to an individual shall
            be established through presentation of certifications
            described in subsection (e) or in such other manner as
            may be specified in regulations.
        ``(d) Exceptions.--
                ``(1) Exclusion not applicable to certain
            newborns.--Subject to paragraph (4), a group health
            plan, and a health insurance issuer offering group
            health insurance coverage, may not impose any
            preexisting condition exclusion in the case of an
            individual who, as of the last day of the 30-day period
            beginning with the date of birth, is covered under
            creditable coverage.
                ``(2) Exclusion not applicable to certain adopted
            children.--Subject to paragraph (4), a group health
            plan, and a health insurance issuer offering group
            health insurance coverage, may not impose any
            preexisting condition exclusion in the case of a child
            who is adopted or placed for adoption before attaining
            18 years of age and who, as of the last day of the 30-
            day period beginning on the date of the adoption or
            placement for adoption, is covered under creditable
            coverage. The previous sentence shall not apply to
            coverage before the date of such adoption or placement
            for adoption.
                ``(3) Exclusion not applicable to pregnancy.--A
            group health plan, and health insurance issuer offering
            group health insurance coverage, may not impose any
            preexisting condition exclusion relating to pregnancy
            as a preexisting condition.
                ``(4) Loss if break in coverage.--Paragraphs (1)
            and (2) shall no longer apply to an individual after
            the end of the first 63-day period during all of which
            the individual was not covered under any creditable
            coverage.
        ``(e) Certifications and Disclosure of Coverage.--
                ``(1) Requirement for certification of period of
            creditable coverage.--
                        ``(A) In general.--A group health plan, and
                    a health insurance issuer offering group health
                    insurance coverage, shall provide the
                    certification described in subparagraph (B)--
                                ``(i) at the time an individual
                            ceases to be covered under the plan or
                            otherwise becomes covered under a COBRA
                            continuation provision,
                                ``(ii) in the case of an individual
                            becoming covered under such a
                            provision, at the time the individual
                            ceases to be covered under such
                            provision, and
                                ``(iii) on the request on behalf of
                            an individual made not later than 24
                            months after the date of cessation of
                            the coverage described in clause (i) or
                            (ii), whichever is later.

                    The certification under clause (i) may be
                    provided, to the extent practicable, at a time
                    consistent with notices required under any
                    applicable COBRA continuation provision.
                        ``(B) Certification.--The certification
                    described in this subparagraph is a written
                    certification of--
                                ``(i) the period of creditable
                            coverage of the individual under such
                            plan and the coverage (if any) under
                            such COBRA continuation provision, and
                                ``(ii) the waiting period (if any)
                            (and affiliation period, if applicable)
                            imposed with respect to the individual
                            for any coverage under such plan.
                        ``(C) Issuer compliance.--To the extent
                    that medical care under a group health plan
                    consists of group health insurance coverage,
                    the plan is deemed to have satisfied the
                    certification requirement under this paragraph
                    if the health insurance issuer offering the
                    coverage provides for such certification in
                    accordance with this paragraph.
                ``(2) Disclosure of information on previous
            benefits.--In the case of an election described in
            subsection (c)(3)(B) by a group health plan or health
            insurance issuer, if the plan or issuer enrolls an
            individual for coverage under the plan and the
            individual provides a certification of coverage of the
            individual under paragraph (1)--
                        ``(A) upon request of such plan or issuer,
                    the entity which issued the certification
                    provided by the individual shall promptly
                    disclose to such requesting plan or issuer
                    information on coverage of classes and
                    categories of health benefits available under
                    such entity's plan or coverage, and
                        ``(B) such entity may charge the requesting
                    plan or issuer for the reasonable cost of
                    disclosing such information.
                ``(3) Regulations.--The Secretary shall establish
            rules to prevent an entity's failure to provide
            information under paragraph (1) or (2) with respect to
            previous coverage of an individual from adversely
            affecting any subsequent coverage of the individual
            under another group health plan or health insurance
            coverage.
        ``(f) Special Enrollment Periods.--
                ``(1) Individuals losing other coverage.--A group
            health plan, and a health insurance issuer offering
            group health insurance coverage in connection with a
            group health plan, shall permit an employee who is
            eligible, but not enrolled, for coverage under the
            terms of the plan (or a dependent of such an employee
            if the dependent is eligible, but not enrolled, for
            coverage under such terms) to enroll for coverage under
            the terms of the plan if each of the following
            conditions is met:
                        ``(A) The employee or dependent was covered
                    under a group health plan or had health
                    insurance coverage at the time coverage was
                    previously offered to the employee or
                    dependent.
                        ``(B) The employee stated in writing at
                    such time that coverage under a group health
                    plan or health insurance coverage was the
                    reason for declining enrollment, but only if
                    the plan sponsor or issuer (if applicable)
                    required such a statement at such time and
                    provided the employee with notice of such
                    requirement (and the consequences of such
                    requirement) at such time.
                        ``(C) The employee's or dependent's
                    coverage described in subparagraph (A)--
                                ``(i) was under a COBRA
                            continuation provision and the coverage
                            under such provision was exhausted; or
                                ``(ii) was not under such a
                            provision and either the coverage was
                            terminated as a result of loss of
                            eligibility for the coverage (including
                            as a result of legal separation,
                            divorce, death, termination of
                            employment, or reduction in the number
                            of hours of employment) or employer
                            contributions towards such coverage
                            were terminated.
                        ``(D) Under the terms of the plan, the
                    employee requests such enrollment not later
                    than 30 days after the date of exhaustion of
                    coverage described in subparagraph (C)(i) or
                    termination of coverage or employer
                    contribution described in subparagraph (C)(ii).
                ``(2) For dependent beneficiaries.--
                        ``(A) In general.--If--
                                ``(i) a group health plan makes
                            coverage available with respect to a
                            dependent of an individual,
                                ``(ii) the individual is a
                            participant under the plan (or has met
                            any waiting period applicable to
                            becoming a participant under the plan
                            and is eligible to be enrolled under
                            the plan but for a failure to enroll
                            during a previous enrollment period),
                            and
                                ``(iii) a person becomes such a
                            dependent of the individual through
                            marriage, birth, or adoption or
                            placement for adoption,

                    the group health plan shall provide for a
                    dependent special enrollment period described
                    in subparagraph (B) during which the person
                    (or, if not otherwise enrolled, the individual)
                    may be enrolled under the plan as a dependent
                    of the individual, and in the case of the birth
                    or adoption of a child, the spouse of the
                    individual may be enrolled as a dependent of
                    the individual if such spouse is otherwise
                    eligible for coverage.
                        ``(B) Dependent special enrollment
                    period.--A dependent special enrollment period
                    under this subparagraph shall be a period of
                    not less than 30 days and shall begin on the
                    later of--
                                ``(i) the date dependent coverage
                            is made available, or
                                ``(ii) the date of the marriage,
                            birth, or adoption or placement for
                            adoption (as the case may be) described
                            in subparagraph (A)(iii).
                        ``(C) No waiting period.--If an individual
                    seeks to enroll a dependent during the first 30
                    days of such a dependent special enrollment
                    period, the coverage of the dependent shall
                    become effective--
                                ``(i) in the case of marriage, not
                            later than the first day of the first
                            month beginning after the date the
                            completed request for enrollment is
                            received;
                                ``(ii) in the case of a dependent's
                            birth, as of the date of such birth; or
                                ``(iii) in the case of a
                            dependent's adoption or placement for
                            adoption, the date of such adoption or
                            placement for adoption.
        ``(g) Use of Affiliation Period by HMOs as Alternative to
    Preexisting Condition Exclusion.--
                ``(1) In general.--A health maintenance
            organization which offers health insurance coverage in
            connection with a group health plan and which does not
            impose any preexisting condition exclusion allowed
            under subsection (a) with respect to any particular
            coverage option may impose an affiliation period for
            such coverage option, but only if--
                        ``(A) such period is applied uniformly
                    without regard to any health status-related
                    factors; and
                        ``(B) such period does not exceed 2 months
                    (or 3 months in the case of a late enrollee).
                ``(2) Affiliation period.--
                        ``(A) Defined.--For purposes of this title,
                    the term `affiliation period' means a period
                    which, under the terms of the health insurance
                    coverage offered by the health maintenance
                    organization, must expire before the health
                    insurance coverage becomes effective. The
                    organization is not required to provide health
                    care services or benefits during such period
                    and no premium shall be charged to the
                    participant or beneficiary for any coverage
                    during the period.
                        ``(B) Beginning.--Such period shall begin
                    on the enrollment date.
                        ``(C) Runs concurrently with waiting
                    periods.--An affiliation period under a plan
                    shall run concurrently with any waiting period
                    under the plan.
                ``(3) Alternative methods.--A health maintenance
            organization described in paragraph (1) may use
            alternative methods, from those described in such
            paragraph, to address adverse selection as approved by
            the State insurance commissioner or official or
            officials designated by the State to enforce the
            requirements of this part for the State involved with
            respect to such issuer.

    ``SEC. 2702. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
                        AND BENEFICIARIES BASED ON HEALTH STATUS.

        ``(a) In Eligibility to Enroll.--
                ``(1) In general.--Subject to paragraph (2), a
            group health plan, and a health insurance issuer
            offering group health insurance coverage in connection
            with a group health plan, may not establish rules for
            eligibility (including continued eligibility) of any
            individual to enroll under the terms of the plan based
            on any of the following health status-related factors
            in relation to the individual or a dependent of the
            individual:
                        ``(A) Health status.
                        ``(B) Medical condition (including both
                    physical and mental illnesses).
                        ``(C) Claims experience.
                        ``(D) Receipt of health care.
                        ``(E) Medical history.
                        ``(F) Genetic information.
                        ``(G) Evidence of insurability (including
                    conditions arising out of acts of domestic
                    violence).
                        ``(H) Disability.
                ``(2) No application to benefits or exclusions.--To
            the extent consistent with section 701, paragraph (1)
            shall not be construed--
                        ``(A) to require a group health plan, or
                    group health insurance coverage, to provide
                    particular benefits other than those provided
                    under the terms of such plan or coverage, or
                        ``(B) to prevent such a plan or coverage
                    from establishing limitations or restrictions
                    on the amount, level, extent, or nature of the
                    benefits or coverage for similarly situated
                    individuals enrolled in the plan or coverage.
                ``(3) Construction.--For purposes of paragraph (1),
            rules for eligibility to enroll under a plan include
            rules defining any applicable waiting periods for such
            enrollment.
        ``(b) In Premium Contributions.--
                ``(1) In general.--A group health plan, and a
            health insurance issuer offering health insurance
            coverage in connection with a group health plan, may
            not require any individual (as a condition of
            enrollment or continued enrollment under the plan) to
            pay a premium or contribution which is greater than
            such premium or contribution for a similarly situated
            individual enrolled in the plan on the basis of any
            health status-related factor in relation to the
            individual or to an individual enrolled under the plan
            as a dependent of the individual.
                ``(2) Construction.--Nothing in paragraph (1) shall
            be construed--
                        ``(A) to restrict the amount that an
                    employer may be charged for coverage under a
                    group health plan; or
                        ``(B) to prevent a group health plan, and a
                    health insurance issuer offering group health
                    insurance coverage, from establishing premium
                    discounts or rebates or modifying otherwise
                    applicable copayments or deductibles in return
                    for adherence to programs of health promotion
                    and disease prevention.

      ``Subpart 2--Provisions Applicable Only to Health Insurance Issuers

    ``SEC. 2711. GUARANTEED AVAILABILITY OF COVERAGE FOR EMPLOYERS IN THE
                        GROUP MARKET.

        ``(a) Issuance of Coverage in the Small Group Market.--
                ``(1) In general.--Subject to subsections (c)
            through (f), each health insurance issuer that offers
            health insurance coverage in the small group market in
            a State--
                        ``(A) must accept every small employer (as
                    defined in section 2791(e)(4)) in the State
                    that applies for such coverage; and
                        ``(B) must accept for enrollment under such
                    coverage every eligible individual (as defined
                    in paragraph (2)) who applies for enrollment
                    during the period in which the individual first
                    becomes eligible to enroll under the terms of
                    the group health plan and may not place any
                    restriction which is inconsistent with section
                    2702 on an eligible individual being a
                    participant or beneficiary.
                ``(2) Eligible individual defined.--For purposes of
            this section, the term `eligible individual' means,
            with respect to a health insurance issuer that offers
            health insurance coverage to a small employer in
            connection with a group health plan in the small group
            market, such an individual in relation to the employer
            as shall be determined--
                        ``(A) in accordance with the terms of such
                    plan,
                        ``(B) as provided by the issuer under rules
                    of the issuer which are uniformly applicable in
                    a State to small employers in the small group
                    market, and
                        ``(C) in accordance with all applicable
                    State laws governing such issuer and such
                    market.
        ``(b) Assuring Access in the Large Group Market.--
                ``(1) Reports to hhs.--The Secretary shall request
            that the chief executive officer of each State submit
            to the Secretary, by not later December 31, 2000, and
            every 3 years thereafter a report on--
                        ``(A) the access of large employers to
                    health insurance coverage in the State, and
                        ``(B) the circumstances for lack of access
                    (if any) of large employers (or one or more
                    classes of such employers) in the State to such
                    coverage.
                ``(2) Triennial reports to congress.--The
            Secretary, based on the reports submitted under
            paragraph (1) and such other information as the
            Secretary may use, shall prepare and submit to
            Congress, every 3 years, a report describing the extent
            to which large employers (and classes of such
            employers) that seek health insurance coverage in the
            different States are able to obtain access to such
            coverage. Such report shall include such
            recommendations as the Secretary determines to be
            appropriate.
                ``(3) GAO report on large employer access to health
            insurance coverage.--The Comptroller General shall
            provide for a study of the extent to which classes of
            large employers in the different States are able to
            obtain access to health insurance coverage and the
            circumstances for lack of access (if any) to such
            coverage. The Comptroller General shall submit to
            Congress a report on such study not later than 18
            months after the date of the enactment of this title.
        ``(c) Special Rules for Network Plans.--
                ``(1) In general.--In the case of a health
            insurance issuer that offers health insurance coverage
            in the small group market through a network plan, the
            issuer may--
                        ``(A) limit the employers that may apply
                    for such coverage to those with eligible
                    individuals who live, work, or reside in the
                    service area for such network plan; and
                        ``(B) within the service area of such plan,
                    deny such coverage to such employers if the
                    issuer has demonstrated, if required, to the
                    applicable State authority that--
                                ``(i) it will not have the capacity
                            to deliver services adequately to
                            enrollees of any additional groups
                            because of its obligations to existing
                            group contract holders and enrollees,
                            and
                                ``(ii) it is applying this
                            paragraph uniformly to all employers
                            without regard to the claims experience
                            of those employers and their employees
                            (and their dependents) or any health
                            status-related factor relating to such
                            employees and dependents.
                ``(2) 180-day suspension upon denial of coverage.--
            An issuer, upon denying health insurance coverage in
            any service area in accordance with paragraph (1)(B),
            may not offer coverage in the small group market within
            such service area for a period of 180 days after the
            date such coverage is denied.
        ``(d) Application of Financial Capacity Limits.--
                ``(1) In general.--A health insurance issuer may
            deny health insurance coverage in the small group
            market if the issuer has demonstrated, if required, to
            the applicable State authority that--
                        ``(A) it does not have the financial
                    reserves necessary to underwrite additional
                    coverage; and
                        ``(B) it is applying this paragraph
                    uniformly to all employers in the small group
                    market in the State consistent with applicable
                    State law and without regard to the claims
                    experience of those employers and their
                    employees (and their dependents) or any health
                    status-related factor relating to such
                    employees and dependents.
                ``(2) 180-day suspension upon denial of coverage.--
            A health insurance issuer upon denying health insurance
            coverage in connection with group health plans in
            accordance with paragraph (1) in a State may not offer
            coverage in connection with group health plans in the
            small group market in the State for a period of 180
            days after the date such coverage is denied or until
            the issuer has demonstrated to the applicable State
            authority, if required under applicable State law, that
            the issuer has sufficient financial reserves to
            underwrite additional coverage, whichever is later. An
            applicable State authority may provide for the
            application of this subsection on a service-area-
            specific basis.
        ``(e) Exception to Requirement for Failure To Meet Certain
    Minimum Participation or Contribution Rules.--
                ``(1) In general.--Subsection (a) shall not be
            construed to preclude a health insurance issuer from
            establishing employer contribution rules or group
            participation rules for the offering of health
            insurance coverage in connection with a group health
            plan in the small group market, as allowed under
            applicable State law.
                ``(2) Rules defined.--For purposes of paragraph
            (1)--
                        ``(A) the term `employer contribution rule'
                    means a requirement relating to the minimum
                    level or amount of employer contribution toward
                    the premium for enrollment of participants and
                    beneficiaries; and
                        ``(B) the term `group participation rule'
                    means a requirement relating to the minimum
                    number of participants or beneficiaries that
                    must be enrolled in relation to a specified
                    percentage or number of eligible individuals or
                    employees of an employer.
        ``(f) Exception for Coverage Offered Only to Bona Fide
    Association Members.--Subsection (a) shall not apply to health
    insurance coverage offered by a health insurance issuer if such
    coverage is made available in the small group market only
    through one or more bona fide associations (as defined in
    section 2791(d)(3)).

    ``SEC. 2712. GUARANTEED RENEWABILITY OF COVERAGE FOR EMPLOYERS IN THE
                        GROUP MARKET.

        ``(a) In General.--Except as provided in this section, if a
    health insurance issuer offers health insurance coverage in the
    small or large group market in connection with a group health
    plan, the issuer must renew or continue in force such coverage
    at the option of the plan sponsor of the plan.
        ``(b) General Exceptions.--A health insurance issuer may
    nonrenew or discontinue health insurance coverage offered in
    connection with a group health plan in the small or large group
    market based only on one or more of the following:
                ``(1) Nonpayment of premiums.--The plan sponsor has
            failed to pay premiums or contributions in accordance
            with the terms of the health insurance coverage or the
            issuer has not received timely premium payments.
                ``(2) Fraud.--The plan sponsor has performed an act
            or practice that constitutes fraud or made an
            intentional misrepresentation of material fact under
            the terms of the coverage.
                ``(3) Violation of participation or contribution
            rules.--The plan sponsor has failed to comply with a
            material plan provision relating to employer
            contribution or group participation rules, as permitted
            under section 2711(e) in the case of the small group
            market or pursuant to applicable State law in the case
            of the large group market.
                ``(4) Termination of coverage.--The issuer is
            ceasing to offer coverage in such market in accordance
            with subsection (c) and applicable State law.
                ``(5) Movement outside service area.--In the case
            of a health insurance issuer that offers health
            insurance coverage in the market through a network
            plan, there is no longer any enrollee in connection
            with such plan who lives, resides, or works in the
            service area of the issuer (or in the area for which
            the issuer is authorized to do business) and, in the
            case of the small group market, the issuer would deny
            enrollment with respect to such plan under section
            2711(c)(1)(A).
                ``(6) Association membership ceases.--In the case
            of health insurance coverage that is made available in
            the small or large group market (as the case may be)
            only through one or more bona fide associations, the
            membership of an employer in the association (on the
            basis of which the coverage is provided) ceases but
            only if such coverage is terminated under this
            paragraph uniformly without regard to any health
            status-related factor relating to any covered
            individual.
        ``(c) Requirements for Uniform Termination of Coverage.--
                ``(1) Particular type of coverage not offered.--In
            any case in which an issuer decides to discontinue
            offering a particular type of group health insurance
            coverage offered in the small or large group market,
            coverage of such type may be discontinued by the issuer
            in accordance with applicable State law in such market
            only if--
                        ``(A) the issuer provides notice to each
                    plan sponsor provided coverage of this type in
                    such market (and participants and beneficiaries
                    covered under such coverage) of such
                    discontinuation at least 90 days prior to the
                    date of the discontinuation of such coverage;
                        ``(B) the issuer offers to each plan
                    sponsor provided coverage of this type in such
                    market, the option to purchase all (or, in the
                    case of the large group market, any) other
                    health insurance coverage currently being
                    offered by the issuer to a group health plan in
                    such market; and
                        ``(C) in exercising the option to
                    discontinue coverage of this type and in
                    offering the option of coverage under
                    subparagraph (B), the issuer acts uniformly
                    without regard to the claims experience of
                    those sponsors or any health status-related
                    factor relating to any participants or
                    beneficiaries covered or new participants or
                    beneficiaries who may become eligible for such
                    coverage.
                ``(2) Discontinuance of all coverage.--
                        ``(A) In general.--In any case in which a
                    health insurance issuer elects to discontinue
                    offering all health insurance coverage in the
                    small group market or the large group market,
                    or both markets, in a State, health insurance
                    coverage may be discontinued by the issuer only
                    in accordance with applicable State law and
                    if--
                                ``(i) the issuer provides notice to
                            the applicable State authority and to
                            each plan sponsor (and participants and
                            beneficiaries covered under such
                            coverage) of such discontinuation at
                            least 180 days prior to the date of the
                            discontinuation of such coverage; and
                                ``(ii) all health insurance issued
                            or delivered for issuance in the State
                            in such market (or markets) are
                            discontinued and coverage under such
                            health insurance coverage in such
                            market (or markets) is not renewed.
                        ``(B) Prohibition on market reentry.--In
                    the case of a discontinuation under
                    subparagraph (A) in a market, the issuer may
                    not provide for the issuance of any health
                    insurance coverage in the market and State
                    involved during the 5-year period beginning on
                    the date of the discontinuation of the last
                    health insurance coverage not so renewed.
        ``(d) Exception for Uniform Modification of Coverage.--At
    the time of coverage renewal, a health insurance issuer may
    modify the health insurance coverage for a product offered to a
    group health plan--
                ``(1) in the large group market; or
                ``(2) in the small group market if, for coverage
            that is available in such market other than only
            through one or more bona fide associations, such
            modification is consistent with State law and effective
            on a uniform basis among group health plans with that
            product.
        ``(e) Application to Coverage Offered Only Through
    Associations.--In applying this section in the case of health
    insurance coverage that is made available by a health insurance
    issuer in the small or large group market to employers only
    through one or more associations, a reference to `plan sponsor'
    is deemed, with respect to coverage provided to an employer
    member of the association, to include a reference to such
    employer.

    ``SEC. 2713. DISCLOSURE OF INFORMATION.

        ``(a) Disclosure of Information by Health Plan Issuers.--In
    connection with the offering of any health insurance coverage
    to a small employer, a health insurance issuer--
                ``(1) shall make a reasonable disclosure to such
            employer, as part of its solicitation and sales
            materials, of the availability of information described
            in subsection (b), and
                ``(2) upon request of such a small employer,
            provide such information.
        ``(b) Information Described.--
                ``(1) In general.--Subject to paragraph (3), with
            respect to a health insurance issuer offering health
            insurance coverage to a small employer, information
            described in this subsection is information
            concerning--
                        ``(A) the provisions of such coverage
                    concerning issuer's right to change premium
                    rates and the factors that may affect changes
                    in premium rates;
                        ``(B) the provisions of such coverage
                    relating to renewability of coverage;
                        ``(C) the provisions of such coverage
                    relating to any preexisting condition
                    exclusion; and
                        ``(D) the benefits and premiums available
                    under all health insurance coverage for which
                    the employer is qualified.
                ``(2) Form of information.--Information under this
            subsection shall be provided to small employers in a
            manner determined to be understandable by the average
            small employer, and shall be sufficient to reasonably
            inform small employers of their rights and obligations
            under the health insurance coverage.
                ``(3) Exception.--An issuer is not required under
            this section to disclose any information that is
            proprietary and trade secret information under
            applicable law.

            ``Subpart 3--Exclusion of Plans; Enforcement; Preemption

    ``SEC. 2721. EXCLUSION OF CERTAIN PLANS.

        ``(a) Exception for Certain Small Group Health Plans.--The
    requirements of subparts 1 and 2 shall not apply to any group
    health plan (and health insurance coverage offered in
    connection with a group health plan) for any plan year if, on
    the first day of such plan year, such plan has less than 2
    participants who are current employees.
        ``(b) Limitation on Application of Provisions Relating to
    Group Health Plans.--
                ``(1) In general.--The requirements of subparts 1
            and 2 shall apply with respect to group health plans
            only--
                        ``(A) subject to paragraph (2), in the case
                    of a plan that is a nonfederal governmental
                    plan, and
                        ``(B) with respect to health insurance
                    coverage offered in connection with a group
                    health plan (including such a plan that is a
                    church plan or a governmental plan).
                ``(2) Treatment of nonfederal governmental plans.--
                        ``(A) Election to be excluded.--If the plan
                    sponsor of a nonfederal governmental plan which
                    is a group health plan to which the provisions
                    of subparts 1 and 2 otherwise apply makes an
                    election under this subparagraph (in such form
                    and manner as the Secretary may by regulations
                    prescribe), then the requirements of such
                    subparts insofar as they apply directly to
                    group health plans (and not merely to group
                    health insurance coverage) shall not apply to
                    such governmental plans for such period except
                    as provided in this paragraph.
                        ``(B) Period of election.--An election
                    under subparagraph (A) shall apply--
                                ``(i) for a single specified plan
                            year, or
                                ``(ii) in the case of a plan
                            provided pursuant to a collective
                            bargaining agreement, for the term of
                            such agreement.
                    An election under clause (i) may be extended
                    through subsequent elections under this
                    paragraph.
                        ``(C) Notice to enrollees.--Under such an
                    election, the plan shall provide for--
                                ``(i) notice to enrollees (on an
                            annual basis and at the time of
                            enrollment under the plan) of the fact
                            and consequences of such election, and
                                ``(ii) certification and disclosure
                            of creditable coverage under the plan
                            with respect to enrollees in accordance
                            with section 2701(e).
        ``(c) Exception for Certain Benefits.--The requirements of
    subparts 1 and 2 shall not apply to any group health plan (or
    group health insurance coverage) in relation to its provision
    of excepted benefits described in section 2791(c)(1).
        ``(d) Exception for Certain Benefits If Certain Conditions
    Met.--
                ``(1) Limited, excepted benefits.--The requirements
            of subparts 1 and 2 shall not apply to any group health
            plan (and group health insurance coverage offered in
            connection with a group health plan) in relation to its
            provision of excepted benefits described in section
            2791(c)(2) if the benefits--
                        ``(A) are provided under a separate policy,
                    certificate, or contract of insurance; or
                        ``(B) are otherwise not an integral part of
                    the plan.
                ``(2) Noncoordinated, excepted benefits.--The
            requirements of subparts 1 and 2 shall not apply to any
            group health plan (and group health insurance coverage
            offered in connection with a group health plan) in
            relation to its provision of excepted benefits
            described in section 2791(c)(3) if all of the following
            conditions are met:
                        ``(A) The benefits are provided under a
                    separate policy, certificate, or contract of
                    insurance.
                        ``(B) There is no coordination between the
                    provision of such benefits and any exclusion of
                    benefits under any group health plan maintained
                    by the same plan sponsor.
                        ``(C) Such benefits are paid with respect
                    to an event without regard to whether benefits
                    are provided with respect to such an event
                    under any group health plan maintained by the
                    same plan sponsor.
                ``(3) Supplemental excepted benefits.--The
            requirements of this part shall not apply to any group
            health plan (and group health insurance coverage) in
            relation to its provision of excepted benefits
            described in section 27971(c)(4) if the benefits are
            provided under a separate policy, certificate, or
            contract of insurance.
        ``(e) Treatment of Partnerships.--For purposes of this
    part--
                ``(1) Treatment as a group health plan.--Any plan,
            fund, or program which would not be (but for this
            subsection) an employee welfare benefit plan and which
            is established or maintained by a partnership, to the
            extent that such plan, fund, or program provides
            medical care (including items and services paid for as
            medical care) to present or former partners in the
            partnership or to their dependents (as defined under
            the terms of the plan, fund, or program), directly or
            through insurance, reimbursement, or otherwise, shall
            be treated (subject to paragraph (2)) as an employee
            welfare benefit plan which is a group health plan.
                ``(2) Employer.--In the case of a group health
            plan, the term `employer' also includes the partnership
            in relation to any partner.
                ``(3) Participants of group health plans.--In the
            case of a group health plan, the term `participant'
            also includes--
                        ``(A) in connection with a group health
                    plan maintained by a partnership, an individual
                    who is a partner in relation to the
                    partnership, or
                        ``(B) in connection with a group health
                    plan maintained by a self-employed individual
                    (under which one or more employees are
                    participants), the self-employed individual,

            if such individual is, or may become, eligible to
            receive a benefit under the plan or such individual's
            beneficiaries may be eligible to receive any such
            benefit.

    ``SEC. 2722. ENFORCEMENT.

        ``(a) State Enforcement.--
                ``(1) State authority.--Subject to section 2723,
            each State may require that health insurance issuers
            that issue, sell, renew, or offer health insurance
            coverage in the State in the small or large group
            markets meet the requirements of this part with respect
            to such issuers.
                ``(2) Failure to implement provisions.--In the case
            of a determination by the Secretary that a State has
            failed to substantially enforce a provision (or
            provisions) in this part with respect to health
            insurance issuers in the State, the Secretary shall
            enforce such provision (or provisions) under subsection
            (b) insofar as they relate to the issuance, sale,
            renewal, and offering of health insurance coverage in
            connection with group health plans in such State.
        ``(b) Secretarial Enforcement Authority.--
                ``(1) Limitation.--The provisions of this
            subsection shall apply to enforcement of a provision
            (or provisions) of this part only--
                        ``(A) as provided under subsection (a)(2);
                    and
                        ``(B) with respect to group health plans
                    that are nonfederal governmental plans.
                ``(2) Imposition of penalties.--In the cases
            described in paragraph (1)--
                        ``(A) In general.--Subject to the
                    succeeding provisions of this subsection, any
                    nonfederal governmental plan that is a group
                    health plan and any health insurance issuer
                    that fails to meet a provision of this part
                    applicable to such plan or issuer is subject to
                    a civil money penalty under this subsection.
                        ``(B) Liability for penalty.--In the case
                    of a failure by--
                                ``(i) a health insurance issuer,
                            the issuer is liable for such penalty,
                            or
                                ``(ii) a group health plan that is
                            a nonfederal governmental plan which
                            is--
                                        ``(I) sponsored by 2 or
                                    more employers, the plan is
                                    liable for such penalty, or
                                        ``(II) not so sponsored,
                                    the employer is liable for such
                                    penalty.
                        ``(C) Amount of penalty.--
                                ``(i) In general.--The maximum
                            amount of penalty imposed under this
                            paragraph is $100 for each day for each
                            individual with respect to which such a
                            failure occurs.
                                ``(ii) Considerations in
                            imposition.--In determining the amount
                            of any penalty to be assessed under
                            this paragraph, the Secretary shall
                            take into account the previous record
                            of compliance of the entity being
                            assessed with the applicable provisions
                            of this part and the gravity of the
                            violation.
                                ``(iii) Limitations.--
                                        ``(I) Penalty not to apply
                                    where failure not discovered
                                    exercising reasonable
                                    diligence.--No civil money
                                    penalty shall be imposed under
                                    this paragraph on any failure
                                    during any period for which it
                                    is established to the
                                    satisfaction of the Secretary
                                    that none of the entities
                                    against whom the penalty would
                                    be imposed knew, or exercising
                                    reasonable diligence would have
                                    known, that such failure
                                    existed.
                                        ``(II) Penalty not to apply
                                    to failures corrected within 30
                                    days.--No civil money penalty
                                    shall be imposed under this
                                    paragraph on any failure if
                                    such failure was due to
                                    reasonable cause and not to
                                    willful neglect, and such
                                    failure is corrected during the
                                    30-day period beginning on the
                                    first day any of the entities
                                    against whom the penalty would
                                    be imposed knew, or exercising
                                    reasonable diligence would have
                                    known, that such failure
                                    existed.
                        ``(D) Administrative review.--
                                ``(i) Opportunity for hearing.--The
                            entity assessed shall be afforded an
                            opportunity for hearing by the
                            Secretary upon request made within 30
                            days after the date of the issuance of
                            a notice of assessment. In such hearing
                            the decision shall be made on the
                            record pursuant to section 554 of title
                            5, United States Code. If no hearing is
                            requested, the assessment shall
                            constitute a final and unappealable
                            order.
                                ``(ii) Hearing procedure.--If a
                            hearing is requested, the initial
                            agency decision shall be made by an
                            administrative law judge, and such
                            decision shall become the final order
                            unless the Secretary modifies or
                            vacates the decision. Notice of intent
                            to modify or vacate the decision of the
                            administrative law judge shall be
                            issued to the parties within 30 days
                            after the date of the decision of the
                            judge. A final order which takes effect
                            under this paragraph shall be subject
                            to review only as provided under
                            subparagraph (E).
                        ``(E) Judicial review.--
                                ``(i) Filing of action for
                            review.--Any entity against whom an
                            order imposing a civil money penalty
                            has been entered after an agency
                            hearing under this paragraph may obtain
                            review by the United States district
                            court for any district in which such
                            entity is located or the United States
                            District Court for the District of
                            Columbia by filing a notice of appeal
                            in such court within 30 days from the
                            date of such order, and simultaneously
                            sending a copy of such notice by
                            registered mail to the Secretary.
                                ``(ii) Certification of
                            administrative record.--The Secretary
                            shall promptly certify and file in such
                            court the record upon which the penalty
                            was imposed.
                                ``(iii) Standard for review.--The
                            findings of the Secretary shall be set
                            aside only if found to be unsupported
                            by substantial evidence as provided by
                            section 706(2)(E) of title 5, United
                            States Code.
                                ``(iv) Appeal.--Any final decision,
                            order, or judgment of the district
                            court concerning such review shall be
                            subject to appeal as provided in
                            chapter 83 of title 28 of such Code.
                        ``(F) Failure to pay assessment;
                    maintenance of action.--
                                ``(i) Failure to pay assessment.--
                            If any entity fails to pay an
                            assessment after it has become a final
                            and unappealable order, or after the
                            court has entered final judgment in
                            favor of the Secretary, the Secretary
                            shall refer the matter to the Attorney
                            General who shall recover the amount
                            assessed by action in the appropriate
                            United States district court.
                                ``(ii) Nonreviewability.--In such
                            action the validity and appropriateness
                            of the final order imposing the penalty
                            shall not be subject to review.
                        ``(G) Payment of penalties.--Except as
                    otherwise provided, penalties collected under
                    this paragraph shall be paid to the Secretary
                    (or other officer) imposing the penalty and
                    shall be available without appropriation and
                    until expended for the purpose of enforcing the
                    provisions with respect to which the penalty
                    was imposed.

    ``SEC. 2723. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

        ``(a) Continued Applicability of State Law with Respect to
    Health Insurance Issuers.--
                ``(1) In General.--Subject to paragraph (2) and
            except as provided in subsection (b), this part and
            part C insofar as it relates to this part shall not be
            construed to supersede any provision of State law which
            establishes, implements, or continues in effect any
            standard or requirement solely relating to health
            insurance issuers in connection with group health
            insurance coverage except to the extent that such
            standard or requirement prevents the application of a
            requirement of this part.
                ``(2) Continued preemption with respect to group
            health plans.--Nothing in this part shall be construed
            to affect or modify the provisions of section 514 of
            the Employee Retirement Income Security Act of 1974
            with respect to group health plans.
        ``(b) Special Rules in Case of Portability Requirements.--
                ``(1) In general.--Subject to paragraph (2), the
            provisions of this part relating to health insurance
            coverage offered by a health insurance issuer supersede
            any provision of State law which establishes,
            implements, or continues in effect a standard or
            requirement applicable to imposition of a preexisting
            condition exclusion specifically governed by section
            701 which differs from the standards or requirements
            specified in such section.
                ``(2) Exceptions.--Only in relation to health
            insurance coverage offered by a health insurance
            issuer, the provisions of this part do not supersede
            any provision of State law to the extent that such
            provision--
                        ``(i) substitutes for the reference to `6-
                    month period' in section 2701(a)(1) a reference
                    to any shorter period of time;
                        ``(ii) substitutes for the reference to `12
                    months' and `18 months' in section 2701(a)(2) a
                    reference to any shorter period of time;
                        ``(iii) substitutes for the references to
                    `63' days in sections 2701(c)(2)(A) and
                    2701(d)(4)(A) a reference to any greater number
                    of days;
                        ``(iv) substitutes for the reference to
                    `30-day period' in sections 2701(b)(2) and
                    2701(d)(1) a reference to any greater period;
                        ``(v) prohibits the imposition of any
                    preexisting condition exclusion in cases not
                    described in section 2701(d) or expands the
                    exceptions described in such section;
                        ``(vi) requires special enrollment periods
                    in addition to those required under section
                    2701(f); or
                        ``(vii) reduces the maximum period
                    permitted in an affiliation period under
                    section 2701(g)(1)(B).
        ``(c) Rules of Construction.--Nothing in this part shall be
    construed as requiring a group health plan or health insurance
    coverage to provide specific benefits under the terms of such
    plan or coverage.
        ``(d) Definitions.--For purposes of this section--
                ``(1) State law.--The term `State law' includes all
            laws, decisions, rules, regulations, or other State
            action having the effect of law, of any State. A law of
            the United States applicable only to the District of
            Columbia shall be treated as a State law rather than a
            law of the United States.
                ``(2) State.--The term `State' includes a State
            (including the Northern Mariana Islands), any political
            subdivisions of a State or such Islands, or any agency
            or instrumentality of either.

                ``Part C--Definitions; Miscellaneous Provisions

    ``SEC. 2791. DEFINITIONS.

        ``(a) Group Health Plan.--
                ``(1) Definition.--The term `group health plan'
            means an employee welfare benefit plan (as defined in
            section 3(1) of the Employee Retirement Income Security
            Act of 1974) to the extent that the plan provides
            medical care (as defined in paragraph (2)) and
            including items and services paid for as medical care)
            to employees or their dependents (as defined under the
            terms of the plan) directly or through insurance,
            reimbursement, or otherwise.
                ``(2) Medical care.--The term `medical care' means
            amounts paid for--
                        ``(A) the diagnosis, cure, mitigation,
                    treatment, or prevention of disease, or amounts
                    paid for the purpose of affecting any structure
                    or function of the body,
                        ``(B) amounts paid for transportation
                    primarily for and essential to medical care
                    referred to in subparagraph (A), and
                        ``(C) amounts paid for insurance covering
                    medical care referred to in subparagraphs (A)
                    and (B).
                ``(3) Treatment of certain plans as group health
            plan for notice provision.--A program under which
            creditable coverage described in subparagraph (C), (D),
            (E), or (F) of section 2701(c)(1) is provided shall be
            treated as a group health plan for purposes of applying
            section 2701(e).
        ``(b) Definitions Relating to Health Insurance.--
                ``(1) Health insurance coverage.--The term `health
            insurance coverage' means benefits consisting of
            medical care (provided directly, through insurance or
            reimbursement, or otherwise and including items and
            services paid for as medical care) under any hospital
            or medical service policy or certificate, hospital or
            medical service plan contract, or health maintenance
            organization contract offered by a health insurance
            issuer.
                ``(2) Health insurance issuer.--The term `health
            insurance issuer' means an insurance company, insurance
            service, or insurance organization (including a health
            maintenance organization, as defined in paragraph (3))
            which is licensed to engage in the business of
            insurance in a State and which is subject to State law
            which regulates insurance (within the meaning of
            section 514(b)(2) of the Employee Retirement Income
            Security Act of 1974). Such term does not include a
            group health plan.
                ``(3) Health maintenance organization.--The term
            `health maintenance organization' means--
                        ``(A) a Federally qualified health
                    maintenance organization (as defined in section
                    1301(a)),
                        ``(B) an organization recognized under
                    State law as a health maintenance organization,
                    or
                        ``(C) a similar organization regulated
                    under State law for solvency in the same manner
                    and to the same extent as such a health
                    maintenance organization.
                ``(4) Group health insurance coverage.--The term
            `group health insurance coverage' means, in connection
            with a group health plan, health insurance coverage
            offered in connection with such plan.
                ``(5) Individual health insurance coverage.--The
            term `individual health insurance coverage' means
            health insurance coverage offered to individuals in the
            individual market, but does not include short-term
            limited duration insurance.
        ``(c) Excepted Benefits.--For purposes of this title, the
    term `excepted benefits' means benefits under one or more (or
    any combination thereof) of the following:
                ``(1) Benefits not subject to requirements.--
                        ``(A) Coverage only for accident, or
                    disability income insurance, or any combination
                    thereof.
                        ``(B) Coverage issued as a supplement to
                    liability insurance.
                        ``(C) Liability insurance, including
                    general liability insurance and automobile
                    liability insurance.
                        ``(D) Workers' compensation or similar
                    insurance.
                        ``(E) Automobile medical payment insurance.
                        ``(F) Credit-only insurance.
                        ``(G) Coverage for on-site medical clinics.
                        ``(H) Other similar insurance coverage,
                    specified in regulations, under which benefits
                    for medical care are secondary or incidental to
                    other insurance benefits.
                ``(2) Benefits not subject to requirements if
            offered separately.--
                        ``(A) Limited scope dental or vision
                    benefits.
                        ``(B) Benefits for long-term care, nursing
                    home care, home health care, community-based
                    care, or any combination thereof.
                        ``(C) Such other similar, limited benefits
                    as are specified in regulations.
                ``(3) Benefits not subject to requirements if
            offered as independent, noncoordinated benefits.--
                        ``(A) Coverage only for a specified disease
                    or illness.
                        ``(B) Hospital indemnity or other fixed
                    indemnity insurance.
                ``(4) Benefits not subject to requirements if
            offered as separate insurance policy.--Medicare
            supplemental health insurance (as defined under section
            1882(g)(1) of the Social Security Act), coverage
            supplemental to the coverage provided under chapter 55
            of title 10, United States Code, and similar
            supplemental coverage provided to coverage under a
            group health plan.
        ``(d) Other Definitions.--
                ``(1) Applicable state authority.--The term
            `applicable State authority' means, with respect to a
            health insurance issuer in a State, the State insurance
            commissioner or official or officials designated by the
            State to enforce the requirements of this title for the
            State involved with respect to such issuer.
                ``(2) Beneficiary.--The term `beneficiary' has the
            meaning given such term under section 3(8) of the
            Employee Retirement Income Security Act of 1974.
                ``(3) Bona fide association.--The term `bona fide
            association' means, with respect to health insurance
            coverage offered in a State, an association which--
                        ``(A) has been actively in existence for at
                    least 5 years;
                        ``(B) has been formed and maintained in
                    good faith for purposes other than obtaining
                    insurance;
                        ``(C) does not condition membership in the
                    association on any health status-related factor
                    relating to an individual (including an
                    employee of an employer or a dependent of an
                    employee);
                        ``(D) makes health insurance coverage
                    offered through the association available to
                    all members regardless of any health status-
                    related factor relating to such members (or
                    individuals eligible for coverage through a
                    member);
                        ``(E) does not make health insurance
                    coverage offered through the association
                    available other than in connection with a
                    member of the association; and
                        ``(F) meets such additional requirements as
                    may be imposed under State law.
                ``(4) COBRA continuation provision.--The term
            `COBRA continuation provision' means any of the
            following:
                        ``(A) Section 4980B of the Internal Revenue
                    Code of 1986, other than subsection (f)(1) of
                    such section insofar as it relates to pediatric
                    vaccines.
                        ``(B) Part 6 of subtitle B of title I of
                    the Employee Retirement Income Security Act of
                    1974, other than section 609 of such Act.
                        ``(C) Title XXII of this Act.
                ``(5) Employee.--The term `employee' has the
            meaning given such term under section 3(6) of the
            Employee Retirement Income Security Act of 1974.
                ``(6) Employer.--The term `employer' has the
            meaning given such term under section 3(5) of the
            Employee Retirement Income Security Act of 1974, except
            that such term shall include only employers of two or
            more employees.
                ``(7) Church plan.--The term `church plan' has the
            meaning given such term under section 3(33) of the
            Employee Retirement Income Security Act of 1974.
                ``(8) Governmental plan.--(A) The term
            `governmental plan' has the meaning given such term
            under section 3(32) of the Employee Retirement Income
            Security Act of 1974 and any Federal governmental plan.
                ``(B) Federal governmental plan.--The term `Federal
            governmental plan' means a governmental plan
            established or maintained for its employees by the
            Government of the United States or by any agency or
            instrumentality of such Government.
                ``(C) Nonfederal governmental plan.--The term
            `nonfederal governmental plan' means a governmental
            plan that is not a Federal governmental plan.
                ``(9) Health status-related factor.--The term
            `health status-related factor' means any of the factors
            described in section 2702(a)(1).
                ``(10) Network plan.--The term `network plan' means
            health insurance coverage of a health insurance issuer
            under which the financing and delivery of medical care
            (including items and services paid for as medical care)
            are provided, in whole or in part, through a defined
            set of providers under contract with the issuer.
                ``(11) Participant.--The term `participant' has the
            meaning given such term under section 3(7) of the
            Employee Retirement Income Security Act of 1974.
                ``(12) Placed for adoption defined.--The term
            `placement', or being `placed', for adoption, in
            connection with any placement for adoption of a child
            with any person, means the assumption and retention by
            such person of a legal obligation for total or partial
            support of such child in anticipation of adoption of
            such child. The child's placement with such person
            terminates upon the termination of such legal
            obligation.
                ``(13) Plan sponsor.--The term `plan sponsor' has
            the meaning given such term under section 3(16)(B) of
            the Employee Retirement Income Security Act of 1974.
                ``(14) State.--The term `State' means each of the
            several States, the District of Columbia, Puerto Rico,
            the Virgin Islands, Guam, American Samoa, and the
            Northern Mariana Islands.
        ``(e) Definitions Relating to Markets and Small
    Employers.--For purposes of this title:
                ``(1) Individual market.--
                        ``(A) In general.--The term `individual
                    market' means the market for health insurance
                    coverage offered to individuals other than in
                    connection with a group health plan.
                        ``(B) Treatment of very small groups.--
                                ``(i) In general.--Subject to
                            clause (ii), such terms includes
                            coverage offered in connection with a
                            group health plan that has fewer than
                            two participants as current employees
                            on the first day of the plan year.
                                ``(ii) State exception.--Clause (i)
                            shall not apply in the case of a State
                            that elects to regulate the coverage
                            described in such clause as coverage in
                            the small group market.
                ``(2) Large employer.--The term `large employer'
            means, in connection with a group health plan with
            respect to a calendar year and a plan year, an employer
            who employed an average of at least 51 employees on
            business days during the preceding calendar year and
            who employs at least 2 employees on the first day of
            the plan year.
                ``(3) Large group market.--The term `large group
            market' means the health insurance market under which
            individuals obtain health insurance coverage (directly
            or through any arrangement) on behalf of themselves
            (and their dependents) through a group health plan
            maintained by a large employer.
                ``(4) Small employer.--The term `small employer'
            means, in connection with a group health plan with
            respect to a calendar year and a plan year, an employer
            who employed an average of at least 2 but not more than
            50 employees on business days during the preceding
            calendar year and who employs at least 2 employees on
            the first day of the plan year.
                ``(5) Small group market.--The term `small group
            market' means the health insurance market under which
            individuals obtain health insurance coverage (directly
            or through any arrangement) on behalf of themselves
            (and their dependents) through a group health plan
            maintained by a small employer.
                ``(6) Application of certain rules in determination
            of employer size.--For purposes of this subsection--
                        ``(A) Application of aggregation rule for
                    employers.--all persons treated as a single
                    employer under subsection (b), (c), (m), or (o)
                    of section 414 of the Internal Revenue Code of
                    1986 shall be treated as 1 employer.
                        ``(B) Employers not in existence in
                    preceding year.--In the case of an employer
                    which was not in existence throughout the
                    preceding calendar year, the determination of
                    whether such employer is a small or large
                    employer shall be based on the average number
                    of employees that it is reasonably expected
                    such employer will employ on business days in
                    the current calendar year.
                        ``(C) Predecessors.--Any reference in this
                    subsection to an employer shall include a
                    reference to any predecessor of such employer.

    ``SEC. 2792. REGULATIONS.

        ``The Secretary, consistent with section 104 of the Health
    Care Portability and Accountability Act of 1996, may promulgate
    such regulations as may be necessary or appropriate to carry
    out the provisions of this title. The Secretary may promulgate
    any interim final rules as the Secretary determines are
    appropriate to carry out this title.''.
        (b) Application of Rules by Certain Health Maintenance
    Organizations.--Section 1301 of such Act (42 U.S.C. 300e) is
    amended by adding at the end the following new subsection:
        ``(d) An organization that offers health benefits coverage
    shall not be considered as failing to meet the requirements of
    this section notwithstanding that it provides, with respect to
    coverage offered in connection with a group health plan in the
    small or large group market (as defined in section 2791(e)), an
    affiliation period consistent with the provisions of section
    2701(g).''.
        (c) Effective Date.--
                (1) In general.--Except as provided in this
            subsection, part A of title XXVII of the Public Health
            Service Act (as added by subsection (a)) shall apply
            with respect to group health plans, and health
            insurance coverage offered in connection with group
            health plans, for plan years beginning after June 30,
            1997.
                (2) Determination of creditable coverage.--
                        (A) Period of coverage.--
                                (i) In general.--Subject to clause
                            (ii), no period before July 1, 1996,
                            shall be taken into account under part
                            A of title XXVII of the Public Health
                            Service Act (as added by this section)
                            in determining creditable coverage.
                                (ii) Special rule for certain
                            periods.--The Secretary of Health and
                            Human Services, consistent with section
                            104, shall provide for a process
                            whereby individuals who need to
                            establish creditable coverage for
                            periods before July 1, 1996, and who
                            would have such coverage credited but
                            for clause (i) may be given credit for
                            creditable coverage for such periods
                            through the presentation of documents
                            or other means.
                        (B) Certifications, etc.--
                                (i) In general.--Subject to clauses
                            (ii) and (iii), subsection (e) of
                            section 2701 of the Public Health
                            Service Act (as added by this section)
                            shall apply to events occurring after
                            June 30, 1996.
                                (ii) No certification required to
                            be provided before june 1, 1997.--In no
                            case is a certification required to be
                            provided under such subsection before
                            June 1, 1997.
                                (iii) Certification only on written
                            request for events occurring before
                            october 1, 1996.--In the case of an
                            event occurring after June 30, 1996,
                            and before October 1, 1996, a
                            certification is not required to be
                            provided under such subsection unless
                            an individual (with respect to whom the
                            certification is otherwise required to
                            be made) requests such certification in
                            writing.
                        (C) Transitional rule.--In the case of an
                    individual who seeks to establish creditable
                    coverage for any period for which certification
                    is not required because it relates to an event
                    occurring before June 30, 1996--
                                (i) the individual may present
                            other credible evidence of such
                            coverage in order to establish the
                            period of creditable coverage; and
                                (ii) a group health plan and a
                            health insurance issuer shall not be
                            subject to any penalty or enforcement
                            action with respect to the plan's or
                            issuer's crediting (or not crediting)
                            such coverage if the plan or issuer has
                            sought to comply in good faith with the
                            applicable requirements under the
                            amendments made by this section.
                (3) Special rule for collective bargaining
            agreements.--Except as provided in paragraph (2)(B), in
            the case of a group health plan maintained pursuant to
            1 or more collective bargaining agreements between
            employee representatives and one or more employers
            ratified before the date of the enactment of this Act,
            part A of title XXVII of the Public Health Service Act
            (other than section 2701(e) thereof) shall not apply to
            plan years beginning before the later of--
                        (A) the date on which the last of the
                    collective bargaining agreements relating to
                    the plan terminates (determined without regard
                    to any extension thereof agreed to after the
                    date of the enactment of this Act), or
                        (B) July 1, 1997.
            For purposes of subparagraph (A), any plan amendment
            made pursuant to a collective bargaining agreement
            relating to the plan which amends the plan solely to
            conform to any requirement of such part shall not be
            treated as a termination of such collective bargaining
            agreement.
                (4) Timely regulations.--The Secretary of Health
            and Human Services, consistent with section 104, shall
            first issue by not later than April 1, 1997, such
            regulations as may be necessary to carry out the
            amendments made by this section and section 111.
                (5) Limitation on actions.--No enforcement action
            shall be taken, pursuant to the amendments made by this
            section, against a group health plan or health
            insurance issuer with respect to a violation of a
            requirement imposed by such amendments before January
            1, 1998, or, if later, the date of issuance of
            regulations referred to in paragraph (4), if the plan
            or issuer has sought to comply in good faith with such
            requirements.
        (d) Miscellaneous Correction.--Section 2208(1) of the
    Public Health Service Act (42 U.S.C. 300bb-8(1)) is amended by
    striking ``section 162(i)(2)'' and inserting ``5000(b)''.

    SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE INTERNAL REVENUE CODE
                        OF 1986.

        For provisions amending the Internal Revenue Code of 1986
    to provide for application and enforcement of rules for group
    health plans similar to those provided under the amendments
    made by section 101(a), see section 401.

    SEC. 104. ASSURING COORDINATION.

        The Secretary of the Treasury, the Secretary of Health and
    Human Services, and the Secretary of Labor shall ensure,
    through the execution of an interagency memorandum of
    understanding among such Secretaries, that--
                (1) regulations, rulings, and interpretations
            issued by such Secretaries relating to the same matter
            over which two or more such Secretaries have
            responsibility under this subtitle (and the amendments
            made by this subtitle and section 401) are administered
            so as to have the same effect at all times; and
                (2) coordination of policies relating to enforcing
            the same requirements through such Secretaries in order
            to have a coordinated enforcement strategy that avoids
            duplication of enforcement efforts and assigns
            priorities in enforcement.

                      Subtitle B--Individual Market Rules

    SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.

        (a) In General.--Title XXVII of the Public Health Service
    Act, as added by section 102(a) of this Act, is amended by
    inserting after part A the following new part:

                       ``Part B--Individual Market Rules

    ``SEC. 2741. GUARANTEED AVAILABILITY OF INDIVIDUAL HEALTH INSURANCE
                        COVERAGE TO CERTAIN INDIVIDUALS WITH PRIOR GROUP
                        COVERAGE.

        ``(a) Guaranteed Availability.--
                ``(1) In general.--Subject to the succeeding
            subsections of this section and section 2744, each
            health insurance issuer that offers health insurance
            coverage (as defined in section 2791(b)(1)) in the
            individual market in a State may not, with respect to
            an eligible individual (as defined in subsection (b))
            desiring to enroll in individual health insurance
            coverage--
                        ``(A) decline to offer such coverage to, or
                    deny enrollment of, such individual; or
                        ``(B) impose any preexisting condition
                    exclusion (as defined in section 2701(b)(1)(A))
                    with respect to such coverage.
                ``(2) Substitution by state of acceptable
            alternative mechanism.--The requirement of paragraph
            (1) shall not apply to health insurance coverage
            offered in the individual market in a State in which
            the State is implementing an acceptable alternative
            mechanism under section 2744.
        ``(b) Eligible Individual Defined.--In this part, the term
    `eligible individual' means an individual--
                ``(1)(A) for whom, as of the date on which the
            individual seeks coverage under this section, the
            aggregate of the periods of creditable coverage (as
            defined in section 2701(c)) is 18 or more months and
            (B) whose most recent prior creditable coverage was
            under a group health plan, governmental plan, or church
            plan (or health insurance coverage offered in
            connection with any such plan);
                ``(2) who is not eligible for coverage under (A) a
            group health plan, (B) part A or part B of title XVIII
            of the Social Security Act, or (C) a State plan under
            title XIX of such Act (or any successor program), and
            does not have other health insurance coverage;
                ``(3) with respect to whom the most recent coverage
            within the coverage period described in paragraph
            (1)(A) was not terminated based on a factor described
            in paragraph (1) or (2) of section 2712(b) (relating to
            nonpayment of premiums or fraud);
                ``(4) if the individual had been offered the option
            of continuation coverage under a COBRA continuation
            provision or under a similar State program, who elected
            such coverage; and
                ``(5) who, if the individual elected such
            continuation coverage, has exhausted such continuation
            coverage under such provision or program.
        ``(c) Alternative Coverage Permitted Where No State
    Mechanism.--
                ``(1) In general.--In the case of health insurance
            coverage offered in the individual market in a State in
            which the State is not implementing an acceptable
            alternative mechanism under section 2744, the health
            insurance issuer may elect to limit the coverage
            offered under subsection (a) so long as it offers at
            least two different policy forms of health insurance
            coverage both of which--
                        ``(A) are designed for, made generally
                    available to, and actively marketed to, and
                    enroll both eligible and other individuals by
                    the issuer; and
                        ``(B) meet the requirement of paragraph (2)
                    or (3), as elected by the issuer.

            For purposes of this subsection, policy forms which
            have different cost-sharing arrangements or different
            riders shall be considered to be different policy
            forms.
                ``(2) Choice of most popular policy forms.--The
            requirement of this paragraph is met, for health
            insurance coverage policy forms offered by an issuer in
            the individual market, if the issuer offers the policy
            forms for individual health insurance coverage with the
            largest, and next to largest, premium volume of all
            such policy forms offered by the issuer in the State or
            applicable marketing or service area (as may be
            prescribed in regulation) by the issuer in the
            individual market in the period involved.
                ``(3) Choice of 2 policy forms with representative
            coverage.--
                        ``(A) In general.--The requirement of this
                    paragraph is met, for health insurance coverage
                    policy forms offered by an issuer in the
                    individual market, if the issuer offers a
                    lower-level coverage policy form (as defined in
                    subparagraph (B)) and a higher-level coverage
                    policy form (as defined in subparagraph (C))
                    each of which includes benefits substantially
                    similar to other individual health insurance
                    coverage offered by the issuer in that State
                    and each of which is covered under a method
                    described in section 2744(c)(3)(A) (relating to
                    risk adjustment, risk spreading, or financial
                    subsidization).
                        ``(B) Lower-level of coverage described.--A
                    policy form is described in this subparagraph
                    if the actuarial value of the benefits under
                    the coverage is at least 85 percent but not
                    greater than 100 percent of a weighted average
                    (described in subparagraph (D)).
                        ``(C) Higher-level of coverage described.--
                    A policy form is described in this subparagraph
                    if--
                                ``(i) the actuarial value of the
                            benefits under the coverage is at least
                            15 percent greater than the actuarial
                            value of the coverage described in
                            subparagraph (B) offered by the issuer
                            in the area involved; and
                                ``(ii) the actuarial value of the
                            benefits under the coverage is at least
                            100 percent but not greater than 120
                            percent of a weighted average
                            (described in subparagraph (D)).
                        ``(D) Weighted average.--For purposes of
                    this paragraph, the weighted average described
                    in this subparagraph is the average actuarial
                    value of the benefits provided by all the
                    health insurance coverage issued (as elected by
                    the issuer) either by that issuer or by all
                    issuers in the State in the individual market
                    during the previous year (not including
                    coverage issued under this section), weighted
                    by enrollment for the different coverage.
                ``(4) Election.--The issuer elections under this
            subsection shall apply uniformly to all eligible
            individuals in the State for that issuer. Such an
            election shall be effective for policies offered during
            a period of not shorter than 2 years.
                ``(5) Assumptions.--For purposes of paragraph (3),
            the actuarial value of benefits provided under
            individual health insurance coverage shall be
            calculated based on a standardized population and a set
            of standardized utilization and cost factors.
        ``(d) Special Rules for Network Plans.--
                ``(1) In general.--In the case of a health
            insurance issuer that offers health insurance coverage
            in the individual market through a network plan, the
            issuer may--
                        ``(A) limit the individuals who may be
                    enrolled under such coverage to those who live,
                    reside, or work within the service area for
                    such network plan; and
                        ``(B) within the service area of such plan,
                    deny such coverage to such individuals if the
                    issuer has demonstrated, if required, to the
                    applicable State authority that--
                                ``(i) it will not have the capacity
                            to deliver services adequately to
                            additional individual enrollees because
                            of its obligations to existing group
                            contract holders and enrollees and
                            individual enrollees, and
                                ``(ii) it is applying this
                            paragraph uniformly to individuals
                            without regard to any health status-
                            related factor of such individuals and
                            without regard to whether the
                            individuals are eligible individuals.
                ``(2) 180-day suspension upon denial of coverage.--
            An issuer, upon denying health insurance coverage in
            any service area in accordance with paragraph (1)(B),
            may not offer coverage in the individual market within
            such service area for a period of 180 days after such
            coverage is denied.
        ``(e) Application of Financial Capacity Limits.--
                ``(1) In general.--A health insurance issuer may
            deny health insurance coverage in the individual market
            to an eligible individual if the issuer has
            demonstrated, if required, to the applicable State
            authority that--
                        ``(A) it does not have the financial
                    reserves necessary to underwrite additional
                    coverage; and
                        ``(B) it is applying this paragraph
                    uniformly to all individuals in the individual
                    market in the State consistent with applicable
                    State law and without regard to any health
                    status-related factor of such individuals and
                    without regard to whether the individuals are
                    eligible individuals.
                ``(2) 180-day suspension upon denial of coverage.--
            An issuer upon denying individual health insurance
            coverage in any service area in accordance with
            paragraph (1) may not offer such coverage in the
            individual market within such service area for a period
            of 180 days after the date such coverage is denied or
            until the issuer has demonstrated, if required under
            applicable State law, to the applicable State authority
            that the issuer has sufficient financial reserves to
            underwrite additional coverage, whichever is later. A
            State may provide for the application of this paragraph
            on a service-area-specific basis.
        ``(e) Market Requirements.--
                ``(1) In general.--The provisions of subsection (a)
            shall not be construed to require that a health
            insurance issuer offering health insurance coverage
            only in connection with group health plans or through
            one or more bona fide associations, or both, offer such
            health insurance coverage in the individual market.
                ``(2) Conversion policies.--A health insurance
            issuer offering health insurance coverage in connection
            with group health plans under this title shall not be
            deemed to be a health insurance issuer offering
            individual health insurance coverage solely because
            such issuer offers a conversion policy.
        ``(f) Construction.--Nothing in this section shall be
    construed--
                ``(1) to restrict the amount of the premium rates
            that an issuer may charge an individual for health
            insurance coverage provided in the individual market
            under applicable State law; or
                ``(2) to prevent a health insurance issuer offering
            health insurance coverage in the individual market from
            establishing premium discounts or rebates or modifying
            otherwise applicable copayments or deductibles in
            return for adherence to programs of health promotion
            and disease prevention.

    ``SEC. 2742. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH INSURANCE
                        COVERAGE.

        ``(a) In General.--Except as provided in this section, a
    health insurance issuer that provides individual health
    insurance coverage to an individual shall renew or continue in
    force such coverage at the option of the individual.
        ``(b) General Exceptions.--A health insurance issuer may
    nonrenew or discontinue health insurance coverage of an
    individual in the individual market based only on one or more
    of the following:
                ``(1) Nonpayment of premiums.--The individual has
            failed to pay premiums or contributions in accordance
            with the terms of the health insurance coverage or the
            issuer has not received timely premium payments.
                ``(2) Fraud.--The individual has performed an act
            or practice that constitutes fraud or made an
            intentional misrepresentation of material fact under
            the terms of the coverage.
                ``(3) Termination of plan.--The issuer is ceasing
            to offer coverage in the individual market in
            accordance with subsection (c) and applicable State
            law.
                ``(4) Movement outside service area.--In the case
            of a health insurance issuer that offers health
            insurance coverage in the market through a network
            plan, the individual no longer resides, lives, or works
            in the service area (or in an area for which the issuer
            is authorized to do business) but only if such coverage
            is terminated under this paragraph uniformly without
            regard to any health status-related factor of covered
            individuals.
                ``(5) Association membership ceases.--In the case
            of health insurance coverage that is made available in
            the individual market only through one or more bona
            fide associations, the membership of the individual in
            the association (on the basis of which the coverage is
            provided) ceases but only if such coverage is
            terminated under this paragraph uniformly without
            regard to any health status-related factor of covered
            individuals.
        ``(c) Requirements for Uniform Termination of Coverage.--
                ``(1) Particular type of coverage not offered.--In
            any case in which an issuer decides to discontinue
            offering a particular type of health insurance coverage
            offered in the individual market, coverage of such type
            may be discontinued by the issuer only if--
                        ``(A) the issuer provides notice to each
                    covered individual provided coverage of this
                    type in such market of such discontinuation at
                    least 90 days prior to the date of the
                    discontinuation of such coverage;
                        ``(B) the issuer offers to each individual
                    in the individual market provided coverage of
                    this type, the option to purchase any other
                    individual health insurance coverage currently
                    being offered by the issuer for individuals in
                    such market; and
                        ``(C) in exercising the option to
                    discontinue coverage of this type and in
                    offering the option of coverage under
                    subparagraph (B), the issuer acts uniformly
                    without regard to any health status-related
                    factor of enrolled individuals or individuals
                    who may become eligible for such coverage.
                ``(2) Discontinuance of all coverage.--
                        ``(A) In general.--Subject to subparagraph
                    (C), in any case in which a health insurance
                    issuer elects to discontinue offering all
                    health insurance coverage in the individual
                    market in a State, health insurance coverage
                    may be discontinued by the issuer only if--
                                ``(i) the issuer provides notice to
                            the applicable State authority and to
                            each individual of such discontinuation
                            at least 180 days prior to the date of
                            the expiration of such coverage, and
                                ``(ii) all health insurance issued
                            or delivered for issuance in the State
                            in such market are discontinued and
                            coverage under such health insurance
                            coverage in such market is not renewed.
                        ``(B) Prohibition on market reentry.--In
                    the case of a discontinuation under
                    subparagraph (A) in the individual market, the
                    issuer may not provide for the issuance of any
                    health insurance coverage in the market and
                    State involved during the 5-year period
                    beginning on the date of the discontinuation of
                    the last health insurance coverage not so
                    renewed.
        ``(d) Exception for Uniform Modification of Coverage.--At
    the time of coverage renewal, a health insurance issuer may
    modify the health insurance coverage for a policy form offered
    to individuals in the individual market so long as such
    modification is consistent with State law and effective on a
    uniform basis among all individuals with that policy form.
        ``(e) Application to Coverage Offered Only Through
    Associations.--In applying this section in the case of health
    insurance coverage that is made available by a health insurance
    issuer in the individual market to individuals only through one
    or more associations, a reference to an `individual' is deemed
    to include a reference to such an association (of which the
    individual is a member).

    ``SEC. 2743. CERTIFICATION OF COVERAGE.

        ``The provisions of section 2701(e) shall apply to health
    insurance coverage offered by a health insurance issuer in the
    individual market in the same manner as it applies to health
    insurance coverage offered by a health insurance issuer in
    connection with a group health plan in the small or large group
    market.

    ``SEC. 2744. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

        ``(a) Waiver of Requirements Where Implementation of
    Acceptable Alternative Mechanism.--
                ``(1) In general.--The requirements of section 2741
            shall not apply with respect to health insurance
            coverage offered in the individual market in the State
            so long as a State is found to be implementing, in
            accordance with this section and consistent with
            section 2746(b), an alternative mechanism (in this
            section referred to as an `acceptable alternative
            mechanism')--
                        ``(A) under which all eligible individuals
                    are provided a choice of health insurance
                    coverage;
                        ``(B) under which such coverage does not
                    impose any preexisting condition exclusion with
                    respect to such coverage;
                        ``(C) under which such choice of coverage
                    includes at least one policy form of coverage
                    that is comparable to comprehensive health
                    insurance coverage offered in the individual
                    market in such State or that is comparable to a
                    standard option of coverage available under the
                    group or individual health insurance laws of
                    such State; and
                        ``(D) in a State which is implementing--
                                ``(i) a model act described in
                            subsection (c)(1),
                                ``(ii) a qualified high risk pool
                            described in subsection (c)(2), or
                                ``(iii) a mechanism described in
                            subsection (c)(3).
                ``(2) Permissible forms of mechanisms.--A private
            or public individual health insurance mechanism (such
            as a health insurance coverage pool or programs,
            mandatory group conversion policies, guaranteed issue
            of one or more plans of individual health insurance
            coverage, or open enrollment by one or more health
            insurance issuers), or combination of such mechanisms,
            that is designed to provide access to health benefits
            for individuals in the individual market in the State
            in accordance with this section may constitute an
            acceptable alternative mechanism.
        ``(b) Application of Acceptable Alternative Mechanisms.--
                ``(1) Presumption.--
                        ``(A) In general.--Subject to the
                    succeeding provisions of this subsection, a
                    State is presumed to be implementing an
                    acceptable alternative mechanism in accordance
                    with this section as of July 1, 1997, if, by
                    not later than April 1, 1997, the chief
                    executive officer of a State--
                                ``(i) notifies the Secretary that
                            the State has enacted or intends to
                            enact (by not later than January 1,
                            1998, or July 1, 1998, in the case of a
                            State described in subparagraph
                            (B)(ii)) any necessary legislation to
                            provide for the implementation of a
                            mechanism reasonably designed to be an
                            acceptable alternative mechanism as of
                            January 1, 1998 (or, in the case of a
                            State described in subparagraph
                            (B)(ii), July 1, 1998); and
                                ``(ii) provides the Secretary with
                            such information as the Secretary may
                            require to review the mechanism and its
                            implementation (or proposed
                            implementation) under this subsection.
                        ``(B) Delay permitted for certain states.--
                                ``(i) Effect of delay.--In the case
                            of a State described in clause (ii)
                            that provides notice under subparagraph
                            (A)(i), for the presumption to continue
                            on and after July 1, 1998, the chief
                            executive officer of the State by April
                            1, 1998--
                                        ``(I) must notify the
                                    Secretary that the State has
                                    enacted any necessary
                                    legislation to provide for the
                                    implementation of a mechanism
                                    reasonably designed to be an
                                    acceptable alternative
                                    mechanism as of July 1, 1998;
                                    and
                                        ``(II) must provide the
                                    Secretary with such information
                                    as the Secretary may require to
                                    review the mechanism and its
                                    implementation (or proposed
                                    implementation) under this
                                    subsection.
                                ``(ii) States described.--A State
                            described in this clause is a State
                            that has a legislature that does not
                            meet within the 12-month period
                            beginning on the date of enactment of
                            this Act.
                        ``(C) Continued application.--In order for
                    a mechanism to continue to be presumed to be an
                    acceptable alternative mechanism, the State
                    shall provide the Secretary every 3 years with
                    information described in subparagraph (A)(ii)
                    or (B)(i)(II) (as the case may be).
                ``(2) Notice.--If the Secretary finds, after review
            of information provided under paragraph (1) and in
            consultation with the chief executive officer of the
            State and the insurance commissioner or chief insurance
            regulatory official of the State, that such a mechanism
            is not an acceptable alternative mechanism or is not
            (or no longer) being implemented, the Secretary--
                        ``(A) shall notify the State of--
                                ``(i) such preliminary
                            determination, and
                                ``(ii) the consequences under
                            paragraph (3) of a failure to implement
                            such a mechanism; and
                        ``(B) shall permit the State a reasonable
                    opportunity in which to modify the mechanism
                    (or to adopt another mechanism) in a manner so
                    that may be an acceptable alternative mechanism
                    or to provide for implementation of such a
                    mechanism.
                ``(3) Final determination.--If, after providing
            notice and opportunity under paragraph (2), the
            Secretary finds that the mechanism is not an acceptable
            alternative mechanism or the State is not implementing
            such a mechanism, the Secretary shall notify the State
            that the State is no longer considered to be
            implementing an acceptable alternative mechanism and
            that the requirements of section 2741 shall apply to
            health insurance coverage offered in the individual
            market in the State, effective as of a date specified
            in the notice.
                ``(4) Limitation on secretarial authority.--The
            Secretary shall not make a determination under
            paragraph (2) or (3) on any basis other than the basis
            that a mechanism is not an acceptable alternative
            mechanism or is not being implemented.
                ``(5) Future adoption of mechanisms.--If a State,
            after January 1, 1997, submits the notice and
            information described in paragraph (1), unless the
            Secretary makes a finding described in paragraph (3)
            within the 90-day period beginning on the date of
            submission of the notice and information, the mechanism
            shall be considered to be an acceptable alternative
            mechanism for purposes of this section, effective 90
            days after the end of such period, subject to the
            second sentence of paragraph (1).
        ``(c) Provision Related to Risk.--
                ``(1) Adoption of naic models.--The model act
            referred to in subsection (a)(1)(D)(i) is the Small
            Employer and Individual Health Insurance Availability
            Model Act (adopted by the National Association of
            Insurance Commissioners on June 3, 1996) insofar as it
            applies to individual health insurance coverage or the
            Individual Health Insurance Portability Model Act (also
            adopted by such Association on such date).
                ``(2) Qualified high risk pool.--For purposes of
            subsection (a)(1)(D)(ii), a `qualified high risk pool'
            described in this paragraph is a high risk pool that--
                        ``(A) provides to all eligible individuals
                    health insurance coverage (or comparable
                    coverage) that does not impose any preexisting
                    condition exclusion with respect to such
                    coverage for all eligible individuals, and
                        ``(B) provides for premium rates and
                    covered benefits for such coverage consistent
                    with standards included in the NAIC Model
                    Health Plan for Uninsurable Individuals Act (as
                    in effect as of the date of the enactment of
                    this title).
                ``(3) Other mechanisms.--For purposes of subsection
            (a)(1)(D)(iii), a mechanism described in this
            paragraph--
                        ``(A) provides for risk adjustment, risk
                    spreading, or a risk spreading mechanism (among
                    issuers or policies of an issuer) or otherwise
                    provides for some financial subsidization for
                    eligible individuals, including through
                    assistance to participating issuers; or
                        ``(B) is a mechanism under which each
                    eligible individual is provided a choice of all
                    individual health insurance coverage otherwise
                    available.

    ``SEC. 2745. ENFORCEMENT.

        ``(a) State Enforcement.--
                ``(1) State authority.--Subject to section 2746,
            each State may require that health insurance issuers
            that issue, sell, renew, or offer health insurance
            coverage in the State in the individual market meet the
            requirements established under this part with respect
            to such issuers.
                ``(2) Failure to implement requirements.--In the
            case of a State that fails to substantially enforce the
            requirements set forth in this part with respect to
            health insurance issuers in the State, the Secretary
            shall enforce the requirements of this part under
            subsection (b) insofar as they relate to the issuance,
            sale, renewal, and offering of health insurance
            coverage in the individual market in such State.
        ``(b) Secretarial Enforcement Authority.--The Secretary
    shall have the same authority in relation to enforcement of the
    provisions of this part with respect to issuers of health
    insurance coverage in the individual market in a State as the
    Secretary has under section 2722(b)(2) in relation to the
    enforcement of the provisions of part A with respect to issuers
    of health insurance coverage in the small group market in the
    State.

    ``SEC. 2746. PREEMPTION.

        ``(a) In General.--Subject to subsection (b), nothing in
    this part (or part C insofar as it applies to this part) shall
    be construed to prevent a State from establishing,
    implementing, or continuing in effect standards and
    requirements unless such standards and requirements prevent the
    application of a requirement of this part.
        ``(b) Rules of Construction.--Nothing in this part (or part
    C insofar as it applies to this part) shall be construed to
    affect or modify the provisions of section 514 of the Employee
    Retirement Income Security Act of 1974 (29 U.S.C. 1144).

    ``SEC. 2747. GENERAL EXCEPTIONS.

        ``(a) Exception for Certain Benefits.--The requirements of
    this part shall not apply to any health insurance coverage in
    relation to its provision of excepted benefits described in
    section 2791(c)(1).
        ``(b) Exception for Certain Benefits If Certain Conditions
    Met.--The requirements of this part shall not apply to any
    health insurance coverage in relation to its provision of
    excepted benefits described in paragraph (2), (3), or (4) of
    section 2791(c) if the benefits are provided under a separate
    policy, certificate, or contract of insurance.''.
        (b) Effective Date.--
                (1) In general.--Except as provided in this
            subsection, part B of title XXVII of the Public Health
            Service Act (as inserted by subsection (a)) shall apply
            with respect to health insurance coverage offered,
            sold, issued, renewed, in effect, or operated in the
            individual market after June 30, 1997, regardless of
            when a period of creditable coverage occurs.
                (2) Application of certification rules.--The
            provisions of section 102(d)(2) of this Act shall apply
            to section 2743 of the Public Health Service Act in the
            same manner as it applies to section 2701(e) of such
            Act.

                Subtitle C--General and Miscellaneous Provisions

    SEC. 191. HEALTH COVERAGE AVAILABILITY STUDIES.

        (a) Studies.--
                (1) Study on effectiveness of reforms.--The
            Secretary of Health and Human Services shall provide
            for a study on the effectiveness of the provisions of
            this title and the various State laws, in ensuring the
            availability of reasonably priced health coverage to
            employers purchasing group coverage and individuals
            purchasing coverage on a non-group basis.
                (2) Study on access and choice.--The Secretary also
            shall provide for a study on--
                        (A) the extent to which patients have
                    direct access to, and choice of, health care
                    providers, including specialty providers,
                    within a network plan, as well as the
                    opportunity to utilize providers outside of the
                    network plan, under the various types of
                    coverage offered under the provisions of this
                    title; and
                        (B) the cost and cost-effectiveness to
                    health insurance issuers of providing access to
                    out-of-network providers, and the potential
                    impact of providing such access on the cost and
                    quality of health insurance coverage offered
                    under provisions of this title.
                (3) Consultation.--The studies under this
            subsection shall be conducted in consultation with the
            Secretary of Labor, representatives of State officials,
            consumers, and other representatives of individuals and
            entities that have expertise in health insurance and
            employee benefits.
        (b) Reports.--Not later than January 1, 2000, the Secretary
    shall submit to the appropriate committees of Congress a report
    on each of the studies under subsection (a).

    SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.

        The Health Care Financing Administration shall complete its
    ongoing study of medicare reimbursement of all telemedicine
    services and submit a report to Congress on medicare
    reimbursement of telemedicine services by not later than March
    1, 1997. The report shall--
                (1) utilize data compiled from the current
            demonstration projects already under review and gather
            data from other ongoing telemedicine networks;
                (2) include an analysis of the cost of services
            provided via telemedicine; and
                (3) include a proposal for medicare reimbursement
            of such services.

    SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH DEDUCTIBLE
                        PLANS.

        Section 1301(b) of the Public Health Service Act (42 U.S.C.
    300e(b)) is amended by adding at the end the following new
    paragraph:
                ``(6) A health maintenance organization that
            otherwise meets the requirements of this title may
            offer a high-deductible health plan (as defined in
            section 220(c)(2) of the Internal Revenue Code of
            1986).''.

    SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT FREE
                        CLINICS.

        Section 224 of the Public Health Service Act (42 U.S.C.
    233) is amended by adding at the end the following subsection:
        ``(o)(1) For purposes of this section, a free clinic health
    professional shall in providing a qualifying health service to
    an individual be deemed to be an employee of the Public Health
    Service for a calendar year that begins during a fiscal year
    for which a transfer was made under paragraph (6)(D). The
    preceding sentence is subject to the provisions of this
    subsection.
        ``(2) In providing a health service to an individual, a
    health care practitioner shall for purposes of this subsection
    be considered to be a free clinic health professional if the
    following conditions are met:
                ``(A) The service is provided to the individual at
            a free clinic, or through offsite programs or events
            carried out by the free clinic.
                ``(B) The free clinic is sponsoring the health care
            practitioner pursuant to paragraph (5)(C).
                ``(C) The service is a qualifying health service
            (as defined in paragraph (4)).
                ``(D) Neither the health care practitioner nor the
            free clinic receives any compensation for the service
            from the individual or from any third-party payor
            (including reimbursement under any insurance policy or
            health plan, or under any Federal or State health
            benefits program). With respect to compliance with such
            condition:
                        ``(i) The health care practitioner may
                    receive repayment from the free clinic for
                    reasonable expenses incurred by the health care
                    practitioner in the provision of the service to
                    the individual.
                        ``(ii) The free clinic may accept voluntary
                    donations for the provision of the service by
                    the health care practitioner to the individual.
                ``(E) Before the service is provided, the health
            care practitioner or the free clinic provides written
            notice to the individual of the extent to which the
            legal liability of the health care practitioner is
            limited pursuant to this subsection (or in the case of
            an emergency, the written notice is provided to the
            individual as soon after the emergency as is
            practicable). If the individual is a minor or is
            otherwise legally incompetent, the condition under this
            subparagraph is that the written notice be provided to
            a legal guardian or other person with legal
            responsibility for the care of the individual.
                ``(F) At the time the service is provided, the
            health care practitioner is licensed or certified in
            accordance with applicable law regarding the provision
            of the service.
        ``(3)(A) For purposes of this subsection, the term `free
    clinic' means a health care facility operated by a nonprofit
    private entity meeting the following requirements:
                ``(i) The entity does not, in providing health
            services through the facility, accept reimbursement
            from any third-party payor (including reimbursement
            under any insurance policy or health plan, or under any
            Federal or State health benefits program).
                ``(ii) The entity, in providing health services
            through the facility, either does not impose charges on
            the individuals to whom the services are provided, or
            imposes a charge according to the ability of the
            individual involved to pay the charge.
                ``(iii) The entity is licensed or certified in
            accordance with applicable law regarding the provision
            of health services.
        ``(B) With respect to compliance with the conditions under
    subparagraph (A), the entity involved may accept voluntary
    donations for the provision of services.
        ``(4) For purposes of this subsection, the term `qualifying
    health service' means any medical assistance required or
    authorized to be provided in the program under title XIX of the
    Social Security Act, without regard to whether the medical
    assistance is included in the plan submitted under such program
    by the State in which the health care practitioner involved
    provides the medical assistance. References in the preceding
    sentence to such program shall as applicable be considered to
    be references to any successor to such program.
        ``(5) Subsection (g) (other than paragraphs (3) through
    (5)) and subsections (h), (i), and (l) apply to a health care
    practitioner for purposes of this subsection to the same extent
    and in the same manner as such subsections apply to an officer,
    governing board member, employee, or contractor of an entity
    described in subsection (g)(4), subject to paragraph (6) and
    subject to the following:
                ``(A) The first sentence of paragraph (1) applies
            in lieu of the first sentence of subsection (g)(1)(A).
                ``(B) This subsection may not be construed as
            deeming any free clinic to be an employee of the Public
            Health Service for purposes of this section.
                ``(C) With respect to a free clinic, a health care
            practitioner is not a free clinic health professional
            unless the free clinic sponsors the health care
            practitioner. For purposes of this subsection, the free
            clinic shall be considered to be sponsoring the health
            care practitioner if--
                        ``(i) with respect to the health care
                    practitioner, the free clinic submits to the
                    Secretary an application meeting the
                    requirements of subsection (g)(1)(D); and
                        ``(ii) the Secretary, pursuant to
                    subsection (g)(1)(E), determines that the
                    health care practitioner is deemed to be an
                    employee of the Public Health Service.
                ``(D) In the case of a health care practitioner who
            is determined by the Secretary pursuant to subsection
            (g)(1)(E) to be a free clinic health professional, this
            subsection applies to the health care practitioner
            (with respect to the free clinic sponsoring the health
            care practitioner pursuant to subparagraph C)) for any
            cause of action arising from an act or omission of the
            health care practitioner occurring on or after the date
            on which the Secretary makes such determination.
                ``(E) Subsection (g)(1)(F) applies to a health care
            practitioner for purposes of this subsection only to
            the extent that, in providing health services to an
            individual, each of the conditions specified in
            paragraph (2) is met.
        ``(6)(A) For purposes of making payments for judgments
    against the United States (together with related fees and
    expenses of witnesses) pursuant to this section arising from
    the acts or omissions of free clinic health professionals,
    there is authorized to be appropriated $10,000,000 for each
    fiscal year.
        ``(B) The Secretary shall establish a fund for purposes of
    this subsection. Each fiscal year amounts appropriated under
    subparagraph (A) shall be deposited in such fund.
        ``(C) Not later than May 1 of each fiscal year, the
    Attorney General, in consultation with the Secretary, shall
    submit to the Congress a report providing an estimate of the
    amount of claims (together with related fees and expenses of
    witnesses) that, by reason of the acts or omissions of free
    clinic health professionals, will be paid pursuant to this
    section during the calendar year that begins in the following
    fiscal year. Subsection (k)(1)(B) applies to the estimate under
    the preceding sentence regarding free clinic health
    professionals to the same extent and in the same manner as such
    subsection applies to the estimate under such subsection
    regarding officers, governing board members, employees, and
    contractors of entities described in subsection (g)(4).
        ``(D) Not later than December 31 of each fiscal year, the
    Secretary shall transfer from the fund under subparagraph (B)
    to the appropriate accounts in the Treasury an amount equal to
    the estimate made under subparagraph (C) for the calendar year
    beginning in such fiscal year, subject to the extent of amounts
    in the fund.
        ``(7)(A) This subsection takes effect on the date of the
    enactment of the first appropriations Act that makes an
    appropriation under paragraph (6)(A), except as provided in
    subparagraph (B)(i).
        ``(B)(i) Effective on the date of the enactment of the
    Health Insurance Portability and Accountability Act of 1996--
                ``(I) the Secretary may issue regulations for
            carrying out this subsection, and the Secretary may
            accept and consider applications submitted pursuant to
            paragraph (5)(C); and
                ``(II) reports under paragraph (6)(C) may be
            submitted to the Congress.
        ``(ii) For the first fiscal year for which an appropriation
    is made under subparagraph (A) of paragraph (6), if an estimate
    under subparagraph (C) of such paragraph has not been made for
    the calendar year beginning in such fiscal year, the transfer
    under subparagraph (D) of such paragraph shall be made
    notwithstanding the lack of the estimate, and the transfer
    shall be made in an amount equal to the amount of such
    appropriation.''.

    SEC. 195. FINDINGS; SEVERABILITY.

        (a) Findings Relating to Exercise of Commerce Clause
    Authority.--Congress finds the following in relation to the
    provisions of this title:
                (1) Provisions in group health plans and health
            insurance coverage that impose certain preexisting
            condition exclusions impact the ability of employees to
            seek employment in interstate commerce, thereby
            impeding such commerce.
                (2) Health insurance coverage is commercial in
            nature and is in and affects interstate commerce.
                (3) It is a necessary and proper exercise of
            Congressional authority to impose requirements under
            this title on group health plans and health insurance
            coverage (including coverage offered to individuals
            previously covered under group health plans) in order
            to promote commerce among the States.
                (4) Congress, however, intends to defer to States,
            to the maximum extent practicable, in carrying out such
            requirements with respect to insurers and health
            maintenance organizations that are subject to State
            regulation, consistent with the provisions of the
            Employee Retirement Income Security Act of 1974.
        (b) Severability.--If any provision of this title or the
    application of such provision to any person or circumstance is
    held to be unconstitutional, the remainder of this title and
    the application of the provisions of such to any person or
    circumstance shall not be affected thereby.

       TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
                                 SIMPLIFICATION

    SEC. 200. REFERENCES IN TITLE.

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

                  Subtitle A--Fraud and Abuse Control Program

    SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

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

                       ``fraud and abuse control program

        ``Sec. 1128C. (a) Establishment of Program.--
                ``(1) In general.--Not later than January 1, 1997,
            the Secretary, acting through the Office of the
            Inspector General of the Department of Health and Human
            Services, and the Attorney General shall establish a
            program--
                        ``(A) to coordinate Federal, State, and
                    local law enforcement programs to control fraud
                    and abuse with respect to health plans,
                        ``(B) to conduct investigations, audits,
                    evaluations, and inspections relating to the
                    delivery of and payment for health care in the
                    United States,
                        ``(C) to facilitate the enforcement of the
                    provisions of sections 1128, 1128A, and 1128B
                    and other statutes applicable to health care
                    fraud and abuse,
                        ``(D) to provide for the modification and
                    establishment of safe harbors and to issue
                    advisory opinions and special fraud alerts
                    pursuant to section 1128D, and
                        ``(E) to provide for the reporting and
                    disclosure of certain final adverse actions
                    against health care providers, suppliers, or
                    practitioners pursuant to the data collection
                    system established under section 1128E.
                ``(2) Coordination with health plans.--In carrying
            out the program established under paragraph (1), the
            Secretary and the Attorney General shall consult with,
            and arrange for the sharing of data with
            representatives of health plans.
                ``(3) Guidelines.--
                        ``(A) In general.--The Secretary and the
                    Attorney General shall issue guidelines to
                    carry out the program under paragraph (1). The
                    provisions of sections 553, 556, and 557 of
                    title 5, United States Code, shall not apply in
                    the issuance of such guidelines.
                        ``(B) Information guidelines.--
                                ``(i) In general.--Such guidelines
                            shall include guidelines relating to
                            the furnishing of information by health
                            plans, providers, and others to enable
                            the Secretary and the Attorney General
                            to carry out the program (including
                            coordination with health plans under
                            paragraph (2)).
                                ``(ii) Confidentiality.--Such
                            guidelines shall include procedures to
                            assure that such information is
                            provided and utilized in a manner that
                            appropriately protects the
                            confidentiality of the information and
                            the privacy of individuals receiving
                            health care services and items.
                                ``(iii) Qualified immunity for
                            providing information.--The provisions
                            of section 1157(a) (relating to
                            limitation on liability) shall apply to
                            a person providing information to the
                            Secretary or the Attorney General in
                            conjunction with their performance of
                            duties under this section.
                ``(4) Ensuring access to documentation.--The
            Inspector General of the Department of Health and Human
            Services is authorized to exercise such authority
            described in paragraphs (3) through (9) of section 6 of
            the Inspector General Act of 1978 (5 U.S.C. App.) as
            necessary with respect to the activities under the
            fraud and abuse control program established under this
            subsection.
                ``(5) Authority of inspector general.--Nothing in
            this Act shall be construed to diminish the authority
            of any Inspector General, including such authority as
            provided in the Inspector General Act of 1978 (5 U.S.C.
            App.).
        ``(b) Additional Use of Funds by Inspector General.--
                ``(1) Reimbursements for investigations.--The
            Inspector General of the Department of Health and Human
            Services is authorized to receive and retain for
            current use reimbursement for the costs of conducting
            investigations and audits and for monitoring compliance
            plans when such costs are ordered by a court,
            voluntarily agreed to by the payor, or otherwise.
                ``(2) Crediting.--Funds received by the Inspector
            General under paragraph (1) as reimbursement for costs
            of conducting investigations shall be deposited to the
            credit of the appropriation from which initially paid,
            or to appropriations for similar purposes currently
            available at the time of deposit, and shall remain
            available for obligation for 1 year from the date of
            the deposit of such funds.
        ``(c) Health Plan Defined.--For purposes of this section,
    the term `health plan' means a plan or program that provides
    health benefits, whether directly, through insurance, or
    otherwise, and includes--
                ``(1) a policy of health insurance;
                ``(2) a contract of a service benefit organization;
            and
                ``(3) a membership agreement with a health
            maintenance organization or other prepaid health
            plan.''.
        (b) Establishment of Health Care Fraud and Abuse Control
    Account in Federal Hospital Insurance Trust Fund.--Section 1817
    (42 U.S.C. 1395i) is amended by adding at the end the following
    new subsection:
        ``(k) Health Care Fraud and Abuse Control Account.--
                ``(1) Establishment.--There is hereby established
            in the Trust Fund an expenditure account to be known as
            the `Health Care Fraud and Abuse Control Account' (in
            this subsection referred to as the `Account').
                ``(2) Appropriated amounts to trust fund.--
                        ``(A) In general.--There are hereby
                    appropriated to the Trust Fund--
                                ``(i) such gifts and bequests as
                            may be made as provided in subparagraph
                            (B);
                                ``(ii) such amounts as may be
                            deposited in the Trust Fund as provided
                            in sections 242(b) and 249(c) of the
                            Health Insurance Portability and
                            Accountability Act of 1996, and title
                            XI; and
                                ``(iii) such amounts as are
                            transferred to the Trust Fund under
                            subparagraph (C).
                        ``(B) Authorization to accept gifts.--The
                    Trust Fund is authorized to accept on behalf of
                    the United States money gifts and bequests made
                    unconditionally to the Trust Fund, for the
                    benefit of the Account or any activity financed
                    through the Account.
                        ``(C) Transfer of amounts.--The Managing
                    Trustee shall transfer to the Trust Fund, under
                    rules similar to the rules in section 9601 of
                    the Internal Revenue Code of 1986, an amount
                    equal to the sum of the following:
                                ``(i) Criminal fines recovered in
                            cases involving a Federal health care
                            offense (as defined in section
                            982(a)(6)(B) of title 18, United States
                            Code).
                                ``(ii) Civil monetary penalties and
                            assessments imposed in health care
                            cases, including amounts recovered
                            under titles XI, XVIII, and XIX, and
                            chapter 38 of title 31, United States
                            Code (except as otherwise provided by
                            law).
                                ``(iii) Amounts resulting from the
                            forfeiture of property by reason of a
                            Federal health care offense.
                                ``(iv) Penalties and damages
                            obtained and otherwise creditable to
                            miscellaneous receipts of the general
                            fund of the Treasury obtained under
                            sections 3729 through 3733 of title 31,
                            United States Code (known as the False
                            Claims Act), in cases involving claims
                            related to the provision of health care
                            items and services (other than funds
                            awarded to a relator, for restitution
                            or otherwise authorized by law).
                        ``(D) Application.--Nothing in subparagraph
                    (C)(iii) shall be construed to limit the
                    availability of recoveries and forfeitures
                    obtained under title I of the Employee
                    Retirement Income Security Act of 1974 for the
                    purpose of providing equitable or remedial
                    relief for employee welfare benefit plans, and
                    for participants and beneficiaries under such
                    plans, as authorized under such title.
                ``(3) Appropriated amounts to account for fraud and
            abuse control program, etc.--
                        ``(A) Departments of health and human
                    services and justice.--
                                ``(i) In general.--There are hereby
                            appropriated to the Account from the
                            Trust Fund such sums as the Secretary
                            and the Attorney General certify are
                            necessary to carry out the purposes
                            described in subparagraph (C), to be
                            available without further
                            appropriation, in an amount not to
                            exceed--
                                        ``(I) for fiscal year 1997,
                                    $104,000,000,
                                        ``(II) for each of the
                                    fiscal years 1998 through 2003,
                                    the limit for the preceding
                                    fiscal year, increased by 15
                                    percent; and
                                        ``(III) for each fiscal
                                    year after fiscal year 2003,
                                    the limit for fiscal year 2003.
                                ``(ii) Medicare and medicaid
                            activities.--For each fiscal year, of
                            the amount appropriated in clause (i),
                            the following amounts shall be
                            available only for the purposes of the
                            activities of the Office of the
                            Inspector General of the Department of
                            Health and Human Services with respect
                            to the medicare and medicaid programs--
                                        ``(I) for fiscal year 1997,
                                    not less than $60,000,000 and
                                    not more than $70,000,000;
                                        ``(II) for fiscal year
                                    1998, not less than $80,000,000
                                    and not more than $90,000,000;
                                        ``(III) for fiscal year
                                    1999, not less than $90,000,000
                                    and not more than $100,000,000;
                                        ``(IV) for fiscal year
                                    2000, not less than
                                    $110,000,000 and not more than
                                    $120,000,000;
                                        ``(V) for fiscal year 2001,
                                    not less than $120,000,000 and
                                    not more than $130,000,000;
                                        ``(VI) for fiscal year
                                    2002, not less than
                                    $140,000,000 and not more than
                                    $150,000,000; and
                                        ``(VII) for each fiscal
                                    year after fiscal year 2002,
                                    not less than $150,000,000 and
                                    not more than $160,000,000.
                        ``(B) Federal bureau of investigation.--
                    There are hereby appropriated from the general
                    fund of the United States Treasury and hereby
                    appropriated to the Account for transfer to the
                    Federal Bureau of Investigation to carry out
                    the purposes described in subparagraph (C), to
                    be available without further appropriation--
                                ``(i) for fiscal year 1997,
                            $47,000,000;
                                ``(ii) for fiscal year 1998,
                            $56,000,000;
                                ``(iii) for fiscal year 1999,
                            $66,000,000;
                                ``(iv) for fiscal year 2000,
                            $76,000,000;
                                ``(v) for fiscal year 2001,
                            $88,000,000;
                                ``(vi) for fiscal year 2002,
                            $101,000,000; and
                                ``(vii) for each fiscal year after
                            fiscal year 2002, $114,000,000.
                        ``(C) Use of funds.--The purposes described
                    in this subparagraph are to cover the costs
                    (including equipment, salaries and benefits,
                    and travel and training) of the administration
                    and operation of the health care fraud and
                    abuse control program established under section
                    1128C(a), including the costs of--
                                ``(i) prosecuting health care
                            matters (through criminal, civil, and
                            administrative proceedings);
                                ``(ii) investigations;
                                ``(iii) financial and performance
                            audits of health care programs and
                            operations;
                                ``(iv) inspections and other
                            evaluations; and
                                ``(v) provider and consumer
                            education regarding compliance with the
                            provisions of title XI.
                ``(4) Appropriated amounts to account for medicare
            integrity program.--
                        ``(A) In general.--There are hereby
                    appropriated to the Account from the Trust Fund
                    for each fiscal year such amounts as are
                    necessary to carry out the Medicare Integrity
                    Program under section 1893, subject to
                    subparagraph (B) and to be available without
                    further appropriation.
                        ``(B) Amounts specified.--The amount
                    appropriated under subparagraph (A) for a
                    fiscal year is as follows:
                                ``(i) For fiscal year 1997, such
                            amount shall be not less than
                            $430,000,000 and not more than
                            $440,000,000.
                                ``(ii) For fiscal year 1998, such
                            amount shall be not less than
                            $490,000,000 and not more than
                            $500,000,000.
                                ``(iii) For fiscal year 1999, such
                            amount shall be not less than
                            $550,000,000 and not more than
                            $560,000,000.
                                ``(iv) For fiscal year 2000, such
                            amount shall be not less than
                            $620,000,000 and not more than
                            $630,000,000.
                                ``(v) For fiscal year 2001, such
                            amount shall be not less than
                            $670,000,000 and not more than
                            $680,000,000.
                                ``(vi) For fiscal year 2002, such
                            amount shall be not less than
                            $690,000,000 and not more than
                            $700,000,000.
                                ``(vii) For each fiscal year after
                            fiscal year 2002, such amount shall be
                            not less than $710,000,000 and not more
                            than $720,000,000.
                ``(5) Annual report.--Not later than January 1, the
            Secretary and the Attorney General shall submit jointly
            a report to Congress which identifies--
                        ``(A) the amounts appropriated to the Trust
                    Fund for the previous fiscal year under
                    paragraph (2)(A) and the source of such
                    amounts; and
                        ``(B) the amounts appropriated from the
                    Trust Fund for such year under paragraph (3)
                    and the justification for the expenditure of
                    such amounts.
                ``(6) GAO report.--Not later than January 1 of
            2000, 2002, and 2004, the Comptroller General of the
            United States shall submit a report to Congress which--
                        ``(A) identifies--
                                ``(i) the amounts appropriated to
                            the Trust Fund for the previous two
                            fiscal years under paragraph (2)(A) and
                            the source of such amounts; and
                                ``(ii) the amounts appropriated
                            from the Trust Fund for such fiscal
                            years under paragraph (3) and the
                            justification for the expenditure of
                            such amounts;
                        ``(B) identifies any expenditures from the
                    Trust Fund with respect to activities not
                    involving the Medicare program under title
                    XVIII;
                        ``(C) identifies any savings to the Trust
                    Fund, and any other savings, resulting from
                    expenditures from the Trust Fund; and
                        ``(D) analyzes such other aspects of the
                    operation of the Trust Fund as the Comptroller
                    General of the United States considers
                    appropriate.''.

    SEC. 202. MEDICARE INTEGRITY PROGRAM.

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

                          ``medicare integrity program

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

    In the case of the activity described in subsection (b)(5), an
    entity shall be deemed to be eligible to enter into a contract
    under the Program to carry out the activity if the entity is a
    carrier with a contract in effect under section 1842.
        ``(d) Process for Entering Into Contracts.--The Secretary
    shall enter into contracts under the Program in accordance with
    such procedures as the Secretary shall by regulation establish,
    except that such procedures shall include the following:
                ``(1) Procedures for identifying, evaluating, and
            resolving organizational conflicts of interest that are
            generally applicable to Federal acquisition and
            procurement.
                ``(2) Competitive procedures to be used--
                        ``(A) when entering into new contracts
                    under this section;
                        ``(B) when entering into contracts that may
                    result in the elimination of responsibilities
                    of an individual fiscal intermediary or carrier
                    under section 202(b) of the Health Insurance
                    Portability and Accountability Act of 1996; and
                        ``(C) at any other time considered
                    appropriate by the Secretary,

            except that the Secretary may continue to contract with
            entities that are carrying out the activities described
            in this section pursuant to agreements under section
            1816 or contracts under section 1842 in effect on the
            date of the enactment of this section.
                ``(3) Procedures under which a contract under this
            section may be renewed without regard to any provision
            of law requiring competition if the contractor has met
            or exceeded the performance requirements established in
            the current contract.

    The Secretary may enter into such contracts without regard to
    final rules having been promulgated.
        ``(e) Limitation on Contractor Liability.--The Secretary
    shall by regulation provide for the limitation of a
    contractor's liability for actions taken to carry out a
    contract under the Program, and such regulation shall, to the
    extent the Secretary finds appropriate, employ the same or
    comparable standards and other substantive and procedural
    provisions as are contained in section 1157.''.
        (b) Elimination of FI and Carrier Responsibility for
    Carrying Out Activities Subject to Program.--
                (1) Responsibilities of fiscal intermediaries under
            part a.--Section 1816 (42 U.S.C. 1395h) is amended by
            adding at the end the following new subsection:
        ``(l) No agency or organization may carry out (or receive
    payment for carrying out) any activity pursuant to an agreement
    under this section to the extent that the activity is carried
    out pursuant to a contract under the Medicare Integrity Program
    under section 1893.''.
                (2) Responsibilities of carriers under part b.--
            Section 1842(c) (42 U.S.C. 1395u(c)) is amended by
            adding at the end the following new paragraph:
        ``(6) No carrier may carry out (or receive payment for
    carrying out) any activity pursuant to a contract under this
    subsection to the extent that the activity is carried out
    pursuant to a contract under the Medicare Integrity Program
    under section 1893. The previous sentence shall not apply with
    respect to the activity described in section 1893(b)(5)
    (relating to prior authorization of certain items of durable
    medical equipment under section 1834(a)(15)).''.

    SEC. 203. BENEFICIARY INCENTIVE PROGRAMS.

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

    SEC. 204. APPLICATION OF CERTAIN HEALTH 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 (as defined in subsection (f))''.
                (3) In subsection (a)(5), by striking ``a program
            under title XVIII or a State health care program'' and
            inserting ``a Federal health care program''.
                (4) In the second sentence of subsection (a)--
                        (A) by striking ``a State plan approved
                    under title XIX'' and inserting ``a Federal
                    health care program'', and
                        (B) by striking ``the State may at its
                    option (notwithstanding any other provision of
                    that title or of such plan)'' and inserting
                    ``the administrator of such program may at its
                    option (notwithstanding any other provision of
                    such program)''.
                (5) In subsection (b), by striking ``title XVIII or
            a State health care program'' each place it appears and
            inserting ``a Federal health care program''.
                (6) In subsection (c), by inserting ``(as defined
            in section 1128(h))'' after ``a State health care
            program''.
                (7) By adding at the end the following new
            subsection:
        ``(f) For purposes of this section, the term `Federal
    health care program' means--
                ``(1) any plan or program that provides health
            benefits, whether directly, through insurance, or
            otherwise, which is funded directly, in whole or in
            part, by the United States Government (other than the
            health insurance program under chapter 89 of title 5,
            United States Code); or
                ``(2) any State health care program, as defined in
            section 1128(h).''.
        (b) Effective Date.--The amendments made by this section
    shall take effect on January 1, 1997.

    SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE
                        SANCTIONS.

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

        ``guidance regarding application of health care fraud and abuse
                                   sanctions

        ``Sec. 1128D. (a) Solicitation and Publication of
    Modifications to Existing Safe Harbors and New Safe Harbors.--
                ``(1) In general.--
                        ``(A) Solicitation of proposals for safe
                    harbors.--Not later than January 1, 1997, and
                    not less than annually thereafter, the
                    Secretary shall publish a notice in the Federal
                    Register soliciting proposals, which will be
                    accepted during a 60-day period, for--
                                ``(i) modifications to existing
                            safe harbors issued pursuant to section
                            14(a) of the Medicare and Medicaid
                            Patient and Program Protection Act of
                            1987 (42 U.S.C. 1320a-7b note);
                                ``(ii) additional safe harbors
                            specifying payment practices that shall
                            not be treated as a criminal offense
                            under section 1128B(b) and shall not
                            serve as the basis for an exclusion
                            under section 1128(b)(7);
                                ``(iii) advisory opinions to be
                            issued pursuant to subsection (b); and
                                ``(iv) special fraud alerts to be
                            issued pursuant to subsection (c).
                        ``(B) Publication of proposed modifications
                    and proposed additional safe harbors.--After
                    considering the proposals described in clauses
                    (i) and (ii) of subparagraph (A), the
                    Secretary, in consultation with the Attorney
                    General, shall publish in the Federal Register
                    proposed modifications to existing safe harbors
                    and proposed additional safe harbors, if
                    appropriate, with a 60-day comment period.
                    After considering any public comments received
                    during this period, the Secretary shall issue
                    final rules modifying the existing safe harbors
                    and establishing new safe harbors, as
                    appropriate.
                        ``(C) Report.--The Inspector General of the
                    Department of Health and Human Services (in
                    this section referred to as the `Inspector
                    General') shall, in an annual report to
                    Congress or as part of the year-end semiannual
                    report required by section 5 of the Inspector
                    General Act of 1978 (5 U.S.C. App.), describe
                    the proposals received under clauses (i) and
                    (ii) of subparagraph (A) and explain which
                    proposals were included in the publication
                    described in subparagraph (B), which proposals
                    were not included in that publication, and the
                    reasons for the rejection of the proposals that
                    were not included.
                ``(2) Criteria for modifying and establishing safe
            harbors.--In modifying and establishing safe harbors
            under paragraph (1)(B), the Secretary may consider the
            extent to which providing a safe harbor for the
            specified payment practice may result in any of the
            following:
                        ``(A) An increase or decrease in access to
                    health care services.
                        ``(B) An increase or decrease in the
                    quality of health care services.
                        ``(C) An increase or decrease in patient
                    freedom of choice among health care providers.
                        ``(D) An increase or decrease in
                    competition among health care providers.
                        ``(E) An increase or decrease in the
                    ability of health care facilities to provide
                    services in medically underserved areas or to
                    medically underserved populations.
                        ``(F) An increase or decrease in the cost
                    to Federal health care programs (as defined in
                    section 1128B(f)).
                        ``(G) An increase or decrease in the
                    potential overutilization of health care
                    services.
                        ``(H) The existence or nonexistence of any
                    potential financial benefit to a health care
                    professional or provider which may vary based
                    on their decisions of--
                                ``(i) whether to order a health
                            care item or service; or
                                ``(ii) whether to arrange for a
                            referral of health care items or
                            services to a particular practitioner
                            or provider.
                        ``(I) Any other factors the Secretary deems
                    appropriate in the interest of preventing fraud
                    and abuse in Federal health care programs (as
                    so defined).
        ``(b) Advisory Opinions.--
                ``(1) Issuance of advisory opinions.--The
            Secretary, in consultation with the Attorney General,
            shall issue written advisory opinions as provided in
            this subsection.
                ``(2) Matters subject to advisory opinions.--The
            Secretary shall issue advisory opinions as to the
            following matters:
                        ``(A) What constitutes prohibited
                    remuneration within the meaning of section
                    1128B(b).
                        ``(B) Whether an arrangement or proposed
                    arrangement satisfies the criteria set forth in
                    section 1128B(b)(3) for activities which do not
                    result in prohibited remuneration.
                        ``(C) Whether an arrangement or proposed
                    arrangement satisfies the criteria which the
                    Secretary has established, or shall establish
                    by regulation for activities which do not
                    result in prohibited remuneration.
                        ``(D) What constitutes an inducement to
                    reduce or limit services to individuals
                    entitled to benefits under title XVIII or title
                    XIX within the meaning of section 1128B(b).
                        ``(E) Whether any activity or proposed
                    activity constitutes grounds for the imposition
                    of a sanction under section 1128, 1128A, or
                    1128B.
                ``(3) Matters not subject to advisory opinions.--
            Such advisory opinions shall not address the following
            matters:
                        ``(A) Whether the fair market value shall
                    be, or was paid or received for any goods,
                    services or property.
                        ``(B) Whether an individual is a bona fide
                    employee within the requirements of section
                    3121(d)(2) of the Internal Revenue Code of
                    1986.
                ``(4) Effect of advisory opinions.--
                        ``(A) Binding as to secretary and parties
                    involved.--Each advisory opinion issued by the
                    Secretary shall be binding as to the Secretary
                    and the party or parties requesting the
                    opinion.
                        ``(B) Failure to seek opinion.--The failure
                    of a party to seek an advisory opinion may not
                    be introduced into evidence to prove that the
                    party intended to violate the provisions of
                    sections 1128, 1128A, or 1128B.
                ``(5) Regulations.--
                        ``(A) In general.--Not later than 180 days
                    after the date of the enactment of this
                    section, the Secretary shall issue regulations
                    to carry out this section. Such regulations
                    shall provide for--
                                ``(i) the procedure to be followed
                            by a party applying for an advisory
                            opinion;
                                ``(ii) the procedure to be followed
                            by the Secretary in responding to a
                            request for an advisory opinion;
                                ``(iii) the interval in which the
                            Secretary shall respond;
                                ``(iv) the reasonable fee to be
                            charged to the party requesting an
                            advisory opinion; and
                                ``(v) the manner in which advisory
                            opinions will be made available to the
                            public.
                        ``(B) Specific contents.--Under the
                    regulations promulgated pursuant to
                    subparagraph (A)--
                                ``(i) the Secretary shall be
                            required to issue to a party requesting
                            an advisory opinion by not later than
                            60 days after the request is received;
                            and
                                ``(ii) the fee charged to the party
                            requesting an advisory opinion shall be
                            equal to the costs incurred by the
                            Secretary in responding to the request.
                ``(6) Application of subsection.--This subsection
            shall apply to requests for advisory opinions made on
            or after the date which is 6 months after the date of
            enactment of this section and before the date which is
            4 years after such date of enactment.
        ``(c) Special Fraud Alerts.--
                ``(1) In general.--
                        ``(A) Request for special fraud alerts.--
                    Any person may present, at any time, a request
                    to the Inspector General for a notice which
                    informs the public of practices which the
                    Inspector General considers to be suspect or of
                    particular concern under the medicare program
                    under title XVIII or a State health care
                    program, as defined in section 1128(h) (in this
                    subsection referred to as a `special fraud
                    alert').
                        ``(B) Issuance and publication of special
                    fraud alerts.--Upon receipt of a request
                    described in subparagraph (A), the Inspector
                    General shall investigate the subject matter of
                    the request to determine whether a special
                    fraud alert should be issued. If appropriate,
                    the Inspector General shall issue a special
                    fraud alert in response to the request. All
                    special fraud alerts issued pursuant to this
                    subparagraph shall be published in the Federal
                    Register.
                ``(2) Criteria for special fraud alerts.--In
            determining whether to issue a special fraud alert upon
            a request described in paragraph (1), the Inspector
            General may consider--
                        ``(A) whether and to what extent the
                    practices that would be identified in the
                    special fraud alert may result in any of the
                    consequences described in subsection (a)(2);
                    and
                        ``(B) the volume and frequency of the
                    conduct that would be identified in the special
                    fraud alert.''.

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

    SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND STATE
                        HEALTH CARE PROGRAMS.

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

    SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN
                        INDIVIDUALS AND ENTITIES SUBJECT TO PERMISSIVE
                        EXCLUSION FROM MEDICARE AND STATE HEALTH CARE
                        PROGRAMS.

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

    SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR CONTROL
                        INTEREST IN SANCTIONED ENTITIES.

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

    SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO
                        COMPLY WITH STATUTORY OBLIGATIONS.

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

    SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE
                        ORGANIZATIONS.

        (a) Application of Intermediate Sanctions for any Program
    Violations.--
                (1) In general.--Section 1876(i)(1) (42 U.S.C.
            1395mm(i)(1)) is amended by striking ``the Secretary
            may terminate'' and all that follows and inserting ``in
            accordance with procedures established under paragraph
            (9), the Secretary may at any time terminate any such
            contract or may impose the intermediate sanctions
            described in paragraph (6)(B) or (6)(C) (whichever is
            applicable) on the eligible organization if the
            Secretary determines that the organization--
                ``(A) has failed substantially to carry out the
            contract;
                ``(B) is carrying out the contract in a manner
            substantially inconsistent with the efficient and
            effective administration of this section; or
                ``(C) no longer substantially meets the applicable
            conditions of subsections (b), (c), (e), and (f).''.
                (2) Other intermediate sanctions for miscellaneous
            program violations.--Section 1876(i)(6) (42 U.S.C.
            1395mm(i)(6)) is amended by adding at the end the
            following new subparagraph:
        ``(C) In the case of an eligible organization for which the
    Secretary makes a determination under paragraph (1), the basis
    of which is not described in subparagraph (A), the Secretary
    may apply the following intermediate sanctions:
                ``(i) Civil money penalties of not more than
            $25,000 for each determination under paragraph (1) if
            the deficiency that is the basis of the determination
            has directly adversely affected (or has the substantial
            likelihood of adversely affecting) an individual
            covered under the organization's contract.
                ``(ii) Civil money penalties of not more than
            $10,000 for each week beginning after the initiation of
            procedures by the Secretary under paragraph (9) during
            which the deficiency that is the basis of a
            determination under paragraph (1) exists.
                ``(iii) Suspension of enrollment of individuals
            under this section after the date the Secretary
            notifies the organization of a determination under
            paragraph (1) and until the Secretary is satisfied that
            the deficiency that is the basis for the determination
            has been corrected and is not likely to recur.''.
                (3) Procedures for imposing sanctions.--Section
            1876(i) (42 U.S.C. 1395mm(i)) is amended by adding at
            the end the following new paragraph:
        ``(9) The Secretary may terminate a contract with an
    eligible organization under this section or may impose the
    intermediate sanctions described in paragraph (6) on the
    organization in accordance with formal investigation and
    compliance procedures established by the Secretary under
    which--
                ``(A) the Secretary first provides the organization
            with the reasonable opportunity to develop and
            implement a corrective action plan to correct the
            deficiencies that were the basis of the Secretary's
            determination under paragraph (1) and the organization
            fails to develop or implement such a plan;
                ``(B) in deciding whether to impose sanctions, the
            Secretary considers aggravating factors such as whether
            an organization has a history of deficiencies or has
            not taken action to correct deficiencies the Secretary
            has brought to the organization's attention;
                ``(C) there are no unreasonable or unnecessary
            delays between the finding of a deficiency and the
            imposition of sanctions; and
                ``(D) the Secretary provides the organization with
            reasonable notice and opportunity for hearing
            (including the right to appeal an initial decision)
            before imposing any sanction or terminating the
            contract.''.
                (4) Conforming amendments.--Section 1876(i)(6)(B)
            (42 U.S.C. 1395mm(i)(6)(B)) is amended by striking the
            second sentence.
        (b) Agreements With Peer Review Organizations.--Section
    1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by
    striking ``an agreement'' and inserting ``a written
    agreement''.
        (c) Effective Date.--The amendments made by this section
    shall apply with respect to contract years beginning on or
    after January 1, 1997.

    SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR RISK-
                        SHARING ARRANGEMENTS.

        (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
    7b(b)(3)) is amended--
                (1) by striking ``and'' at the end of subparagraph
            (D);
                (2) by striking the period at the end of
            subparagraph (E) and inserting ``; and''; and
                (3) by adding at the end the following new
            subparagraph:
                ``(F) any remuneration between an organization and
            an individual or entity providing items or services, or
            a combination thereof, pursuant to a written agreement
            between the organization and the individual or entity
            if the organization is an eligible organization under
            section 1876 or if the written agreement, through a
            risk-sharing arrangement, places the individual or
            entity at substantial financial risk for the cost or
            utilization of the items or services, or a combination
            thereof, which the individual or entity is obligated to
            provide.''.
        (b) Negotiated Rulemaking for Risk-Sharing Exception.--
                (1) Establishment.--
                        (A) In general.--The Secretary of Health
                    and Human Services (in this subsection referred
                    to as the ``Secretary'') shall establish, on an
                    expedited basis and using a negotiated
                    rulemaking process under subchapter 3 of
                    chapter 5 of title 5, United States Code,
                    standards relating to the exception for risk-
                    sharing arrangements to the anti-kickback
                    penalties described in section 1128B(b)(3)(F)
                    of the Social Security Act, as added by
                    subsection (a).
                        (B) Factors to consider.--In establishing
                    standards relating to the exception for risk-
                    sharing arrangements to the anti-kickback
                    penalties under subparagraph (A), the
                    Secretary--
                                (i) shall consult with the Attorney
                            General and representatives of the
                            hospital, physician, other health
                            practitioner, and health plan
                            communities, and other interested
                            parties; and
                                (ii) shall take into account--
                                        (I) the level of risk
                                    appropriate to the size and
                                    type of arrangement;
                                        (II) the frequency of
                                    assessment and distribution of
                                    incentives;
                                        (III) the level of capital
                                    contribution; and
                                        (IV) the extent to which
                                    the risk-sharing arrangement
                                    provides incentives to control
                                    the cost and quality of health
                                    care services.
                (2) Publication of notice.--In carrying out the
            rulemaking process under this subsection, the Secretary
            shall publish the notice provided for under section
            564(a) of title 5, United States Code, by not later
            than 45 days after the date of the enactment of this
            Act.
                (3) Target date for publication of rule.--As part
            of the notice under paragraph (2), and for purposes of
            this subsection, the `target date for publication'
            (referred to in section 564(a)(5) of such title) shall
            be January 1, 1997.
                (4) Abbreviated period for submission of
            comments.--In applying section 564(c) of such title
            under this subsection, `15 days' shall be substituted
            for `30 days'.
                (5) Appointment of negotiated rulemaking committee
            and facilitator.--The Secretary shall provide for--
                        (A) the appointment of a negotiated
                    rulemaking committee under section 565(a) of
                    such title by not later than 30 days after the
                    end of the comment period provided for under
                    section 564(c) of such title (as shortened
                    under paragraph (4)), and
                        (B) the nomination of a facilitator under
                    section 566(c) of such title by not later than
                    10 days after the date of appointment of the
                    committee.
                (6) Preliminary committee report.--The negotiated
            rulemaking committee appointed under paragraph (5)
            shall report to the Secretary, by not later than
            October 1, 1996, regarding the committee's progress on
            achieving a consensus with regard to the rulemaking
            proceeding and whether such consensus is likely to
            occur before one month before the target date for
            publication of the rule. If the committee reports that
            the committee has failed to make significant progress
            towards such consensus or is unlikely to reach such
            consensus by the target date, the Secretary may
            terminate such process and provide for the publication
            of a rule under this subsection through such other
            methods as the Secretary may provide.
                (7) Final committee report.--If the committee is
            not terminated under paragraph (6), the rulemaking
            committee shall submit a report containing a proposed
            rule by not later than one month before the target
            publication date.
                (8) Interim, final effect.--The Secretary shall
            publish a rule under this subsection in the Federal
            Register by not later than the target publication date.
            Such rule shall be effective and final immediately on
            an interim basis, but is subject to change and revision
            after public notice and opportunity for a period (of
            not less than 60 days) for public comment. In
            connection with such rule, the Secretary shall specify
            the process for the timely review and approval of
            applications of entities to be certified as provider-
            sponsored organizations pursuant to such rules and
            consistent with this subsection.
                (9) Publication of rule after public comment.--The
            Secretary shall provide for consideration of such
            comments and republication of such rule by not later
            than 1 year after the target publication date.
        (c) Effective Date.--The amendments made by subsection (a)
    shall apply to written agreements entered into on or after
    January 1, 1997, without regard to whether regulations have
    been issued to implement such amendments.

    SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN
                        ORDER TO OBTAIN MEDICAID BENEFITS.

        Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
                (1) by striking ``or'' at the end of paragraph (4);
                (2) by adding ``or'' at the end of paragraph (5);
            and
                (3) by inserting after paragraph (5) the following
            new paragraph:
                ``(6) knowingly and willfully disposes of assets
            (including by any transfer in trust) in order for an
            individual to become eligible for medical assistance
            under a State plan under title XIX, if disposing of the
            assets results in the imposition of a period of
            ineligibility for such assistance under section
            1917(c),''.

    SEC. 218. EFFECTIVE DATE.

        Except as otherwise provided, the amendments made by this
    subtitle shall take effect January 1, 1997.

                          Subtitle C--Data Collection

    SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA
                        COLLECTION PROGRAM.

        (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as
    amended by sections 201 and 205, is amended by inserting after
    section 1128D the following new section:

             ``health care fraud and abuse data collection program

        ``Sec. 1128E. (a) General Purpose.--Not later than January
    1, 1997, the Secretary shall establish a national health care
    fraud and abuse data collection program for the reporting of
    final adverse actions (not including settlements in which no
    findings of liability have been made) against health care
    providers, suppliers, or practitioners as required by
    subsection (b), with access as set forth in subsection (c), and
    shall maintain a database of the information collected under
    this section.
        ``(b) Reporting of Information.--
                ``(1) In general.--Each Government agency and
            health plan shall report any final adverse action (not
            including settlements in which no findings of liability
            have been made) taken against a health care provider,
            supplier, or practitioner.
                ``(2) Information to be reported.--The information
            to be reported under paragraph (1) includes:
                        ``(A) The name and TIN (as defined in
                    section 7701(a)(41) of the Internal Revenue
                    Code of 1986) of any health care provider,
                    supplier, or practitioner who is the subject of
                    a final adverse action.
                        ``(B) The name (if known) of any health
                    care entity with which a health care provider,
                    supplier, or practitioner, who is the subject
                    of a final adverse action, is affiliated or
                    associated.
                        ``(C) The nature of the final adverse
                    action and whether such action is on appeal.
                        ``(D) A description of the acts or
                    omissions and injuries upon which the final
                    adverse action was based, and such other
                    information as the Secretary determines by
                    regulation is required for appropriate
                    interpretation of information reported under
                    this section.
                ``(3) Confidentiality.--In determining what
            information is required, the Secretary shall include
            procedures to assure that the privacy of individuals
            receiving health care services is appropriately
            protected.
                ``(4) Timing and form of reporting.--The
            information required to be reported under this
            subsection shall be reported regularly (but not less
            often than monthly) and in such form and manner as the
            Secretary prescribes. Such information shall first be
            required to be reported on a date specified by the
            Secretary.
                ``(5) To whom reported.--The information required
            to be reported under this subsection shall be reported
            to the Secretary.
        ``(c) Disclosure and Correction of Information.--
                ``(1) Disclosure.--With respect to the information
            about final adverse actions (not including settlements
            in which no findings of liability have been made)
            reported to the Secretary under this section with
            respect to a health care provider, supplier, or
            practitioner, the Secretary shall, by regulation,
            provide for--
                        ``(A) disclosure of the information, upon
                    request, to the health care provider, supplier,
                    or licensed practitioner, and
                        ``(B) procedures in the case of disputed
                    accuracy of the information.
                ``(2) Corrections.--Each Government agency and
            health plan shall report corrections of information
            already reported about any final adverse action taken
            against a health care provider, supplier, or
            practitioner, in such form and manner that the
            Secretary prescribes by regulation.
        ``(d) Access to Reported Information.--
                ``(1) Availability.--The information in the
            database maintained under this section shall be
            available to Federal and State government agencies and
            health plans pursuant to procedures that the Secretary
            shall provide by regulation.
                ``(2) Fees for disclosure.--The Secretary may
            establish or approve reasonable fees for the disclosure
            of information in such database (other than with
            respect to requests by Federal agencies). The amount of
            such a fee shall be sufficient to recover the full
            costs of operating the database. Such fees shall be
            available to the Secretary or, in the Secretary's
            discretion to the agency designated under this section
            to cover such costs.
        ``(e) Protection From Liability for Reporting.--No person
    or entity, including the agency designated by the Secretary in
    subsection (b)(5) shall be held liable in any civil action with
    respect to any report made as required by this section, without
    knowledge of the falsity of the information contained in the
    report.
        ``(f) Coordination With National Practitioner Data Bank.--
    The Secretary shall implement this section in such a manner as
    to avoid duplication with the reporting requirements
    established for the National Practitioner Data Bank under the
    Health Care Quality Improvement Act of 1986 (42 U.S.C. 11101 et
    seq.).
        ``(g) Definitions and Special Rules.--For purposes of this
    section:
                ``(1) Final adverse action.--
                        ``(A) In general.--The term `final adverse
                    action' includes:
                                ``(i) Civil judgments against a
                            health care provider, supplier, or
                            practitioner in Federal or State court
                            related to the delivery of a health
                            care item or service.
                                ``(ii) Federal or State criminal
                            convictions related to the delivery of
                            a health care item or service.
                                ``(iii) Actions by Federal or State
                            agencies responsible for the licensing
                            and certification of health care
                            providers, suppliers, and licensed
                            health care practitioners, including--
                                        ``(I) formal or official
                                    actions, such as revocation or
                                    suspension of a license (and
                                    the length of any such
                                    suspension), reprimand, censure
                                    or probation,
                                        ``(II) any other loss of
                                    license or the right to apply
                                    for, or renew, a license of the
                                    provider, supplier, or
                                    practitioner, whether by
                                    operation of law, voluntary
                                    surrender, non-renewability, or
                                    otherwise, or
                                        ``(III) any other negative
                                    action or finding by such
                                    Federal or State agency that is
                                    publicly available information.
                                ``(iv) Exclusion from participation
                            in Federal or State health care
                            programs (as defined in sections
                            1128B(f) and 1128(h), respectively).
                                ``(v) Any other adjudicated actions
                            or decisions that the Secretary shall
                            establish by regulation.
                        ``(B) Exception.--The term does not include
                    any action with respect to a malpractice claim.
                ``(2) Practitioner.--The terms `licensed health
            care practitioner', `licensed practitioner', and
            `practitioner' mean, with respect to a State, an
            individual who is licensed or otherwise authorized by
            the State to provide health care services (or any
            individual who, without authority holds himself or
            herself out to be so licensed or authorized).
                ``(3) Government agency.--The term `Government
            agency' shall include:
                        ``(A) The Department of Justice.
                        ``(B) The Department of Health and Human
                    Services.
                        ``(C) Any other Federal agency that either
                    administers or provides payment for the
                    delivery of health care services, including,
                    but not limited to the Department of Defense
                    and the Veterans' Administration.
                        ``(D) State law enforcement agencies.
                        ``(E) State medicaid fraud control units.
                        ``(F) Federal or State agencies responsible
                    for the licensing and certification of health
                    care providers and licensed health care
                    practitioners.
                ``(4) Health plan.--The term `health plan' has the
            meaning given such term by section 1128C(c).
                ``(5) Determination of conviction.--For purposes of
            paragraph (1), the existence of a conviction shall be
            determined under paragraph (4) of section 1128(i).''.
        (b) Improved Prevention in Issuance of Medicare Provider
    Numbers.--Section 1842(r) (42 U.S.C. 1395u(r)) is amended by
    adding at the end the following new sentence: ``Under such
    system, the Secretary may impose appropriate fees on such
    physicians to cover the costs of investigation and
    recertification activities with respect to the issuance of the
    identifiers.''.

                      Subtitle D--Civil Monetary Penalties

    SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

        (a) General Civil Monetary Penalties.--Section 1128A (42
    U.S.C. 1320a-7a) is amended as follows:
                (1) In the third sentence of subsection (a), by
            striking ``programs under title XVIII'' and inserting
            ``Federal health care programs (as defined in section
            1128B(f)(1))''.
                (2) In subsection (f)--
                        (A) by redesignating paragraph (3) as
                    paragraph (4); and
                        (B) by inserting after paragraph (2) the
                    following new paragraph:
                ``(3) With respect to amounts recovered arising out
            of a claim under a Federal health care program (as
            defined in section 1128B(f)), the portion of such
            amounts as is determined to have been paid by the
            program shall be repaid to the program, and the portion
            of such amounts attributable to the amounts recovered
            under this section by reason of the amendments made by
            the Health Insurance Portability and Accountability Act
            of 1996 (as estimated by the Secretary) shall be
            deposited into the Federal Hospital Insurance Trust
            Fund pursuant to section 1817(k)(2)(C).''.
                (3) In subsection (i)--
                        (A) in paragraph (2), by striking ``title
                    V, XVIII, XIX, or XX of this Act'' and
                    inserting ``a Federal health care program (as
                    defined in section 1128B(f))'',
                        (B) in paragraph (4), by striking ``a
                    health insurance or medical services program
                    under title XVIII or XIX of this Act'' and
                    inserting ``a Federal health care program (as
                    so defined)'', and
                        (C) in paragraph (5), by striking ``title
                    V, XVIII, XIX, or XX'' and inserting ``a
                    Federal health care program (as so defined)''.
                (4) By adding at the end the following new
            subsection:
        ``(m)(1) For purposes of this section, with respect to a
    Federal health care program not contained in this Act,
    references to the Secretary in this section shall be deemed to
    be references to the Secretary or Administrator of the
    department or agency with jurisdiction over such program and
    references to the Inspector General of the Department of Health
    and Human Services in this section shall be deemed to be
    references to the Inspector General of the applicable
    department or agency.
        ``(2)(A) The Secretary and Administrator of the departments
    and agencies referred to in paragraph (1) may include in any
    action pursuant to this section, claims within the jurisdiction
    of other Federal departments or agencies as long as the
    following conditions are satisfied:
                ``(i) The case involves primarily claims submitted
            to the Federal health care programs of the department
            or agency initiating the action.
                ``(ii) The Secretary or Administrator of the
            department or agency initiating the action gives notice
            and an opportunity to participate in the investigation
            to the Inspector General of the department or agency
            with primary jurisdiction over the Federal health care
            programs to which the claims were submitted.
        ``(B) If the conditions specified in subparagraph (A) are
    fulfilled, the Inspector General of the department or agency
    initiating the action is authorized to exercise all powers
    granted under the Inspector General Act of 1978 (5 U.S.C. App.)
    with respect to the claims submitted to the other departments
    or agencies to the same manner and extent as provided in that
    Act with respect to claims submitted to such departments or
    agencies.''.
        (b) Excluded Individual Retaining Ownership or Control
    Interest in Participating Entity.--Section 1128A(a) (42 U.S.C.
    1320a-7a(a)) is amended--
                (1) by striking ``or'' at the end of paragraph
            (1)(D);
                (2) by striking ``, or'' at the end of paragraph
            (2) and inserting a semicolon;
                (3) by striking the semicolon at the end of
            paragraph (3) and inserting ``; or''; and
                (4) by inserting after paragraph (3) the following
            new paragraph:
                ``(4) in the case of a person who is not an
            organization, agency, or other entity, is excluded from
            participating in a program under title XVIII or a State
            health care program in accordance with this subsection
            or under section 1128 and who, at the time of a
            violation of this subsection--
                        ``(A) retains a direct or indirect
                    ownership or control interest in an entity that
                    is participating in a program under title XVIII
                    or a State health care program, and who knows
                    or should know of the action constituting the
                    basis for the exclusion; or
                        ``(B) is an officer or managing employee
                    (as defined in section 1126(b)) of such an
                    entity;''.
        (c) Modifications of Amounts of Penalties and
    Assessments.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as
    amended by subsection (b), is amended in the matter following
    paragraph (4)--
                (1) by striking ``$2,000'' and inserting
            ``$10,000'';
                (2) by inserting ``; in cases under paragraph (4),
            $10,000 for each day the prohibited relationship
            occurs'' after ``false or misleading information was
            given''; and
                (3) by striking ``twice the amount'' and inserting
            ``3 times the amount''.
        (d) Clarification of Level of Knowledge Required for
    Imposition of Civil Monetary Penalties.--
                (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-
            7a(a)) is amended--
                        (A) in paragraphs (1) and (2), by inserting
                    ``knowingly'' before ``presents'' each place it
                    appears; and
                        (B) in paragraph (3), by striking ``gives''
                    and inserting ``knowingly gives or causes to be
                    given''.
                (2) Definition of standard.--Section 1128A(i) (42
            U.S.C. 1320a-7a(i)), as amended by subsection (h)(2),
            is amended by adding at the end the following new
            paragraph:
                ``(7) The term `should know' means that a person,
            with respect to information--
                        ``(A) acts in deliberate ignorance of the
                    truth or falsity of the information; or
                        ``(B) acts in reckless disregard of the
                    truth or falsity of the information,

            and no proof of specific intent to defraud is
            required.''.
        (e) Claim for Item or Service Based on Incorrect Coding or
    Medically Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C.
    1320a-7a(a)(1)), as amended by subsection (b), is amended--
                (1) in subparagraph (A) by striking ``claimed,''
            and inserting ``claimed, including any person who
            engages in a pattern or practice of presenting or
            causing to be presented a claim for an item or service
            that is based on a code that the person knows or should
            know will result in a greater payment to the person
            than the code the person knows or should know is
            applicable to the item or service actually provided,'';
                (2) in subparagraph (C), by striking ``or'' at the
            end;
                (3) in subparagraph (D), by striking the semicolon
            and inserting ``, or''; and
                (4) by inserting after subparagraph (D) the
            following new subparagraph:
                        ``(E) is for a pattern of medical or other
                    items or services that a person knows or should
                    know are not medically necessary;''.
        (f) Sanctions Against Practitioners and Persons for Failure
    To Comply With Statutory Obligations.--Section 1156(b)(3) (42
    U.S.C. 1320c-5(b)(3)) is amended by striking ``the actual or
    estimated cost'' and inserting ``up to $10,000 for each
    instance''.
        (g) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C.
    1395mm(i)(6)), as amended by section 215(a)(2), is amended by
    adding at the end the following new subparagraph:
        ``(D) The provisions of section 1128A (other than
    subsections (a) and (b)) shall apply to a civil money penalty
    under subparagraph (B)(i) or (C)(i) in the same manner as such
    provisions apply to a civil money penalty or proceeding under
    section 1128A(a).''.
        (h) Prohibition Against Offering Inducements to Individuals
    Enrolled Under Programs or Plans.--
                (1) Offer of remuneration.--Section 1128A(a) (42
            U.S.C. 1320a-7a(a)), as amended by subsection (b), is
            amended--
                        (A) by striking ``or'' at the end of
                    paragraph (3);
                        (B) by striking the semicolon at the end of
                    paragraph (4) and inserting ``; or''; and
                        (D) by inserting after paragraph (4) the
                    following new paragraph:
                ``(5) offers to or transfers remuneration to any
            individual eligible for benefits under title XVIII of
            this Act, or under a State health care program (as
            defined in section 1128(h)) that such person knows or
            should know is likely to influence such individual to
            order or receive from a particular provider,
            practitioner, or supplier any item or service for which
            payment may be made, in whole or in part, under title
            XVIII, or a State health care program (as so
            defined);''.
                (2) Remuneration defined.--Section 1128A(i) (42
            U.S.C. 1320a-7a(i)) is amended by adding at the end the
            following new paragraph:
                ``(6) The term `remuneration' includes the waiver
            of coinsurance and deductible amounts (or any part
            thereof), and transfers of items or services for free
            or for other than fair market value. The term
            `remuneration' does not include--
                        ``(A) the waiver of coinsurance and
                    deductible amounts by a person, if--
                                ``(i) the waiver is not offered as
                            part of any advertisement or
                            solicitation;
                                ``(ii) the person does not
                            routinely waive coinsurance or
                            deductible amounts; and
                                ``(iii) the person--
                                        ``(I) waives the
                                    coinsurance and deductible
                                    amounts after determining in
                                    good faith that the individual
                                    is in financial need;
                                        ``(II) fails to collect
                                    coinsurance or deductible
                                    amounts after making reasonable
                                    collection efforts; or
                                        ``(III) provides for any
                                    permissible waiver as specified
                                    in section 1128B(b)(3) or in
                                    regulations issued by the
                                    Secretary;
                        ``(B) differentials in coinsurance and
                    deductible amounts as part of a benefit plan
                    design as long as the differentials have been
                    disclosed in writing to all beneficiaries,
                    third party payers, and providers, to whom
                    claims are presented and as long as the
                    differentials meet the standards as defined in
                    regulations promulgated by the Secretary not
                    later than 180 days after the date of the
                    enactment of the Health Insurance Portability
                    and Accountability Act of 1996; or
                        ``(C) incentives given to individuals to
                    promote the delivery of preventive care as
                    determined by the Secretary in regulations so
                    promulgated.''.
        (i) Effective Date.--The amendments made by this section
    shall apply to acts or omissions occurring on or after January
    1, 1997.

    SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH SERVICES.

        (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b))
    is amended by adding at the end the following new paragraph:
        ``(3)(A) Any physician who executes a document described in
    subparagraph (B) with respect to an individual knowing that all
    of the requirements referred to in such subparagraph are not
    met with respect to the individual shall be subject to a civil
    monetary penalty of not more than the greater of--
                ``(i) $5,000, or
                ``(ii) three times the amount of the payments under
            title XVIII for home health services which are made
            pursuant to such certification.
        ``(B) A document described in this subparagraph is any
    document that certifies, for purposes of title XVIII, that an
    individual meets the requirements of section 1814(a)(2)(C) or
    1835(a)(2)(A) in the case of home health services furnished to
    the individual.''.
        (b) Effective Date.--The amendment made by subsection (a)
    shall apply to certifications made on or after the date of the
    enactment of this Act.

                     Subtitle E--Revisions to Criminal Law

    SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH CARE OFFENSE.

        (a) In General.--Chapter 1 of title 18, United States Code,
    is amended by adding at the end the following:

    ``Sec. 24. Definitions relating to Federal health care offense

        ``(a) As used in this title, the term `Federal health care
    offense' means a violation of, or a criminal conspiracy to
    violate--
                ``(1) section 669, 1035, 1347, or 1518 of this
            title;
                ``(2) section 287, 371, 664, 666, 1001, 1027, 1341,
            1343, or 1954 of this title, if the violation or
            conspiracy relates to a health care benefit program.
        ``(b) As used in this title, the term `health care benefit
    program' means any public or private plan or contract,
    affecting commerce, under which any medical benefit, item, or
    service is provided to any individual, and includes any
    individual or entity who is providing a medical benefit, item,
    or service for which payment may be made under the plan or
    contract.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 2 of title 18, United States Code, is
    amended by inserting after the item relating to section 23 the
    following new item:

    ``24. Definitions relating to Federal health care offense.''.

    SEC. 242. HEALTH CARE FRAUD.

        (a) Offense.--
                (1) In general.--Chapter 63 of title 18, United
            States Code, is amended by adding at the end the
            following:

    ``Sec. 1347. Health care fraud

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

    in connection with the delivery of or payment for health care
    benefits, items, or services, shall be fined under this title
    or imprisoned not more than 10 years, or both. If the violation
    results in serious bodily injury (as defined in section 1365 of
    this title), such person shall be fined under this title or
    imprisoned not more than 20 years, or both; and if the
    violation results in death, such person shall be fined under
    this title, or imprisoned for any term of years or for life, or
    both.''.
                (2) Clerical amendment.--The table of sections at
            the beginning of chapter 63 of title 18, United States
            Code, is amended by adding at the end the following:
    ``1347. Health care fraud.''.
        (b) Criminal Fines Deposited in Federal Hospital Insurance
    Trust Fund.--The Secretary of the Treasury shall deposit into
    the Federal Hospital Insurance Trust Fund pursuant to section
    1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an
    amount equal to the criminal fines imposed under section 1347
    of title 18, United States Code (relating to health care
    fraud).

    SEC. 243. THEFT OR EMBEZZLEMENT.

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

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

        ``(a) Whoever knowingly and willfully embezzles, steals, or
    otherwise without authority converts to the use of any person
    other than the rightful owner, or intentionally misapplies any
    of the moneys, funds, securities, premiums, credits, property,
    or other assets of a health care benefit program, shall be
    fined under this title or imprisoned not more than 10 years, or
    both; but if the value of such property does not exceed the sum
    of $100 the defendant shall be fined under this title or
    imprisoned not more than one year, or both.
        ``(b) As used in this section, the term `health care
    benefit program' has the meaning given such term in section
    1347(b) of this title.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 31 of title 18, United States Code, is
    amended by adding at the end the following:

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

    SEC. 244. FALSE STATEMENTS.

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

    ``Sec. 1035. False statements relating to health care matters

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

    in connection with the delivery of or payment for health care
    benefits, items, or services, shall be fined under this title
    or imprisoned not more than 5 years, or both.
        ``(b) As used in this section, the term `health care
    benefit program' has the meaning given such term in section
    1347(b) of this title.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 47 of title 18, United States Code, is
    amended by adding at the end the following new item:

    ``1035. False statements relating to health care matters.''.

    SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH CARE
                        OFFENSES.

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

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

        ``(a) Whoever willfully prevents, obstructs, misleads,
    delays or attempts to prevent, obstruct, mislead, or delay the
    communication of information or records relating to a violation
    of a Federal health care offense to a criminal investigator
    shall be fined under this title or imprisoned not more than 5
    years, or both.
        ``(b) As used in this section the term `criminal
    investigator' means any individual duly authorized by a
    department, agency, or armed force of the United States to
    conduct or engage in investigations for prosecutions for
    violations of health care offenses.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 73 of title 18, United States Code, is
    amended by adding at the end the following new item:
    ``1518. Obstruction of criminal investigations of health care
              offenses.''.

    SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

        Section 1956(c)(7) of title 18, United States Code, is
    amended by adding at the end the following:
                        ``(F) Any act or activity constituting an
                    offense involving a Federal health care
                    offense.''.

    SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES.

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

    SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

        (a) In General.--Chapter 223 of title 18, United States
    Code, is amended by adding after section 3485 the following:

    ``Sec. 3486. Authorized investigative demand procedures

        ``(a) Authorization.--(1) In any investigation relating to
    any act or activity involving a Federal health care offense,
    the Attorney General or the Attorney General's designee may
    issue in writing and cause to be served a subpoena--
                ``(A) requiring the production of any records
            (including any books, papers, documents, electronic
            media, or other objects or tangible things), which may
            be relevant to an authorized law enforcement inquiry,
            that a person or legal entity may possess or have care,
            custody, or control; or
                ``(B) requiring a custodian of records to give
            testimony concerning the production and authentication
            of such records.
        ``(2) A subpoena under this subsection shall describe the
    objects required to be produced and prescribe a return date
    within a reasonable period of time within which the objects can
    be assembled and made available.
        ``(3) The production of records shall not be required under
    this section at any place more than 500 miles distant from the
    place where the subpoena for the production of such records is
    served.
        ``(4) Witnesses summoned under this section shall be paid
    the same fees and mileage that are paid witnesses in the courts
    of the United States.
        ``(b) Service.--A subpoena issued under this section may be
    served by any person who is at least 18 years of age and is
    designated in the subpoena to serve it. Service upon a natural
    person may be made by personal delivery of the subpoena to him.
    Service may be made upon a domestic or foreign corporation or
    upon a partnership or other unincorporated association which is
    subject to suit under a common name, by delivering the subpoena
    to an officer, to a managing or general agent, or to any other
    agent authorized by appointment or by law to receive service of
    process. The affidavit of the person serving the subpoena
    entered on a true copy thereof by the person serving it shall
    be proof of service.
        ``(c) Enforcement.--In the case of contumacy by or refusal
    to obey a subpoena issued to any person, the Attorney General
    may invoke the aid of any court of the United States within the
    jurisdiction of which the investigation is carried on or of
    which the subpoenaed person is an inhabitant, or in which he
    carries on business or may be found, to compel compliance with
    the subpoena. The court may issue an order requiring the
    subpoenaed person to appear before the Attorney General to
    produce records, if so ordered, or to give testimony concerning
    the production and authentication of such records. Any failure
    to obey the order of the court may be punished by the court as
    a contempt thereof. All process in any such case may be served
    in any judicial district in which such person may be found.
        ``(d) Immunity From Civil Liability.--Notwithstanding any
    Federal, State, or local law, any person, including officers,
    agents, and employees, receiving a summons under this section,
    who complies in good faith with the summons and thus produces
    the materials sought, shall not be liable in any court of any
    State or the United States to any customer or other person for
    such production or for nondisclosure of that production to the
    customer.
        ``(e) Limitation on Use.--(1) Health information about an
    individual that is disclosed under this section may not be used
    in, or disclosed to any person for use in, any administrative,
    civil, or criminal action or investigation directed against the
    individual who is the subject of the information unless the
    action or investigation arises out of and is directly related
    to receipt of health care or payment for health care or action
    involving a fraudulent claim related to health; or if
    authorized by an appropriate order of a court of competent
    jurisdiction, granted after application showing good cause
    therefor.
        ``(2) In assessing good cause, the court shall weigh the
    public interest and the need for disclosure against the injury
    to the patient, to the physician-patient relationship, and to
    the treatment services.
        ``(3) Upon the granting of such order, the court, in
    determining the extent to which any disclosure of all or any
    part of any record is necessary, shall impose appropriate
    safeguards against unauthorized disclosure.''.
        (b) Clerical Amendment.--The table of sections at the
    beginning of chapter 223 of title 18, United States Code, is
    amended by inserting after the item relating to section 3485
    the following new item:

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

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

    SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

        (a) In General.--Section 982(a) of title 18, United States
    Code, is amended by adding after paragraph (5) the following
    new paragraph:
        ``(6) The court, in imposing sentence on a person convicted
    of a Federal health care offense, shall order the person to
    forfeit property, real or personal, that constitutes or is
    derived, directly or indirectly, from gross proceeds traceable
    to the commission of the offense.''.
        (b) Conforming Amendment.--Section 982(b)(1)(A) of title
    18, United States Code, is amended by inserting ``or (a)(6)''
    after ``(a)(1)''.
        (c) Property Forfeited Deposited in Federal Hospital
    Insurance Trust Fund.--
                (1) In general.--After the payment of the costs of
            asset forfeiture has been made and after all
            restoration payments (if any) have been made, and
            notwithstanding any other provision of law, the
            Secretary of the Treasury shall deposit into the
            Federal Hospital Insurance Trust Fund pursuant to
            section 1817(k)(2)(C) of the Social Security Act, as
            added by section 301(b), an amount equal to the net
            amount realized from the forfeiture of property by
            reason of a Federal health care offense pursuant to
            section 982(a)(6) of title 18, United States Code.
                (2) Costs of asset forfeiture.--For purposes of
            paragraph (1), the term ``payment of the costs of asset
            forfeiture'' means--
                        (A) the payment, at the discretion of the
                    Attorney General, of any expenses necessary to
                    seize, detain, inventory, safeguard, maintain,
                    advertise, sell, or dispose of property under
                    seizure, detention, or forfeited, or of any
                    other necessary expenses incident to the
                    seizure, detention, forfeiture, or disposal of
                    such property, including payment for--
                                (i) contract services;
                                (ii) the employment of outside
                            contractors to operate and manage
                            properties or provide other specialized
                            services necessary to dispose of such
                            properties in an effort to maximize the
                            return from such properties; and
                                (iii) reimbursement of any Federal,
                            State, or local agency for any
                            expenditures made to perform the
                            functions described in this
                            subparagraph;
                        (B) at the discretion of the Attorney
                    General, the payment of awards for information
                    or assistance leading to a civil or criminal
                    forfeiture involving any Federal agency
                    participating in the Health Care Fraud and
                    Abuse Control Account;
                        (C) the compromise and payment of valid
                    liens and mortgages against property that has
                    been forfeited, subject to the discretion of
                    the Attorney General to determine the validity
                    of any such lien or mortgage and the amount of
                    payment to be made, and the employment of
                    attorneys and other personnel skilled in State
                    real estate law as necessary;
                        (D) payment authorized in connection with
                    remission or mitigation procedures relating to
                    property forfeited; and
                        (E) the payment of State and local property
                    taxes on forfeited real property that accrued
                    between the date of the violation giving rise
                    to the forfeiture and the date of the
                    forfeiture order.
                (3) Restoration payment.--Notwithstanding any other
            provision of law, if the Federal health care offense
            referred to in paragraph (1) resulted in a loss to an
            employee welfare benefit plan within the meaning of
            section 3(1) of the Employee Retirement Income Security
            Act of 1974, the Secretary of the Treasury shall
            transfer to such employee welfare benefit plan, from
            the amount realized from the forfeiture of property
            referred to in paragraph (1), an amount equal to such
            loss. For purposes of paragraph (1), the term
            `restoration payment' means the amount transferred to
            an employee welfare benefit plan pursuant to this
            paragraph.''.

    SEC. 250. RELATION TO ERISA AUTHORITY.

        Nothing in this subtitle shall be construed as affecting
    the authority of the Secretary of Labor under section 506(b) of
    the Employee Retirement Income Security Act of 1974, including
    the Secretary's authority with respect to violations of title
    18, United States Code (as amended by this subtitle).

                   Subtitle F--Administrative Simplification

    SEC. 261. PURPOSE.

        It is the purpose of this subtitle to improve the medicare
    program under title XVIII of the Social Security Act, the
    medicaid program under title XIX of such Act, and the
    efficiency and effectiveness of the health care system, by
    encouraging the development of a health information system
    through the establishment of standards and requirements for the
    electronic transmission of certain health information.

    SEC. 262. ADMINISTRATIVE SIMPLIFICATION.

        (a) In General.--Title XI (42 U.S.C. 1301 et seq.) is
    amended by adding at the end the following:

                    ``Part C--Administrative Simplification

                                 ``definitions

        ``Sec. 1171. For purposes of this part:
                ``(1) Code set.--The term `code set' means any set
            of codes used for encoding data elements, such as
            tables of terms, medical concepts, medical diagnostic
            codes, or medical procedure codes.
                ``(2) Health care clearinghouse.--The term `health
            care clearinghouse' means a public or private entity
            that processes or facilitates the processing of
            nonstandard data elements of health information into
            standard data elements.
                ``(3) Health care provider.--The term `health care
            provider' includes a provider of services (as defined
            in section 1861(u)), a provider of medical or other
            health services (as defined in section 1861(s)), and
            any other person furnishing health care services or
            supplies.
                ``(4) Health information.--The term `health
            information' means any information, whether oral or
            recorded in any form or medium, that--
                        ``(A) is created or received by a health
                    care provider, health plan, public health
                    authority, employer, life insurer, school or
                    university, or health care clearinghouse; and
                        ``(B) relates to the past, present, or
                    future physical or mental health or condition
                    of an individual, the provision of health care
                    to an individual, or the past, present, or
                    future payment for the provision of health care
                    to an individual.
                ``(5) Health plan.--The term `health plan' means an
            individual or group plan that provides, or pays the
            cost of, medical care (as such term is defined in
            section 2791 of the Public Health Service Act). Such
            term includes the following, and any combination
            thereof:
                        ``(A) A group health plan (as defined in
                    section 2791(a) of the Public Health Service
                    Act), but only if the plan--
                                ``(i) has 50 or more participants
                            (as defined in section 3(7) of the
                            Employee Retirement Income Security Act
                            of 1974); or
                                ``(ii) is administered by an entity
                            other than the employer who established
                            and maintains the plan.
                        ``(B) A health insurance issuer (as defined
                    in section 2791(b) of the Public Health Service
                    Act).
                        ``(C) A health maintenance organization (as
                    defined in section 2791(b) of the Public Health
                    Service Act).
                        ``(D) Part A or part B of the medicare
                    program under title XVIII.
                        ``(E) The medicaid program under title XIX.
                        ``(F) A medicare supplemental policy (as
                    defined in section 1882(g)(1)).
                        ``(G) A long-term care policy, including a
                    nursing home fixed indemnity policy (unless the
                    Secretary determines that such a policy does
                    not provide sufficiently comprehensive coverage
                    of a benefit so that the policy should be
                    treated as a health plan).
                        ``(H) An employee welfare benefit plan or
                    any other arrangement which is established or
                    maintained for the purpose of offering or
                    providing health benefits to the employees of 2
                    or more employers.
                        ``(I) The health care program for active
                    military personnel under title 10, United
                    States Code.
                        ``(J) The veterans health care program
                    under chapter 17 of title 38, United States
                    Code.
                        ``(K) The Civilian Health and Medical
                    Program of the Uniformed Services (CHAMPUS), as
                    defined in section 1072(4) of title 10, United
                    States Code.
                        ``(L) The Indian health service program
                    under the Indian Health Care Improvement Act
                    (25 U.S.C. 1601 et seq.).
                        ``(M) The Federal Employees Health Benefit
                    Plan under chapter 89 of title 5, United States
                    Code.
                ``(6) Individually identifiable health
            information.--The term `individually identifiable
            health information' means any information, including
            demographic information collected from an individual,
            that--
                        ``(A) is created or received by a health
                    care provider, health plan, employer, or health
                    care clearinghouse; and
                        ``(B) relates to the past, present, or
                    future physical or mental health or condition
                    of an individual, the provision of health care
                    to an individual, or the past, present, or
                    future payment for the provision of health care
                    to an individual, and--
                                ``(i) identifies the individual; or
                                ``(ii) with respect to which there
                            is a reasonable basis to believe that
                            the information can be used to identify
                            the individual.
                ``(7) Standard.--The term `standard', when used
            with reference to a data element of health information
            or a transaction referred to in section 1173(a)(1),
            means any such data element or transaction that meets
            each of the standards and implementation specifications
            adopted or established by the Secretary with respect to
            the data element or transaction under sections 1172
            through 1174.
                ``(8) Standard setting organization.--The term
            `standard setting organization' means a standard
            setting organization accredited by the American
            National Standards Institute, including the National
            Council for Prescription Drug Programs, that develops
            standards for information transactions, data elements,
            or any other standard that is necessary to, or will
            facilitate, the implementation of this part.

                ``general requirements for adoption of standards

        ``Sec. 1172. (a) Applicability.--Any standard adopted under
    this part shall apply, in whole or in part, to the following
    persons:
                ``(1) A health plan.
                ``(2) A health care clearinghouse.
                ``(3) A health care provider who transmits any
            health information in electronic form in connection
            with a transaction referred to in section 1173(a)(1).
        ``(b) Reduction of Costs.--Any standard adopted under this
    part shall be consistent with the objective of reducing the
    administrative costs of providing and paying for health care.
        ``(c) Role of Standard Setting Organizations.--
                ``(1) In general.--Except as provided in paragraph
            (2), any standard adopted under this part shall be a
            standard that has been developed, adopted, or modified
            by a standard setting organization.
                ``(2) Special rules.--
                        ``(A) Different standards.--The Secretary
                    may adopt a standard that is different from any
                    standard developed, adopted, or modified by a
                    standard setting organization, if--
                                ``(i) the different standard will
                            substantially reduce administrative
                            costs to health care providers and
                            health plans compared to the
                            alternatives; and
                                ``(ii) the standard is promulgated
                            in accordance with the rulemaking
                            procedures of subchapter III of chapter
                            5 of title 5, United States Code.
                        ``(B) No standard by standard setting
                    organization.--If no standard setting
                    organization has developed, adopted, or
                    modified any standard relating to a standard
                    that the Secretary is authorized or required to
                    adopt under this part--
                                ``(i) paragraph (1) shall not
                            apply; and
                                ``(ii) subsection (f) shall apply.
                ``(3) Consultation requirement.--
                        ``(A) In general.--A standard may not be
                    adopted under this part unless--
                                ``(i) in the case of a standard
                            that has been developed, adopted, or
                            modified by a standard setting
                            organization, the organization
                            consulted with each of the
                            organizations described in subparagraph
                            (B) in the course of such development,
                            adoption, or modification; and
                                ``(ii) in the case of any other
                            standard, the Secretary, in complying
                            with the requirements of subsection
                            (f), consulted with each of the
                            organizations described in subparagraph
                            (B) before adopting the standard.
                        ``(B) Organizations described.--The
                    organizations referred to in subparagraph (A)
                    are the following:
                                ``(i) The National Uniform Billing
                            Committee.
                                ``(ii) The National Uniform Claim
                            Committee.
                                ``(iii) The Workgroup for
                            Electronic Data Interchange.
                                ``(iv) The American Dental
                            Association.
        ``(d) Implementation Specifications.--The Secretary shall
    establish specifications for implementing each of the standards
    adopted under this part.
        ``(e) Protection of Trade Secrets.--Except as otherwise
    required by law, a standard adopted under this part shall not
    require disclosure of trade secrets or confidential commercial
    information by a person required to comply with this part.
        ``(f) Assistance to the Secretary.--In complying with the
    requirements of this part, the Secretary shall rely on the
    recommendations of the National Committee on Vital and Health
    Statistics established under section 306(k) of the Public
    Health Service Act (42 U.S.C. 242k(k)), and shall consult with
    appropriate Federal and State agencies and private
    organizations. The Secretary shall publish in the Federal
    Register any recommendation of the National Committee on Vital
    and Health Statistics regarding the adoption of a standard
    under this part.
        ``(g) Application to Modifications of Standards.--This
    section shall apply to a modification to a standard (including
    an addition to a standard) adopted under section 1174(b) in the
    same manner as it applies to an initial standard adopted under
    section 1174(a).

           ``standards for information transactions and data elements

        ``Sec. 1173. (a) Standards to Enable Electronic Exchange.--
                ``(1) In general.--The Secretary shall adopt
            standards for transactions, and data elements for such
            transactions, to enable health information to be
            exchanged electronically, that are appropriate for--
                        ``(A) the financial and administrative
                    transactions described in paragraph (2); and
                        ``(B) other financial and administrative
                    transactions determined appropriate by the
                    Secretary, consistent with the goals of
                    improving the operation of the health care
                    system and reducing administrative costs.
                ``(2) Transactions.--The transactions referred to
            in paragraph (1)(A) are transactions with respect to
            the following:
                        ``(A) Health claims or equivalent encounter
                    information.
                        ``(B) Health claims attachments.
                        ``(C) Enrollment and disenrollment in a
                    health plan.
                        ``(D) Eligibility for a health plan.
                        ``(E) Health care payment and remittance
                    advice.
                        ``(F) Health plan premium payments.
                        ``(G) First report of injury.
                        ``(H) Health claim status.
                        ``(I) Referral certification and
                    authorization.
                ``(3) Accommodation of specific providers.--The
            standards adopted by the Secretary under paragraph (1)
            shall accommodate the needs of different types of
            health care providers.
        ``(b) Unique Health Identifiers.--
                ``(1) In general.--The Secretary shall adopt
            standards providing for a standard unique health
            identifier for each individual, employer, health plan,
            and health care provider for use in the health care
            system. In carrying out the preceding sentence for each
            health plan and health care provider, the Secretary
            shall take into account multiple uses for identifiers
            and multiple locations and specialty classifications
            for health care providers.
                ``(2) Use of identifiers.--The standards adopted
            under paragraphs (1) shall specify the purposes for
            which a unique health identifier may be used.
        ``(c) Code Sets.--
                ``(1) In general.--The Secretary shall adopt
            standards that--
                        ``(A) select code sets for appropriate data
                    elements for the transactions referred to in
                    subsection (a)(1) from among the code sets that
                    have been developed by private and public
                    entities; or
                        ``(B) establish code sets for such data
                    elements if no code sets for the data elements
                    have been developed.
                ``(2) Distribution.--The Secretary shall establish
            efficient and low-cost procedures for distribution
            (including electronic distribution) of code sets and
            modifications made to such code sets under section
            1174(b).
        ``(d) Security Standards for Health Information.--
                ``(1) Security standards.--The Secretary shall
            adopt security standards that--
                        ``(A) take into account--
                                ``(i) the technical capabilities of
                            record systems used to maintain health
                            information;
                                ``(ii) the costs of security
                            measures;
                                ``(iii) the need for training
                            persons who have access to health
                            information;
                                ``(iv) the value of audit trails in
                            computerized record systems; and
                                ``(v) the needs and capabilities of
                            small health care providers and rural
                            health care providers (as such
                            providers are defined by the
                            Secretary); and
                        ``(B) ensure that a health care
                    clearinghouse, if it is part of a larger
                    organization, has policies and security
                    procedures which isolate the activities of the
                    health care clearinghouse with respect to
                    processing information in a manner that
                    prevents unauthorized access to such
                    information by such larger organization.
                ``(2) Safeguards.--Each person described in section
            1172(a) who maintains or transmits health information
            shall maintain reasonable and appropriate
            administrative, technical, and physical safeguards--
                        ``(A) to ensure the integrity and
                    confidentiality of the information;
                        ``(B) to protect against any reasonably
                    anticipated--
                                ``(i) threats or hazards to the
                            security or integrity of the
                            information; and
                                ``(ii) unauthorized uses or
                            disclosures of the information; and
                        ``(C) otherwise to ensure compliance with
                    this part by the officers and employees of such
                    person.
        ``(e) Electronic Signature.--
                ``(1) Standards.--The Secretary, in coordination
            with the Secretary of Commerce, shall adopt standards
            specifying procedures for the electronic transmission
            and authentication of signatures with respect to the
            transactions referred to in subsection (a)(1).
                ``(2) Effect of compliance.--Compliance with the
            standards adopted under paragraph (1) shall be deemed
            to satisfy Federal and State statutory requirements for
            written signatures with respect to the transactions
            referred to in subsection (a)(1).
        ``(f) Transfer of Information Among Health Plans.--The
    Secretary shall adopt standards for transferring among health
    plans appropriate standard data elements needed for the
    coordination of benefits, the sequential processing of claims,
    and other data elements for individuals who have more than one
    health plan.

                     ``timetables for adoption of standards

        ``Sec. 1174. (a) Initial Standards.--The Secretary shall
    carry out section 1173 not later than 18 months after the date
    of the enactment of the Health Insurance Portability and
    Accountability Act of 1996, except that standards relating to
    claims attachments shall be adopted not later than 30 months
    after such date.
        ``(b) Additions and Modifications to Standards.--
                ``(1) In general.--Except as provided in paragraph
            (2), the Secretary shall review the standards adopted
            under section 1173, and shall adopt modifications to
            the standards (including additions to the standards),
            as determined appropriate, but not more frequently than
            once every 12 months. Any addition or modification to a
            standard shall be completed in a manner which minimizes
            the disruption and cost of compliance.
                ``(2) Special rules.--
                        ``(A) First 12-month period.--Except with
                    respect to additions and modifications to code
                    sets under subparagraph (B), the Secretary may
                    not adopt any modification to a standard
                    adopted under this part during the 12-month
                    period beginning on the date the standard is
                    initially adopted, unless the Secretary
                    determines that the modification is necessary
                    in order to permit compliance with the
                    standard.
                        ``(B) Additions and modifications to code
                    sets.--
                                ``(i) In general.--The Secretary
                            shall ensure that procedures exist for
                            the routine maintenance, testing,
                            enhancement, and expansion of code
                            sets.
                                ``(ii) Additional rules.--If a code
                            set is modified under this subsection,
                            the modified code set shall include
                            instructions on how data elements of
                            health information that were encoded
                            prior to the modification may be
                            converted or translated so as to
                            preserve the informational value of the
                            data elements that existed before the
                            modification. Any modification to a
                            code set under this subsection shall be
                            implemented in a manner that minimizes
                            the disruption and cost of complying
                            with such modification.

                                 ``requirements

        ``Sec. 1175. (a) Conduct of Transactions by Plans.--
                ``(1) In general.--If a person desires to conduct a
            transaction referred to in section 1173(a)(1) with a
            health plan as a standard transaction--
                        ``(A) the health plan may not refuse to
                    conduct such transaction as a standard
                    transaction;
                        ``(B) the insurance plan may not delay such
                    transaction, or otherwise adversely affect, or
                    attempt to adversely affect, the person or the
                    transaction on the ground that the transaction
                    is a standard transaction; and
                        ``(C) the information transmitted and
                    received in connection with the transaction
                    shall be in the form of standard data elements
                    of health information.
                ``(2) Satisfaction of requirements.--A health plan
            may satisfy the requirements under paragraph (1) by--
                        ``(A) directly transmitting and receiving
                    standard data elements of health information;
                    or
                        ``(B) submitting nonstandard data elements
                    to a health care clearinghouse for processing
                    into standard data elements and transmission by
                    the health care clearinghouse, and receiving
                    standard data elements through the health care
                    clearinghouse.
                ``(3) Timetable for compliance.--Paragraph (1)
            shall not be construed to require a health plan to
            comply with any standard, implementation specification,
            or modification to a standard or specification adopted
            or established by the Secretary under sections 1172
            through 1174 at any time prior to the date on which the
            plan is required to comply with the standard or
            specification under subsection (b).
        ``(b) Compliance With Standards.--
                ``(1) Initial compliance.--
                        ``(A) In general.--Not later than 24 months
                    after the date on which an initial standard or
                    implementation specification is adopted or
                    established under sections 1172 and 1173, each
                    person to whom the standard or implementation
                    specification applies shall comply with the
                    standard or specification.
                        ``(B) Special rule for small health
                    plans.--In the case of a small health plan,
                    paragraph (1) shall be applied by substituting
                    `36 months' for `24 months'. For purposes of
                    this subsection, the Secretary shall determine
                    the plans that qualify as small health plans.
                ``(2) Compliance with modified standards.--If the
            Secretary adopts a modification to a standard or
            implementation specification under this part, each
            person to whom the standard or implementation
            specification applies shall comply with the modified
            standard or implementation specification at such time
            as the Secretary determines appropriate, taking into
            account the time needed to comply due to the nature and
            extent of the modification. The time determined
            appropriate under the preceding sentence may not be
            earlier than the last day of the 180-day period
            beginning on the date such modification is adopted. The
            Secretary may extend the time for compliance for small
            health plans, if the Secretary determines that such
            extension is appropriate.
                ``(3) Construction.--Nothing in this subsection
            shall be construed to prohibit any person from
            complying with a standard or specification by--
                        ``(A) submitting nonstandard data elements
                    to a health care clearinghouse for processing
                    into standard data elements and transmission by
                    the health care clearinghouse; or
                        ``(B) receiving standard data elements
                    through a health care clearinghouse.

    ``general penalty for failure to comply with requirements and standards

        ``Sec. 1176. (a) General Penalty.--
                ``(1) In general.--Except as provided in subsection
            (b), the Secretary shall impose on any person who
            violates a provision of this part a penalty of not more
            than $100 for each such violation, except that the
            total amount imposed on the person for all violations
            of an identical requirement or prohibition during a
            calendar year may not exceed $25,000.
                ``(2) Procedures.--The provisions of section 1128A
            (other than subsections (a) and (b) and the second
            sentence of subsection (f)) shall apply to the
            imposition of a civil money penalty under this
            subsection in the same manner as such provisions apply
            to the imposition of a penalty under such section
            1128A.
        ``(b) Limitations.--
                ``(1) Offenses otherwise punishable.--A penalty may
            not be imposed under subsection (a) with respect to an
            act if the act constitutes an offense punishable under
            section 1177.
                ``(2) Noncompliance not discovered.--A penalty may
            not be imposed under subsection (a) with respect to a
            provision of this part if it is established to the
            satisfaction of the Secretary that the person liable
            for the penalty did not know, and by exercising
            reasonable diligence would not have known, that such
            person violated the provision.
                ``(3) Failures due to reasonable cause.--
                        ``(A) In general.--Except as provided in
                    subparagraph (B), a penalty may not be imposed
                    under subsection (a) if--
                                ``(i) the failure to comply was due
                            to reasonable cause and not to willful
                            neglect; and
                                ``(ii) the failure to comply is
                            corrected during the 30-day period
                            beginning on the first date the person
                            liable for the penalty knew, or by
                            exercising reasonable diligence would
                            have known, that the failure to comply
                            occurred.
                        ``(B) Extension of period.--
                                ``(i) No penalty.--The period
                            referred to in subparagraph (A)(ii) may
                            be extended as determined appropriate
                            by the Secretary based on the nature
                            and extent of the failure to comply.
                                ``(ii) Assistance.--If the
                            Secretary determines that a person
                            failed to comply because the person was
                            unable to comply, the Secretary may
                            provide technical assistance to the
                            person during the period described in
                            subparagraph (A)(ii). Such assistance
                            shall be provided in any manner
                            determined appropriate by the
                            Secretary.
                ``(4) Reduction.--In the case of a failure to
            comply which is due to reasonable cause and not to
            willful neglect, any penalty under subsection (a) that
            is not entirely waived under paragraph (3) may be
            waived to the extent that the payment of such penalty
            would be excessive relative to the compliance failure
            involved.

     ``wrongful disclosure of individually identifiable health information

        ``Sec. 1177. (a) Offense.--A person who knowingly and in
    violation of this part--
                ``(1) uses or causes to be used a unique health
            identifier;
                ``(2) obtains individually identifiable health
            information relating to an individual; or
                ``(3) discloses individually identifiable health
            information to another person,
    shall be punished as provided in subsection (b).
        ``(b) Penalties.--A person described in subsection (a)
    shall--
                ``(1) be fined not more than $50,000, imprisoned
            not more than 1 year, or both;
                ``(2) if the offense is committed under false
            pretenses, be fined not more than $100,000, imprisoned
            not more than 5 years, or both; and
                ``(3) if the offense is committed with intent to
            sell, transfer, or use individually identifiable health
            information for commercial advantage, personal gain, or
            malicious harm, fined not more than $250,000,
            imprisoned not more than 10 years, or both.

                             ``effect on state law

        ``Sec. 1178. (a) General Effect.--
                ``(1) General rule.--Except as provided in
            paragraph (2), a provision or requirement under this
            part, or a standard or implementation specification
            adopted or established under sections 1172 through
            1174, shall supersede any contrary provision of State
            law, including a provision of State law that requires
            medical or health plan records (including billing
            information) to be maintained or transmitted in written
            rather than electronic form.
                ``(2) Exceptions.--A provision or requirement under
            this part, or a standard or implementation
            specification adopted or established under sections
            1172 through 1174, shall not supersede a contrary
            provision of State law, if the provision of State law--
                        ``(A) is a provision the Secretary
                    determines--
                                ``(i) is necessary--
                                        ``(I) to prevent fraud and
                                    abuse;
                                        ``(II) to ensure
                                    appropriate State regulation of
                                    insurance and health plans;
                                        ``(III) for State reporting
                                    on health care delivery or
                                    costs; or
                                        ``(IV) for other purposes;
                                    or
                                ``(ii) addresses controlled
                            substances; or
                        ``(B) subject to section 264(c)(2) of the
                    Health Insurance Portability and Accountability
                    Act of 1996, relates to the privacy of
                    individually identifiable health information.
        ``(b) Public Health.--Nothing in this part shall be
    construed to invalidate or limit the authority, power, or
    procedures established under any law providing for the
    reporting of disease or injury, child abuse, birth, or death,
    public health surveillance, or public health investigation or
    intervention.
        ``(c) State Regulatory Reporting.--Nothing in this part
    shall limit the ability of a State to require a health plan to
    report, or to provide access to, information for management
    audits, financial audits, program monitoring and evaluation,
    facility licensure or certification, or individual licensure or
    certification.

          ``processing payment transactions by financial institutions

        ``Sec. 1179. To the extent that an entity is engaged in
    activities of a financial institution (as defined in section
    1101 of the Right to Financial Privacy Act of 1978), or is
    engaged in authorizing, processing, clearing, settling,
    billing, transferring, reconciling, or collecting payments, for
    a financial institution, this part, and any standard adopted
    under this part, shall not apply to the entity with respect to
    such activities, including the following:
                ``(1) The use or disclosure of information by the
            entity for authorizing, processing, clearing, settling,
            billing, transferring, reconciling or collecting, a
            payment for, or related to, health plan premiums or
            health care, where such payment is made by any means,
            including a credit, debit, or other payment card, an
            account, check, or electronic funds transfer.
                ``(2) The request for, or the use or disclosure of,
            information by the entity with respect to a payment
            described in paragraph (1)--
                        ``(A) for transferring receivables;
                        ``(B) for auditing;
                        ``(C) in connection with--
                                ``(i) a customer dispute; or
                                ``(ii) an inquiry from, or to, a
                            customer;
                        ``(D) in a communication to a customer of
                    the entity regarding the customer's
                    transactions, payment card, account, check, or
                    electronic funds transfer;
                        ``(E) for reporting to consumer reporting
                    agencies; or
                        ``(F) for complying with--
                                ``(i) a civil or criminal subpoena;
                            or
                                ``(ii) a Federal or State law
                            regulating the entity.''.
        (b) Conforming Amendments.--
                (1) Requirement for medicare providers.--Section
            1866(a)(1) (42 U.S.C. 1395cc(a)(1)) is amended--
                        (A) by striking ``and'' at the end of
                    subparagraph (P);
                        (B) by striking the period at the end of
                    subparagraph (Q) and inserting ``; and''; and
                        (C) by inserting immediately after
                    subparagraph (Q) the following new
                    subparagraph:
                ``(R) to contract only with a health care
            clearinghouse (as defined in section 1171) that meets
            each standard and implementation specification adopted
            or established under part C of title XI on or after the
            date on which the health care clearinghouse is required
            to comply with the standard or specification.''.
                (2) Title heading.--Title XI (42 U.S.C. 1301 et
            seq.) is amended by striking the title heading and
            inserting the following:

        ``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE
                               SIMPLIFICATION''.

    SEC. 263. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL COMMITTEE ON
                        VITAL AND HEALTH STATISTICS.

        Section 306(k) of the Public Health Service Act (42 U.S.C.
    242k(k)) is amended--
                (1) in paragraph (1), by striking ``16'' and
            inserting ``18'';
                (2) by amending paragraph (2) to read as follows:
        ``(2) The members of the Committee shall be appointed from
    among persons who have distinguished themselves in the fields
    of health statistics, electronic interchange of health care
    information, privacy and security of electronic information,
    population-based public health, purchasing or financing health
    care services, integrated computerized health information
    systems, health services research, consumer interests in health
    information, health data standards, epidemiology, and the
    provision of health services. Members of the Committee shall be
    appointed for terms of 4 years.'';
                (3) by redesignating paragraphs (3) through (5) as
            paragraphs (4) through (6), respectively, and inserting
            after paragraph (2) the following:
        ``(3) Of the members of the Committee--
                ``(A) 1 shall be appointed, not later than 60 days
            after the date of the enactment of the Health Insurance
            Portability and Accountability Act of 1996, by the
            Speaker of the House of Representatives after
            consultation with the minority leader of the House of
            Representatives;
                ``(B) 1 shall be appointed, not later than 60 days
            after the date of the enactment of the Health Insurance
            Portability and Accountability Act of 1996, by the
            President pro tempore of the Senate after consultation
            with the minority leader of the Senate; and
                ``(C) 16 shall be appointed by the Secretary.'';
                (4) by amending paragraph (5) (as so redesignated)
            to read as follows:
        ``(5) The Committee--
                ``(A) shall assist and advise the Secretary--
                        ``(i) to delineate statistical problems
                    bearing on health and health services which are
                    of national or international interest;
                        ``(ii) to stimulate studies of such
                    problems by other organizations and agencies
                    whenever possible or to make investigations of
                    such problems through subcommittees;
                        ``(iii) to determine, approve, and revise
                    the terms, definitions, classifications, and
                    guidelines for assessing health status and
                    health services, their distribution and costs,
                    for use (I) within the Department of Health and
                    Human Services, (II) by all programs
                    administered or funded by the Secretary,
                    including the Federal-State-local cooperative
                    health statistics system referred to in
                    subsection (e), and (III) to the extent
                    possible as determined by the head of the
                    agency involved, by the Department of Veterans
                    Affairs, the Department of Defense, and other
                    Federal agencies concerned with health and
                    health services;
                        ``(iv) with respect to the design of and
                    approval of health statistical and health
                    information systems concerned with the
                    collection, processing, and tabulation of
                    health statistics within the Department of
                    Health and Human Services, with respect to the
                    Cooperative Health Statistics System
                    established under subsection (e), and with
                    respect to the standardized means for the
                    collection of health information and statistics
                    to be established by the Secretary under
                    subsection (j)(1);
                        ``(v) to review and comment on findings and
                    proposals developed by other organizations and
                    agencies and to make recommendations for their
                    adoption or implementation by local, State,
                    national, or international agencies;
                        ``(vi) to cooperate with national
                    committees of other countries and with the
                    World Health Organization and other national
                    agencies in the studies of problems of mutual
                    interest;
                        ``(vii) to issue an annual report on the
                    state of the Nation's health, its health
                    services, their costs and distributions, and to
                    make proposals for improvement of the Nation's
                    health statistics and health information
                    systems; and
                        ``(viii) in complying with the requirements
                    imposed on the Secretary under part C of title
                    XI of the Social Security Act;
                ``(B) shall study the issues related to the
            adoption of uniform data standards for patient medical
            record information and the electronic exchange of such
            information;
                ``(C) shall report to the Secretary not later than
            4 years after the date of the enactment of the Health
            Insurance Portability and Accountability Act of 1996
            recommendations and legislative proposals for such
            standards and electronic exchange; and
                ``(D) shall be responsible generally for advising
            the Secretary and the Congress on the status of the
            implementation of part C of title XI of the Social
            Security Act.''; and
                (5) by adding at the end the following:
        ``(7) Not later than 1 year after the date of the enactment
    of the Health Insurance Portability and Accountability Act of
    1996, and annually thereafter, the Committee shall submit to
    the Congress, and make public, a report regarding the
    implementation of part C of title XI of the Social Security
    Act. Such report shall address the following subjects, to the
    extent that the Committee determines appropriate:
                ``(A) The extent to which persons required to
            comply with part C of title XI of the Social Security
            Act are cooperating in implementing the standards
            adopted under such part.
                ``(B) The extent to which such entities are meeting
            the security standards adopted under such part and the
            types of penalties assessed for noncompliance with such
            standards.
                ``(C) Whether the Federal and State Governments are
            receiving information of sufficient quality to meet
            their responsibilities under such part.
                ``(D) Any problems that exist with respect to
            implementation of such part.
                ``(E) The extent to which timetables under such
            part are being met.''.

    SEC. 264. RECOMMENDATIONS WITH RESPECT TO PRIVACY OF CERTAIN HEALTH
                        INFORMATION.

        (a) In General.--Not later than the date that is 12 months
    after the date of the enactment of this Act, the Secretary of
    Health and Human Services shall submit to the Committee on
    Labor and Human Resources and the Committee on Finance of the
    Senate and the Committee on Commerce and the Committee on Ways
    and Means of the House of Representatives detailed
    recommendations on standards with respect to the privacy of
    individually identifiable health information.
        (b) Subjects for Recommendations.--The recommendations
    under subsection (a) shall address at least the following:
                (1) The rights that an individual who is a subject
            of individually identifiable health information should
            have.
                (2) The procedures that should be established for
            the exercise of such rights.
                (3) The uses and disclosures of such information
            that should be authorized or required.
        (c) Regulations.--
                (1) In general.--If legislation governing standards
            with respect to the privacy of individually
            identifiable health information transmitted in
            connection with the transactions described in section
            1173(a) of the Social Security Act (as added by section
            262) is not enacted by the date that is 36 months after
            the date of the enactment of this Act, the Secretary of
            Health and Human Services shall promulgate final
            regulations containing such standards not later than
            the date that is 42 months after the date of the
            enactment of this Act. Such regulations shall address
            at least the subjects described in subsection (b).
                (2) Preemption.--A regulation promulgated under
            paragraph (1) shall not supercede a contrary provision
            of State law, if the provision of State law imposes
            requirements, standards, or implementation
            specifications that are more stringent than the
            requirements, standards, or implementation
            specifications imposed under the regulation.
        (d) Consultation.--In carrying out this section, the
    Secretary of Health and Human Services shall consult with--
                (1) the National Committee on Vital and Health
            Statistics established under section 306(k) of the
            Public Health Service Act (42 U.S.C. 242k(k)); and
                (2) the Attorney General.

       Subtitle G--Duplication and Coordination of Medicare-Related Plans

    SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.

        (a) Treatment of Certain Health Insurance Policies as
    Nonduplicative.--Section 1882(d)(3)(A) (42 U.S.C.
    1395ss(d)(3)(A)) is amended--
                (1) in clause (iii), by striking ``clause (i)'' and
            inserting ``clause (i)(II)''; and
                (2) by adding at the end the following:
        ``(iv) For purposes of this subparagraph, a health
    insurance policy (other than a medicare supplemental policy)
    providing for benefits which are payable to or on behalf of an
    individual without regard to other health benefit coverage of
    such individual is not considered to `duplicate' any health
    benefits under this title, under title XIX, or under a health
    insurance policy, and subclauses (I) and (III) of clause (i) do
    not apply to such a policy.
        ``(v) For purposes of this subparagraph, a health insurance
    policy (or a rider to an insurance contract which is not a
    health insurance policy) is not considered to `duplicate'
    health benefits under this title or under another health
    insurance policy if it--
                ``(I) provides health care benefits only for long-
            term care, nursing home care, home health care, or
            community-based care, or any combination thereof,
                ``(II) coordinates against or excludes items and
            services available or paid for under this title or
            under another health insurance policy, and
                ``(III) for policies sold or issued on or after the
            end of the 90-day period beginning on the date of
            enactment of the Health Insurance Portability and
            Accountability Act of 1996) discloses such coordination
            or exclusion in the policy's outline of coverage.
    For purposes of this clause, the terms `coordinates' and
    `coordination' mean, with respect to a policy in relation to
    health benefits under this title or under another health
    insurance policy, that the policy under its terms is secondary
    to, or excludes from payment, items and services to the extent
    available or paid for under this title or under another health
    insurance policy.
        ``(vi)(I) An individual entitled to benefits under part A
    or enrolled under part B of this title who is applying for a
    health insurance policy (other than a policy described in
    subclause (III)) shall be furnished a disclosure statement
    described in clause (vii) for the type of policy being applied
    for. Such statement shall be furnished as a part of (or
    together with) the application for such policy.
        ``(II) Whoever issues or sells a health insurance policy
    (other than a policy described in subclause (III)) to an
    individual described in subclause (I) and fails to furnish the
    appropriate disclosure statement as required under such
    subclause shall be fined under title 18, United States Code, or
    imprisoned not more than 5 years, or both, and, in addition to
    or in lieu of such a criminal penalty, is subject to a civil
    money penalty of not to exceed $25,000 (or $15,000 in the case
    of a person other than the issuer of the policy) for each such
    violation.
        ``(III) A policy described in this subclause (to which
    subclauses (I) and (II) do not apply) is a medicare
    supplemental policy or a health insurance policy identified
    under 60 Federal Register 30880 (June 12, 1995) as a policy not
    required to have a disclosure statement.
        ``(IV) Any reference in this section to the revised NAIC
    model regulation (referred to in subsection (m)(1)(A)) is
    deemed a reference to such regulation as revised by section
    171(m)(2) of the Social Security Act Amendments of 1994 (Public
    Law 103-432) and as modified by substituting, for the
    disclosure required under section 16D(2), disclosure under
    subclause (I) of an appropriate disclosure statement under
    clause (vii).
        ``(vii) The disclosure statement described in this clause
    for a type of policy is the statement specified under
    subparagraph (D) of this paragraph (as in effect before the
    date of the enactment of the Health Insurance Portability and
    Accountability Act of 1996) for that type of policy, as revised
    as follows:
                ``(I) In each statement, amend the second line to
            read as follows:

                  `THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'.

                ``(II) In each statement, strike the third line and
            insert the following: `Some health care services paid
            for by Medicare may also trigger the payment of
            benefits under this policy.'.
                ``(III) In each statement not described in
            subclause (V), strike the boldface matter that begins
            `This insurance' and all that follows up to the next
            paragraph that begins `Medicare'.
                ``(IV) In each statement not described in subclause
            (V), insert before the boxed matter (that states
            `Before You Buy This Insurance') the following: `This
            policy must pay benefits without regard to other health
            benefit coverage to which you may be entitled under
            Medicare or other insurance.'.
                ``(V) In a statement relating to policies providing
            both nursing home and non-institutional coverage, to
            policies providing nursing home benefits only, or
            policies providing home care benefits only, amend the
            sentence that begins `Federal law' to read as follows:
            `Federal law requires us to inform you that in certain
            situations this insurance may pay for some care also
            covered by Medicare.'.
        ``(viii)(I) Subject to subclause (II), nothing in this
    subparagraph shall restrict or preclude a State's ability to
    regulate health insurance policies, including any health
    insurance policy that is described in clause (iv), (v), or
    (vi)(III).
        ``(II) A State may not declare or specify, in statute,
    regulation, or otherwise, that a health insurance policy (other
    than a medicare supplemental policy) or rider to an insurance
    contract which is not a health insurance policy, that is
    described in clause (iv), (v), or (vi)(III) and that is sold,
    issued, or renewed to an individual entitled to benefits under
    part A or enrolled under part B `duplicates' health benefits
    under this title or under a medicare supplemental policy.''.
        (b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C.
    1395ss(d)(3)) is amended--
                (1) in subparagraph (C)--
                        (A) by striking ``with respect to (i)'' and
                    inserting ``with respect to'', and
                        (B) by striking ``, (ii) the sale'' and all
                    that follows up to the period at the end; and
                (2) by striking subparagraph (D).
        (c) Transitional Provision.--
                (1) No penalties.--Subject to paragraph (3), no
            criminal or civil money penalty may be imposed under
            section 1882(d)(3)(A) of the Social Security Act for
            any act or omission that occurred during the transition
            period (as defined in paragraph (4)) and that relates
            to any health insurance policy that is described in
            clause (iv) or (v) of such section (as amended by
            subsection (a)).
                (2) Limitation on legal action.--Subject to
            paragraph (3), no legal action shall be brought or
            continued in any Federal or State court insofar as such
            action--
                        (A) includes a cause of action which arose,
                    or which is based on or evidenced by any act or
                    omission which occurred, during the transition
                    period; and
                        (B) relates to the application of section
                    1882(d)(3)(A) of the Social Security Act to any
                    act or omission with respect to the sale,
                    issuance, or renewal of any health insurance
                    policy that is described in clause (iv) or (v)
                    of such section (as amended by subsection (a)).
                (3) Disclosure condition.--In the case of a policy
            described in clause (iv) of section 1882(d)(3)(A) of
            the Social Security Act that is sold or issued on or
            after the effective date of statements under section
            171(d)(3)(C) of the Social Security Act Amendments of
            1994 and before the end of the 30-day period beginning
            on the date of the enactment of this Act, paragraphs
            (1) and (2) shall only apply if disclosure was made in
            accordance with section 1882(d)(3)(C)(ii) of the Social
            Security Act (as in effect before the date of the
            enactment of this Act).
                (4) Transition period.--In this subsection, the
            term ``transition period'' means the period beginning
            on November 5, 1991, and ending on the date of the
            enactment of this Act.
        (d) Effective Date.--(1) Except as provided in this
    subsection, the amendment made by subsection (a) shall be
    effective as if included in the enactment of section 4354 of
    the Omnibus Budget Reconciliation Act of 1990.
        (2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social
    Security Act, as added by subsection (a), shall only apply to
    individuals applying for--
                (i) a health insurance policy described in section
            1882(d)(3)(A)(iv) of such Act (as added by subsection
            (a)), after the date of the enactment of this Act, or
                (ii) another health insurance policy after the end
            of the 30-day period beginning on the date of the
            enactment of this Act.
        (B) A seller or issuer of a health insurance policy may
    substitute, for the disclosure statement described in clause
    (vii) of such section, the statement specified under section
    1882(d)(3)(D) of the Social Security Act (as in effect before
    the date of the enactment of this Act), without the revision
    specified in such clause.

                          Subtitle H--Patent Extension

    SEC. 281. PATENT EXTENSION.

        (a) In General.--Any owner on the date of the enactment of
    this Act of the right to market a non-steroidal anti-
    inflammatory drug that--
                (1) contains a patented active agent,
                (2) has been reviewed by the Federal Food and Drug
            Administration for a period of more than 96 months as a
            new drug application, and
                (3) was approved as safe and effective by the
            Federal Food and Drug Administration on January 31,
            1991,
    shall be entitled, for the 2-year period beginning on February
    28, 1997, to exclude others from making, using, offering for
    sale, selling, or importing into the United States such active
    agent, in accordance with section 154(a)(1) of title 35, United
    States Code.
        (b) Infringement.--Section 271 of title 35, United States
    Code, shall apply to the infringement of the entitlement
    provided under subsection (a) to the same extent as such
    section applies to infringement of a patent.
        (c) Notification.--Not later than 30 days after the date of
    the enactment of this Act, any owner granted an entitlement
    under subsection (a) shall notify the Commissioner of Patents
    and Trademarks and the Secretary for Health and Human Services
    of such entitlement. Not later than 7 days after the receipt of
    such notice, the Commissioner and the Secretary shall publish
    an appropriate notice of the receipt of such notice.
        (d) Offset.--An owner described in subsection (a) shall pay
    the amount of $10,000,000 to the Secretary of Health and Human
    Services in each of the fiscal years 1997 and 1998 as a
    condition for being eligible to qualify for the entitlement
    under subsection (a). As a further condition for eligibility,
    such owner shall enter into a legally binding agreement with
    the Secretary of Health and Human Services which shall provide
    a means for ensuring that the entitlement under subsection (a)
    shall not create any net costs to the States under the medicaid
    program under title XIX of the Social Security Act.

                    TITLE III--TAX-RELATED HEALTH PROVISIONS

    SEC. 300. AMENDMENT OF 1986 CODE.

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

                      Subtitle A--Medical Savings Accounts

    SEC. 301. MEDICAL SAVINGS ACCOUNTS.

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

    ``SEC. 220. MEDICAL SAVINGS ACCOUNTS.

        ``(a) Deduction Allowed.--In the case of an individual who
    is an eligible individual for any month during the taxable
    year, there shall be allowed as a deduction for the taxable
    year an amount equal to the aggregate amount paid in cash
    during such taxable year by such individual to a medical
    savings account of such individual.
        ``(b) Limitations.--
                ``(1) In general.--The amount allowable as a
            deduction under subsection (a) to an individual for the
            taxable year shall not exceed the sum of the monthly
            limitations for months during such taxable year that
            the individual is an eligible individual.
                ``(2) Monthly limitation.--The monthly limitation
            for any month is the amount equal to \1/12\ of--
                        ``(A) in the case of an individual who has
                    self-only coverage under the high deductible
                    health plan as of the first day of such month,
                    65 percent of the annual deductible under such
                    coverage, and
                        ``(B) in the case of an individual who has
                    family coverage under the high deductible
                    health plan as of the first day of such month,
                    75 percent of the annual deductible under such
                    coverage.
                ``(3) Special rule for married individuals.--In the
            case of individuals who are married to each other, if
            either spouse has family coverage--
                        ``(A) both spouses shall be treated as
                    having only such family coverage (and if such
                    spouses each have family coverage under
                    different plans, as having the family coverage
                    with the lowest annual deductible), and
                        ``(B) the limitation under paragraph (1)
                    (after the application of subparagraph (A) of
                    this paragraph) shall be divided equally
                    between them unless they agree on a different
                    division.
                ``(4) Deduction not to exceed compensation.--
                        ``(A) Employees.--The deduction allowed
                    under subsection (a) for contributions as an
                    eligible individual described in subclause (I)
                    of subsection (c)(1)(A)(iii) shall not exceed
                    such individual's wages, salaries, tips, and
                    other employee compensation which are
                    attributable to such individual's employment by
                    the employer referred to in such subclause.
                        ``(B) Self-employed individuals.--The
                    deduction allowed under subsection (a) for
                    contributions as an eligible individual
                    described in subclause (II) of subsection
                    (c)(1)(A)(iii) shall not exceed such
                    individual's earned income (as defined in
                    section 401(c)(1)) derived by the taxpayer from
                    the trade or business with respect to which the
                    high deductible health plan is established.
                        ``(C) Community property laws not to
                    apply.--The limitations under this paragraph
                    shall be determined without regard to community
                    property laws.
                ``(5) Coordination with exclusion for employer
            contributions.--No deduction shall be allowed under
            this section for any amount paid for any taxable year
            to a medical savings account of an individual if--
                        ``(A) any amount is contributed to any
                    medical savings account of such individual for
                    such year which is excludable from gross income
                    under section 106(b), or
                        ``(B) if such individual's spouse is
                    covered under the high deductible health plan
                    covering such individual, any amount is
                    contributed for such year to any medical
                    savings account of such spouse which is so
                    excludable.
                ``(6) Denial of deduction to dependents.--No
            deduction shall be allowed under this section to any
            individual with respect to whom a deduction under
            section 151 is allowable to another taxpayer for a
            taxable year beginning in the calendar year in which
            such individual's taxable year begins.
        ``(c) Definitions.--For purposes of this section--
                ``(1) Eligible individual.--
                        ``(A) In general.--The term `eligible
                    individual' means, with respect to any month,
                    any individual if--
                                ``(i) such individual is covered
                            under a high deductible health plan as
                            of the 1st day of such month,
                                ``(ii) such individual is not,
                            while covered under a high deductible
                            health plan, covered under any health
                            plan--
                                        ``(I) which is not a high
                                    deductible health plan, and
                                        ``(II) which provides
                                    coverage for any benefit which
                                    is covered under the high
                                    deductible health plan, and
                                ``(iii)(I) the high deductible
                            health plan covering such individual is
                            established and maintained by the
                            employer of such individual or of the
                            spouse of such individual and such
                            employer is a small employer, or
                                ``(II) such individual is an
                            employee (within the meaning of section
                            401(c)(1)) or the spouse of such an
                            employee and the high deductible health
                            plan covering such individual is not
                            established or maintained by any
                            employer of such individual or spouse.
                        ``(B) Certain coverage disregarded.--
                    Subparagraph (A)(ii) shall be applied without
                    regard to--
                                ``(i) coverage for any benefit
                            provided by permitted insurance, and
                                ``(ii) coverage (whether through
                            insurance or otherwise) for accidents,
                            disability, dental care, vision care,
                            or long-term care.
                        ``(C) Continued eligibility of employee and
                    spouse establishing medical savings accounts.--
                    If, while an employer is a small employer--
                                ``(i) any amount is contributed to
                            a medical savings account of an
                            individual who is an employee of such
                            employer or the spouse of such an
                            employee, and
                                ``(ii) such amount is excludable
                            from gross income under section 106(b)
                            or allowable as a deduction under this
                            section,
                    such individual shall not cease to meet the
                    requirement of subparagraph (A)(iii)(I) by
                    reason of such employer ceasing to be a small
                    employer so long as such employee continues to
                    be an employee of such employer.
                        ``(D) Limitations on eligibility.--

              ``For limitations on number of taxpayers who are eligible to
            have medical savings accounts, see subsection (i).

                ``(2) High deductible health plan.--
                        ``(A) In general.--The term `high
                    deductible health plan' means a health plan--
                                ``(i) in the case of self-only
                            coverage, which has an annual
                            deductible which is not less than
                            $1,500 and not more than $2,250,
                                ``(ii) in the case of family
                            coverage, which has an annual
                            deductible which is not less than
                            $3,000 and not more than $4,500, and
                                ``(iii) the annual out-of-pocket
                            expenses required to be paid under the
                            plan (other than for premiums) for
                            covered benefits does not exceed--
                                        ``(I) $3,000 for self-only
                                    coverage, and
                                        ``(II) $5,500 for family
                                    coverage.
                        ``(B) Special rules.--
                                ``(i) Exclusion of certain plans.--
                            Such term does not include a health
                            plan if substantially all of its
                            coverage is coverage described in
                            paragraph (1)(B).
                                ``(ii) Safe harbor for absence of
                            preventive care deductible.--A plan
                            shall not fail to be treated as a high
                            deductible health plan by reason of
                            failing to have a deductible for
                            preventive care if the absence of a
                            deductible for such care is required by
                            State law.
                ``(3) Permitted insurance.--The term `permitted
            insurance' means--
                        ``(A) Medicare supplemental insurance,
                        ``(B) insurance if substantially all of the
                    coverage provided under such insurance relates
                    to--
                                ``(i) liabilities incurred under
                            workers' compensation laws,
                                ``(ii) tort liabilities,
                                ``(iii) liabilities relating to
                            ownership or use of property, or
                                ``(iv) such other similar
                            liabilities as the Secretary may
                            specify by regulations,
                        ``(C) insurance for a specified disease or
                    illness, and
                        ``(D) insurance paying a fixed amount per
                    day (or other period) of hospitalization.
                ``(4) Small employer.--
                        ``(A) In general.--The term `small
                    employer' means, with respect to any calendar
                    year, any employer if such employer employed an
                    average of 50 or fewer employees on business
                    days during either of the 2 preceding calendar
                    years. For purposes of the preceding sentence,
                    a preceding calendar year may be taken into
                    account only if the employer was in existence
                    throughout such year.
                        ``(B) Employers not in existence in
                    preceding year.--In the case of an employer
                    which was not in existence throughout the 1st
                    preceding calendar year, the determination
                    under subparagraph (A) shall be based on the
                    average number of employees that it is
                    reasonably expected such employer will employ
                    on business days in the current calendar year.
                        ``(C) Certain growing employers retain
                    treatment as small employer.--The term `small
                    employer' includes, with respect to any
                    calendar year, any employer if--
                                ``(i) such employer met the
                            requirement of subparagraph (A)
                            (determined without regard to
                            subparagraph (B)) for any preceding
                            calendar year after 1996,
                                ``(ii) any amount was contributed
                            to the medical savings account of any
                            employee of such employer with respect
                            to coverage of such employee under a
                            high deductible health plan of such
                            employer during such preceding calendar
                            year and such amount was excludable
                            from gross income under section 106(b)
                            or allowable as a deduction under this
                            section, and
                                ``(iii) such employer employed an
                            average of 200 or fewer employees on
                            business days during each preceding
                            calendar year after 1996.
                        ``(D) Special rules.--
                                ``(i) Controlled groups.--For
                            purposes of this paragraph, all persons
                            treated as a single employer under
                            subsection (b), (c), (m), or (o) of
                            section 414 shall be treated as 1
                            employer.
                                ``(ii) Predecessors.--Any reference
                            in this paragraph to an employer shall
                            include a reference to any predecessor
                            of such employer.
                        ``(5) Family coverage.--The term `family
                    coverage' means any coverage other than self-
                    only coverage.
        ``(d) Medical Savings Account.--For purposes of this
    section--
                ``(1) Medical savings account.--The term `medical
            savings account' means a trust created or organized in
            the United States exclusively for the purpose of paying
            the qualified medical expenses of the account holder,
            but only if the written governing instrument creating
            the trust meets the following requirements:
                        ``(A) Except in the case of a rollover
                    contribution described in subsection (f)(5), no
                    contribution will be accepted--
                                ``(i) unless it is in cash, or
                                ``(ii) to the extent such
                            contribution, when added to previous
                            contributions to the trust for the
                            calendar year, exceeds 75 percent of
                            the highest annual limit deductible
                            permitted under subsection
                            (c)(2)(A)(ii) for such calendar year.
                        ``(B) The trustee is a bank (as defined in
                    section 408(n)), an insurance company (as
                    defined in section 816), or another person who
                    demonstrates to the satisfaction of the
                    Secretary that the manner in which such person
                    will administer the trust will be consistent
                    with the requirements of this section.
                        ``(C) No part of the trust assets will be
                    invested in life insurance contracts.
                        ``(D) The assets of the trust will not be
                    commingled with other property except in a
                    common trust fund or common investment fund.
                        ``(E) The interest of an individual in the
                    balance in his account is nonforfeitable.
                ``(2) Qualified medical expenses.--
                        ``(A) In general.--The term `qualified
                    medical expenses' means, with respect to an
                    account holder, amounts paid by such holder for
                    medical care (as defined in section 213(d)) for
                    such individual, the spouse of such individual,
                    and any dependent (as defined in section 152)
                    of such individual, but only to the extent such
                    amounts are not compensated for by insurance or
                    otherwise.
                        ``(B) Health insurance may not be purchased
                    from account.--
                                ``(i) In general.--Subparagraph (A)
                            shall not apply to any payment for
                            insurance.
                                ``(ii) Exceptions.--Clause (i)
                            shall not apply to any expense for
                            coverage under--
                                        ``(I) a health plan during
                                    any period of continuation
                                    coverage required under any
                                    Federal law,
                                        ``(II) a qualified long-
                                    term care insurance contract
                                    (as defined in section
                                    7702B(b)), or
                                        ``(III) a health plan
                                    during a period in which the
                                    individual is receiving
                                    unemployment compensation under
                                    any Federal or State law.
                        ``(C) Medical expenses of individuals who
                    are not eligible individuals.--Subparagraph (A)
                    shall apply to an amount paid by an account
                    holder for medical care of an individual who is
                    not an eligible individual for the month in
                    which the expense for such care is incurred
                    only if no amount is contributed (other than a
                    rollover contribution) to any medical savings
                    account of such account holder for the taxable
                    year which includes such month. This
                    subparagraph shall not apply to any expense for
                    coverage described in subclause (I) or (III) of
                    subparagraph (B)(ii).
                ``(3) Account holder.--The term `account holder'
            means the individual on whose behalf the medical
            savings account was established.
                ``(4) Certain rules to apply.--Rules similar to the
            following rules shall apply for purposes of this
            section:
                        ``(A) Section 219(d)(2) (relating to no
                    deduction for rollovers).
                        ``(B) Section 219(f)(3) (relating to time
                    when contributions deemed made).
                        ``(C) Except as provided in section 106(b),
                    section 219(f)(5) (relating to employer
                    payments).
                        ``(D) Section 408(g) (relating to community
                    property laws).
                        ``(E) Section 408(h) (relating to custodial
                    accounts).
        ``(e) Tax Treatment of Accounts.--
                ``(1) In general.--A medical savings account is
            exempt from taxation under this subtitle unless such
            account has ceased to be a medical savings account.
            Notwithstanding the preceding sentence, any such
            account is subject to the taxes imposed by section 511
            (relating to imposition of tax on unrelated business
            income of charitable, etc. organizations).
                ``(2) Account terminations.--Rules similar to the
            rules of paragraphs (2) and (4) of section 408(e) shall
            apply to medical savings accounts, and any amount
            treated as distributed under such rules shall be
            treated as not used to pay qualified medical expenses.
        ``(f) Tax Treatment of Distributions.--
                ``(1) Amounts used for qualified medical
            expenses.--Any amount paid or distributed out of a
            medical savings account which is used exclusively to
            pay qualified medical expenses of any account holder
            shall not be includible in gross income.
                ``(2) Inclusion of amounts not used for qualified
            medical expenses.--Any amount paid or distributed out
            of a medical savings account which is not used
            exclusively to pay the qualified medical expenses of
            the account holder shall be included in the gross
            income of such holder.
                ``(3) Excess contributions returned before due date
            of return.--
                        ``(A) In general.--If any excess
                    contribution is contributed for a taxable year
                    to any medical savings account of an
                    individual, paragraph (2) shall not apply to
                    distributions from the medical savings accounts
                    of such individual (to the extent such
                    distributions do not exceed the aggregate
                    excess contributions to all such accounts of
                    such individual for such year) if--
                                ``(i) such distribution is received
                            by the individual on or before the last
                            day prescribed by law (including
                            extensions of time) for filing such
                            individual's return for such taxable
                            year, and
                                ``(ii) such distribution is
                            accompanied by the amount of net income
                            attributable to such excess
                            contribution.
                    Any net income described in clause (ii) shall
                    be included in the gross income of the
                    individual for the taxable year in which it is
                    received.
                        ``(B) Excess contribution.--For purposes of
                    subparagraph (A), the term `excess
                    contribution' means any contribution (other
                    than a rollover contribution) which is neither
                    excludable from gross income under section
                    106(b) nor deductible under this section.
                ``(4) Additional tax on distributions not used for
            qualified medical expenses.--
                        ``(A) In general.--The tax imposed by this
                    chapter on the account holder for any taxable
                    year in which there is a payment or
                    distribution from a medical savings account of
                    such holder which is includible in gross income
                    under paragraph (2) shall be increased by 15
                    percent of the amount which is so includible.
                        ``(B) Exception for disability or death.--
                    Subparagraph (A) shall not apply if the payment
                    or distribution is made after the account
                    holder becomes disabled within the meaning of
                    section 72(m)(7) or dies.
                        ``(C) Exception for distributions after
                    medicare eligibility.--Subparagraph (A) shall
                    not apply to any payment or distribution after
                    the date on which the account holder attains
                    the age specified in section 1811 of the Social
                    Security Act.
                ``(5) Rollover contribution.--An amount is
            described in this paragraph as a rollover contribution
            if it meets the requirements of subparagraphs (A) and
            (B).
                        ``(A) In general.--Paragraph (2) shall not
                    apply to any amount paid or distributed from a
                    medical savings account to the account holder
                    to the extent the amount received is paid into
                    a medical savings account for the benefit of
                    such holder not later than the 60th day after
                    the day on which the holder receives the
                    payment or distribution.
                        ``(B) Limitation.--This paragraph shall not
                    apply to any amount described in subparagraph
                    (A) received by an individual from a medical
                    savings account if, at any time during the 1-
                    year period ending on the day of such receipt,
                    such individual received any other amount
                    described in subparagraph (A) from a medical
                    savings account which was not includible in the
                    individual's gross income because of the
                    application of this paragraph.
                ``(6) Coordination with medical expense
            deduction.--For purposes of determining the amount of
            the deduction under section 213, any payment or
            distribution out of a medical savings account for
            qualified medical expenses shall not be treated as an
            expense paid for medical care.
                ``(7) Transfer of account incident to divorce.--The
            transfer of an individual's interest in a medical
            savings account to an individual's spouse or former
            spouse under a divorce or separation instrument
            described in subparagraph (A) of section 71(b)(2) shall
            not be considered a taxable transfer made by such
            individual notwithstanding any other provision of this
            subtitle, and such interest shall, after such transfer,
            be treated as a medical savings account with respect to
            which such spouse is the account holder.
                ``(8) Treatment after death of account holder.--
                        ``(A) Treatment if designated beneficiary
                    is spouse.--If the account holder's surviving
                    spouse acquires such holder's interest in a
                    medical savings account by reason of being the
                    designated beneficiary of such account at the
                    death of the account holder, such medical
                    savings account shall be treated as if the
                    spouse were the account holder.
                        ``(B) Other cases.--
                                ``(i) In general.--If, by reason of
                            the death of the account holder, any
                            person acquires the account holder's
                            interest in a medical savings account
                            in a case to which subparagraph (A)
                            does not apply--
                                        ``(I) such account shall
                                    cease to be a medical savings
                                    account as of the date of
                                    death, and
                                        ``(II) an amount equal to
                                    the fair market value of the
                                    assets in such account on such
                                    date shall be includible if
                                    such person is not the estate
                                    of such holder, in such
                                    person's gross income for the
                                    taxable year which includes
                                    such date, or if such person is
                                    the estate of such holder, in
                                    such holder's gross income for
                                    the last taxable year of such
                                    holder.
                                ``(ii) Special rules.--
                                        ``(I) Reduction of
                                    inclusion for pre-death
                                    expenses.--The amount
                                    includible in gross income
                                    under clause (i) by any person
                                    (other than the estate) shall
                                    be reduced by the amount of
                                    qualified medical expenses
                                    which were incurred by the
                                    decedent before the date of the
                                    decedent's death and paid by
                                    such person within 1 year after
                                    such date.
                                        ``(II) Deduction for estate
                                    taxes.--An appropriate
                                    deduction shall be allowed
                                    under section 691(c) to any
                                    person (other than the decedent
                                    or the decedent's spouse) with
                                    respect to amounts included in
                                    gross income under clause (i)
                                    by such person.
        ``(g) Cost-of-Living Adjustment.--In the case of any
    taxable year beginning in a calendar year after 1998, each
    dollar amount in subsection (c)(2) shall be increased by an
    amount equal to--
                ``(1) such dollar amount, multiplied by
                ``(2) the cost-of-living adjustment determined
            under section 1(f)(3) for the calendar year in which
            such taxable year begins by substituting `calendar year
            1997' for `calendar year 1992' in subparagraph (B)
            thereof.
    If any increase under the preceding sentence is not a multiple
    of $50, such increase shall be rounded to the nearest multiple
    of $50.
        ``(h) Reports.--The Secretary may require the trustee of a
    medical savings account to make such reports regarding such
    account to the Secretary and to the account holder with respect
    to contributions, distributions, and such other matters as the
    Secretary determines appropriate. The reports required by this
    subsection shall be filed at such time and in such manner and
    furnished to such individuals at such time and in such manner
    as may be required by the Secretary.
        ``(i) Limitation on Number of Taxpayers Having Medical
    Savings Accounts.--
                ``(1) In general.--Except as provided in paragraph
            (5), no individual shall be treated as an eligible
            individual for any taxable year beginning after the
            cut-off year unless--
                        ``(A) such individual was an active MSA
                    participant for any taxable year ending on or
                    before the close of the cut-off year, or
                        ``(B) such individual first became an
                    active MSA participant for a taxable year
                    ending after the cut-off year by reason of
                    coverage under a high deductible health plan of
                    an MSA-participating employer.
                ``(2) Cut-off year.--For purposes of paragraph (1),
            the term `cut-off year' means the earlier of--
                        ``(A) calendar year 2000, or
                        ``(B) the first calendar year before 2000
                    for which the Secretary determines under
                    subsection (j) that the numerical limitation
                    for such year has been exceeded.
                ``(3) Active msa participant.--For purposes of this
            subsection--
                        ``(A) In general.--The term `active MSA
                    participant' means, with respect to any taxable
                    year, any individual who is the account holder
                    of any medical savings account into which any
                    contribution was made which was excludable from
                    gross income under section 106(b), or allowable
                    as a deduction under this section, for such
                    taxable year.
                        ``(B) Special rule for cut-off years before
                    2000.--In the case of a cut-off year before
                    2000--
                                ``(i) an individual shall not be
                            treated as an eligible individual for
                            any month of such year or an active MSA
                            participant under paragraph (1)(A)
                            unless such individual is, on or before
                            the cut-off date, covered under a high
                            deductible health plan, and
                                ``(ii) an employer shall not be
                            treated as an MSA-participating
                            employer unless the employer, on or
                            before the cut-off date, offered
                            coverage under a high deductible health
                            plan to any employee.
                        ``(C) Cut-off date.--For purposes of
                    subparagraph (B)--
                                ``(i) In general.--Except as
                            otherwise provided in this
                            subparagraph, the cut-off date is
                            October 1 of the cut-off year.
                                ``(ii) Employees with enrollment
                            periods after october 1.--In the case
                            of an individual described in subclause
                            (I) of subsection (c)(1)(A)(iii), if
                            the regularly scheduled enrollment
                            period for health plans of the
                            individual's employer occurs during the
                            last 3 months of the cut-off year, the
                            cut-off date is December 31 of the cut-
                            off year.
                                ``(iii) Self-employed
                            individuals.--In the case of an
                            individual described in subclause (II)
                            of subsection (c)(1)(A)(iii), the cut-
                            off date is November 1 of the cut-off
                            year.
                                ``(iv) Special rules for 1997.--If
                            1997 is a cut-off year by reason of
                            subsection (j)(1)(A)--
                                        ``(I) each of the cut-off
                                    dates under clauses (i) and
                                    (iii) shall be 1 month earlier
                                    than the date determined
                                    without regard to this clause,
                                    and
                                        ``(II) clause (ii) shall be
                                    applied by substituting `4
                                    months' for `3 months'.
                ``(4) MSA-participating employer.--For purposes of
            this subsection, the term `MSA-participating employer'
            means any small employer if--
                        ``(A) such employer made any contribution
                    to the medical savings account of any employee
                    during the cut-off year or any preceding
                    calendar year which was excludable from gross
                    income under section 106(b), or
                        ``(B) at least 20 percent of the employees
                    of such employer who are eligible individuals
                    for any month of the cut-off year by reason of
                    coverage under a high deductible health plan of
                    such employer each made a contribution of at
                    least $100 to their medical savings accounts
                    for any taxable year ending with or within the
                    cut-off year which was allowable as a deduction
                    under this section.
                ``(5) Additional eligibility after cut-off year.--
            If the Secretary determines under subsection (j)(2)(A)
            that the numerical limit for the calendar year
            following a cut-off year described in paragraph (2)(B)
            has not been exceeded--
                        ``(A) this subsection shall not apply to
                    any otherwise eligible individual who is
                    covered under a high deductible health plan
                    during the first 6 months of the second
                    calendar year following the cut-off year (and
                    such individual shall be treated as an active
                    MSA participant for purposes of this subsection
                    if a contribution is made to any medical
                    savings account with respect to such coverage),
                    and
                        ``(B) any employer who offers coverage
                    under a high deductible health plan to any
                    employee during such 6-month period shall be
                    treated as an MSA-participating employer for
                    purposes of this subsection if the requirements
                    of paragraph (4) are met with respect to such
                    coverage.
            For purposes of this paragraph, subsection (j)(2)(A)
            shall be applied for 1998 by substituting `750,000' for
            `600,000'.
        ``(j) Determination of Whether Numerical Limits Are
    Exceeded.--
                ``(1) Determination of whether limit exceeded for
            1997.--The numerical limitation for 1997 is exceeded
            if, based on the reports required under paragraph (4),
            the number of medical savings accounts established as
            of--
                        ``(A) April 30, 1997, exceeds 375,000, or
                        ``(B) June 30, 1997, exceeds 525,000.
                ``(2) Determination of whether limit exceeded for
            1998 or 1999.--
                        ``(A) In general.--The numerical limitation
                    for 1998 or 1999 is exceeded if the sum of--
                                ``(i) the number of MSA returns
                            filed on or before April 15 of such
                            calendar year for taxable years ending
                            with or within the preceding calendar
                            year, plus
                                ``(ii) the Secretary's estimate
                            (determined on the basis of the returns
                            described in clause (i)) of the number
                            of MSA returns for such taxable years
                            which will be filed after such date,
                    exceeds 600,000 (750,000 in the case of 1999).
                    For purposes of the preceding sentence, the
                    term `MSA return' means any return on which any
                    exclusion is claimed under section 106(b) or
                    any deduction is claimed under this section.
                        ``(B) Alternative computation of
                    limitation.--The numerical limitation for 1998
                    or 1999 is also exceeded if the sum of--
                                ``(i) 90 percent of the sum
                            determined under subparagraph (A) for
                            such calendar year, plus
                                ``(ii) the product of 2.5 and the
                            number of medical savings accounts
                            established during the portion of such
                            year preceding July 1 (based on the
                            reports required under paragraph (4))
                            for taxable years beginning in such
                            year,
                    exceeds 750,000.
                ``(3) Previously uninsured individuals not included
            in determination.--
                        ``(A) In general.--The determination of
                    whether any calendar year is a cut-off year
                    shall be made by not counting the medical
                    savings account of any previously uninsured
                    individual.
                        ``(B) Previously uninsured individual.--For
                    purposes of this subsection, the term
                    `previously uninsured individual' means, with
                    respect to any medical savings account, any
                    individual who had no health plan coverage
                    (other than coverage referred to in subsection
                    (c)(1)(B)) at any time during the 6-month
                    period before the date such individual's
                    coverage under the high deductible health plan
                    commences.
                ``(4) Reporting by msa trustees.--
                        ``(A) In general.--Not later than August 1
                    of 1997, 1998, and 1999, each person who is the
                    trustee of a medical savings account
                    established before July 1 of such calendar year
                    shall make a report to the Secretary (in such
                    form and manner as the Secretary shall specify)
                    which specifies--
                                ``(i) the number of medical savings
                            accounts established before such July 1
                            (for taxable years beginning in such
                            calendar year) of which such person is
                            the trustee,
                                ``(ii) the name and TIN of the
                            account holder of each such account,
                            and
                                ``(iii) the number of such accounts
                            which are accounts of previously
                            uninsured individuals.
                        ``(B) Additional report for 1997.--Not
                    later than June 1, 1997, each person who is the
                    trustee of a medical savings account
                    established before May 1, 1997, shall make an
                    additional report described in subparagraph (A)
                    but only with respect to accounts established
                    before May 1, 1997.
                        ``(C) Penalty for failure to file report.--
                    The penalty provided in section 6693(a) shall
                    apply to any report required by this paragraph,
                    except that--
                                ``(i) such section shall be applied
                            by substituting `$25' for `$50', and
                                ``(ii) the maximum penalty imposed
                            on any trustee shall not exceed $5,000.
                        ``(D) Aggregation of accounts.--To the
                    extent practical, in determining the number of
                    medical savings accounts on the basis of the
                    reports under this paragraph, all medical
                    savings accounts of an individual shall be
                    treated as 1 account and all accounts of
                    individuals who are married to each other shall
                    be treated as 1 account.
                ``(5) Date of making determinations.--Any
            determination under this subsection that a calendar
            year is a cut-off year shall be made by the Secretary
            and shall be published not later than October 1 of such
            year.
        (b) Deduction Allowed Whether or Not Individual Itemizes
    Other Deductions.--Subsection (a) of section 62 is amended by
    inserting after paragraph (15) the following new paragraph:
                ``(16) Medical savings accounts.--The deduction
            allowed by section 220.''
        (c) Exclusions for Employer Contributions to Medical
    Savings Accounts.--
                (1) Exclusion from income tax.--The text of section
            106 (relating to contributions by employer to accident
            and health plans) is amended to read as follows:
        ``(a) General Rule.--Except as otherwise provided in this
    section, gross income of an employee does not include employer-
    provided coverage under an accident or health plan.
        ``(b) Contributions to Medical Savings Accounts.--
                ``(1) In general.--In the case of an employee who
            is an eligible individual, amounts contributed by such
            employee's employer to any medical savings account of
            such employee shall be treated as employer-provided
            coverage for medical expenses under an accident or
            health plan to the extent such amounts do not exceed
            the limitation under section 220(b)(1) (determined
            without regard to this subsection) which is applicable
            to such employee for such taxable year.
                ``(2) No constructive receipt.--No amount shall be
            included in the gross income of any employee solely
            because the employee may choose between the
            contributions referred to in paragraph (1) and employer
            contributions to another health plan of the employer.
                ``(3) Special rule for deduction of employer
            contributions.--Any employer contribution to a medical
            savings account, if otherwise allowable as a deduction
            under this chapter, shall be allowed only for the
            taxable year in which paid.
                ``(4) Employer msa contributions required to be
            shown on return.--Every individual required to file a
            return under section 6012 for the taxable year shall
            include on such return the aggregate amount contributed
            by employers to the medical savings accounts of such
            individual or such individual's spouse for such taxable
            year.
                ``(5) MSA contributions not part of cobra
            coverage.--Paragraph (1) shall not apply for purposes
            of section 4980B.
                ``(6) Definitions.--For purposes of this
            subsection, the terms `eligible individual' and
            `medical savings account' have the respective meanings
            given to such terms by section 220.
                ``(7) Cross reference.--

              ``For penalty on failure by employer to make comparable
            contributions to the medical savings accounts of comparable
            employees, see section 4980E.''.

                (2) Exclusion from employment taxes.--
                        (A) Railroad retirement tax.--Subsection
                    (e) of section 3231 is amended by adding at the
                    end the following new paragraph:
                ``(10) Medical savings account contributions.--The
            term `compensation' shall not include any payment made
            to or for the benefit of an employee if at the time of
            such payment it is reasonable to believe that the
            employee will be able to exclude such payment from
            income under section 106(b).''
                        (B) Unemployment tax.--Subsection (b) of
                    section 3306 is amended by striking ``or'' at
                    the end of paragraph (15), by striking the
                    period at the end of paragraph (16) and
                    inserting ``; or'', and by inserting after
                    paragraph (16) the following new paragraph:
                ``(17) any payment made to or for the benefit of an
            employee if at the time of such payment it is
            reasonable to believe that the employee will be able to
            exclude such payment from income under section
            106(b).''
                        (C) Withholding tax.--Subsection (a) of
                    section 3401 is amended by striking ``or'' at
                    the end of paragraph (19), by striking the
                    period at the end of paragraph (20) and
                    inserting ``; or'', and by inserting after
                    paragraph (20) the following new paragraph:
                ``(21) any payment made to or for the benefit of an
            employee if at the time of such payment it is
            reasonable to believe that the employee will be able to
            exclude such payment from income under section
            106(b).''
                (3) Employer contributions required to be shown on
            w-2.--Subsection (a) of section 6051 is amended by
            striking ``and'' at the end of paragraph (9), by
            striking the period at the end of paragraph (10) and
            inserting ``, and'', and by inserting after paragraph
            (10) the following new paragraph:
                ``(11) the amount contributed to any medical
            savings account (as defined in section 220(d)) of such
            employee or such employee's spouse.''
                (4) Penalty for failure of employer to make
            comparable msa contributions.--
                        (A) In general.--Chapter 43 is amended by
                    adding after section 4980D the following new
                    section:

    ``SEC. 4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE MEDICAL SAVINGS
                        ACCOUNT CONTRIBUTIONS.

        ``(a) General Rule.--In the case of an employer who makes a
    contribution to the medical savings account of any employee
    with respect to coverage under a high deductible health plan of
    the employer during a calendar year, there is hereby imposed a
    tax on the failure of such employer to meet the requirements of
    subsection (d) for such calendar year.
        ``(b) Amount of Tax.--The amount of the tax imposed by
    subsection (a) on any failure for any calendar year is the
    amount equal to 35 percent of the aggregate amount contributed
    by the employer to medical savings accounts of employees for
    taxable years of such employees ending with or within such
    calendar year.
        ``(c) Waiver by Secretary.--In the case of a failure which
    is due to reasonable cause and not to willful neglect, the
    Secretary may waive part or all of the tax imposed by
    subsection (a) to the extent that the payment of such tax would
    be excessive relative to the failure involved.
        ``(d) Employer Required To Make Comparable MSA
    Contributions for All Participating Employees.--
                ``(1) In general.--An employer meets the
            requirements of this subsection for any calendar year
            if the employer makes available comparable
            contributions to the medical savings accounts of all
            comparable participating employees for each coverage
            period during such calendar year.
                ``(2) Comparable contributions.--
                        ``(A) In general.--For purposes of
                    paragraph (1), the term `comparable
                    contributions' means contributions--
                                ``(i) which are the same amount, or
                                ``(ii) which are the same
                            percentage of the annual deductible
                            limit under the high deductible health
                            plan covering the employees.
                        ``(B) Part-year employees.--In the case of
                    an employee who is employed by the employer for
                    only a portion of the calendar year, a
                    contribution to the medical savings account of
                    such employee shall be treated as comparable if
                    it is an amount which bears the same ratio to
                    the comparable amount (determined without
                    regard to this subparagraph) as such portion
                    bears to the entire calendar year.
                ``(3) Comparable participating employees.--For
            purposes of paragraph (1), the term `comparable
            participating employees' means all employees--
                        ``(A) who are eligible individuals covered
                    under any high deductible health plan of the
                    employer, and
                        ``(B) who have the same category of
                    coverage.

            For purposes of subparagraph (B), the categories of
            coverage are self-only and family coverage.
                ``(4) Part-time employees.--
                        ``(A) In general.--Paragraph (3) shall be
                    applied separately with respect to part-time
                    employees and other employees.
                        ``(B) Part-time employee.--For purposes of
                    subparagraph (A), the term `part-time employee'
                    means any employee who is customarily employed
                    for fewer than 30 hours per week.
        ``(e) Controlled Groups.--For purposes of this section, all
    persons treated as a single employer under subsection (b), (c),
    (m), or (o) of section 414 shall be treated as 1 employer.
        ``(f) Definitions.--Terms used in this section which are
    also used in section 220 have the respective meanings given
    such terms in section 220.''
                        (B) Clerical amendment.--The table of
                    sections for chapter 43 is amended by adding
                    after the item relating to section 4980D the
                    following new item:

            ``Sec. 4980E. Failure of employer to make comparable medical
                      savings account contributions.''

        (d) Medical Savings Account Contributions Not Available
    Under Cafeteria Plans.--Subsection (f) of section 125 of such
    Code is amended by inserting ``106(b),'' before ``117''.
        (e) Tax on Excess Contributions.--Section 4973 (relating to
    tax on excess contributions to individual retirement accounts,
    certain section 403(b) contracts, and certain individual
    retirement annuities) is amended--
                (1) by inserting ``medical savings accounts,''
            after ``accounts,'' in the heading of such section,
                (2) by striking ``or'' at the end of paragraph (1)
            of subsection (a),
                (3) by redesignating paragraph (2) of subsection
            (a) as paragraph (3) and by inserting after paragraph
            (1) the following:
                ``(2) a medical savings account (within the meaning
            of section 220(d)), or'', and
                (4) by adding at the end the following new
            subsection:
        ``(d) Excess Contributions to Medical Savings Accounts.--
    For purposes of this section, in the case of medical savings
    accounts (within the meaning of section 220(d)), the term
    `excess contributions' means the sum of--
                ``(1) the aggregate amount contributed for the
            taxable year to the accounts (other than rollover
            contributions described in section 220(f)(5)) which is
            neither excludable from gross income under section
            106(b) nor allowable as a deduction under section 220
            for such year, and
                ``(2) the amount determined under this subsection
            for the preceding taxable year, reduced by the sum of--
                        ``(A) the distributions out of the accounts
                    which were included in gross income under
                    section 220(f)(2), and
                        ``(B) the excess (if any) of--
                                ``(i) the maximum amount allowable
                            as a deduction under section 220(b)(1)
                            (determined without regard to section
                            106(b)) for the taxable year, over
                                ``(ii) the amount contributed to
                            the accounts for the taxable year.

    For purposes of this subsection, any contribution which is
    distributed out of the medical savings account in a
    distribution to which section 220(f)(3) applies shall be
    treated as an amount not contributed.''
        (f) Tax on Prohibited Transactions.--
                (1) Section 4975 (relating to tax on prohibited
            transactions) is amended by adding at the end of
            subsection (c) the following new paragraph:
                ``(4) Special rule for medical savings accounts.--
            An individual for whose benefit a medical savings
            account (within the meaning of section 220(d)) is
            established shall be exempt from the tax imposed by
            this section with respect to any transaction concerning
            such account (which would otherwise be taxable under
            this section) if, with respect to such transaction, the
            account ceases to be a medical savings account by
            reason of the application of section 220(e)(2) to such
            account.''
                (2) Paragraph (1) of section 4975(e) is amended to
            read as follows:
                ``(1) Plan.--For purposes of this section, the term
            `plan' means--
                        ``(A) a trust described in section 401(a)
                    which forms a part of a plan, or a plan
                    described in section 403(a), which trust or
                    plan is exempt from tax under section 501(a),
                        ``(B) an individual retirement account
                    described in section 408(a),
                        ``(C) an individual retirement annuity
                    described in section 408(b),
                        ``(D) a medical savings account described
                    in section 220(d), or
                        ``(E) a trust, plan, account, or annuity
                    which, at any time, has been determined by the
                    Secretary to be described in any preceding
                    subparagraph of this paragraph.''
        (g) Failure To Provide Reports on Medical Savings
    Accounts.--
                (1) Subsection (a) of section 6693 (relating to
            failure to provide reports on individual retirement
            accounts or annuities) is amended to read as follows:
        ``(a) Reports.--
                ``(1) In general.--If a person required to file a
            report under a provision referred to in paragraph (2)
            fails to file such report at the time and in the manner
            required by such provision, such person shall pay a
            penalty of $50 for each failure unless it is shown that
            such failure is due to reasonable cause.
                ``(2) Provisions.--The provisions referred to in
            this paragraph are--
                        ``(A) subsections (i) and (l) of section
                    408 (relating to individual retirement plans),
                    and
                        ``(B) section 220(h) (relating to medical
                    savings accounts).''
        (h) Exception From Capitalization of Policy Acquisition
    Expenses.--Subparagraph (B) of section 848(e)(1) (defining
    specified insurance contract) is amended by striking ``and'' at
    the end of clause (ii), by striking the period at the end of
    clause (iii) and inserting ``, and'', and by adding at the end
    the following new clause:
                                ``(iv) any contract which is a
                            medical savings account (as defined in
                            section 220(d)).''.
        (i) Clerical Amendment.--The table of sections for part VII
    of subchapter B of chapter 1 is amended by striking the last
    item and inserting the following:

            ``Sec. 220. Medical savings accounts.
            ``Sec. 221. Cross reference.''.

        (j) Effective Date.--The amendments made by this section
    shall apply to taxable years beginning after December 31, 1996.
        (k) Monitoring of Participation in Medical Savings
    Accounts.--The Secretary of the Treasury or his delegate
    shall--
                (1) during 1997, 1998, 1999, and 2000, regularly
            evaluate the number of individuals who are maintaining
            medical savings accounts and the reduction in revenues
            to the United States by reason of such accounts, and
                (2) provide such reports of such evaluations to
            Congress as such Secretary determines appropriate.
        (l) Study of Effects of Medical Savings Accounts on Small
    Group Market.--The Comptroller General of the United States
    shall enter into a contract with an organization with expertise
    in health economics, health insurance markets, and actuarial
    science to conduct a comprehensive study regarding the effects
    of medical savings accounts in the small group market on--
                (1) selection, including adverse selection,
                (2) health costs, including any impact on premiums
            of individuals with comprehensive coverage,
                (3) use of preventive care,
                (4) consumer choice,
                (5) the scope of coverage of high deductible plans
            purchased in conjunction with such accounts, and
                (6) other relevant items.
    A report on the results of the study conducted under this
    subsection shall be submitted to the Congress no later than
    January 1, 1999.

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

    SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                        EMPLOYED INDIVIDUALS.

        (a) In General.--Paragraph (1) of section 162(l) is amended
    to read as follows:
                ``(1) Allowance of deduction.--
                        ``(A) In general.--In the case of an
                    individual who is an employee within the
                    meaning of section 401(c)(1), there shall be
                    allowed as a deduction under this section an
                    amount equal to the applicable percentage of
                    the amount paid during the taxable year for
                    insurance which constitutes medical care for
                    the taxpayer, his spouse, and dependents.
                        ``(B) Applicable percentage.--For purposes
                    of subparagraph (A), the applicable percentage
                    shall be determined under the following table:

            ``For taxable years
            beginning in                                      The applicable
            calendar year--                                  percentage is--
                  1997......................................     40 percent
                  1998 through 2002.........................     45 percent
                  2003......................................     50 percent
                  2004......................................     60 percent
                  2005......................................     70 percent
                  2006 or thereafter........................  80 percent.''.

        (b) Exclusion for Amounts Received Under Certain Self-
    Insured Plans.--Paragraph (3) of section 104(a) is amended by
    inserting ``(or through an arrangement having the effect of
    accident or health insurance)'' after ``health insurance''.
        (c) Effective Date.--The amendments made by this section
    shall apply to taxable years beginning after December 31, 1996.

               Subtitle C--Long-Term Care Services and Contracts

                           PART I--GENERAL PROVISIONS

    SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.

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

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

        ``(a) In General.--For purposes of this title--
                ``(1) a qualified long-term care insurance contract
            shall be treated as an accident and health insurance
            contract,
                ``(2) amounts (other than policyholder dividends,
            as defined in section 808, or premium refunds) received
            under a qualified long-term care insurance contract
            shall be treated as amounts received for personal
            injuries and sickness and shall be treated as
            reimbursement for expenses actually incurred for
            medical care (as defined in section 213(d)),
                ``(3) any plan of an employer providing coverage
            under a qualified long-term care insurance contract
            shall be treated as an accident and health plan with
            respect to such coverage,
                ``(4) except as provided in subsection (e)(3),
            amounts paid for a qualified long-term care insurance
            contract providing the benefits described in subsection
            (b)(2)(A) shall be treated as payments made for
            insurance for purposes of section 213(d)(1)(D), and
                ``(5) a qualified long-term care insurance contract
            shall be treated as a guaranteed renewable contract
            subject to the rules of section 816(e).
        ``(b) Qualified Long-Term Care Insurance Contract.--For
    purposes of this title--
                ``(1) In general.--The term `qualified long-term
            care insurance contract' means any insurance contract
            if--
                        ``(A) the only insurance protection
                    provided under such contract is coverage of
                    qualified long-term care services,
                        ``(B) such contract does not pay or
                    reimburse expenses incurred for services or
                    items to the extent that such expenses are
                    reimbursable under title XVIII of the Social
                    Security Act or would be so reimbursable but
                    for the application of a deductible or
                    coinsurance amount,
                        ``(C) such contract is guaranteed
                    renewable,
                        ``(D) such contract does not provide for a
                    cash surrender value or other money that can
                    be--
                                ``(i) paid, assigned, or pledged as
                            collateral for a loan, or
                                ``(ii) borrowed,
                    other than as provided in subparagraph (E) or
                    paragraph (2)(C),
                        ``(E) all refunds of premiums, and all
                    policyholder dividends or similar amounts,
                    under such contract are to be applied as a
                    reduction in future premiums or to increase
                    future benefits, and
                        ``(F) such contract meets the requirements
                    of subsection (g).
                ``(2) Special rules.--
                        ``(A) Per diem, etc. payments permitted.--A
                    contract shall not fail to be described in
                    subparagraph (A) or (B) of paragraph (1) by
                    reason of payments being made on a per diem or
                    other periodic basis without regard to the
                    expenses incurred during the period to which
                    the payments relate.
                        ``(B) Special rules relating to medicare.--
                                ``(i) Paragraph (1)(B) shall not
                            apply to expenses which are
                            reimbursable under title XVIII of the
                            Social Security Act only as a secondary
                            payor.
                                ``(ii) No provision of law shall be
                            construed or applied so as to prohibit
                            the offering of a qualified long-term
                            care insurance contract on the basis
                            that the contract coordinates its
                            benefits with those provided under such
                            title.
                        ``(C) Refunds of premiums.--Paragraph
                    (1)(E) shall not apply to any refund on the
                    death of the insured, or on a complete
                    surrender or cancellation of the contract,
                    which cannot exceed the aggregate premiums paid
                    under the contract. Any refund on a complete
                    surrender or cancellation of the contract shall
                    be includible in gross income to the extent
                    that any deduction or exclusion was allowable
                    with respect to the premiums.
        ``(c) Qualified Long-Term Care Services.--For purposes of
    this section--
                ``(1) In general.--The term `qualified long-term
            care services' means necessary diagnostic, preventive,
            therapeutic, curing, treating, mitigating, and
            rehabilitative services, and maintenance or personal
            care services, which--
                        ``(A) are required by a chronically ill
                    individual, and
                        ``(B) are provided pursuant to a plan of
                    care prescribed by a licensed health care
                    practitioner.
                ``(2) Chronically ill individual.--
                        ``(A) In general.--The term `chronically
                    ill individual' means any individual who has
                    been certified by a licensed health care
                    practitioner as--
                                ``(i) being unable to perform
                            (without substantial assistance from
                            another individual) at least 2
                            activities of daily living for a period
                            of at least 90 days due to a loss of
                            functional capacity,
                                ``(ii) having a level of disability
                            similar (as determined under
                            regulations prescribed by the Secretary
                            in consultation with the Secretary of
                            Health and Human Services) to the level
                            of disability described in clause (i),
                            or
                                ``(iii) requiring substantial
                            supervision to protect such individual
                            from threats to health and safety due
                            to severe cognitive impairment.
                    Such term shall not include any individual
                    otherwise meeting the requirements of the
                    preceding sentence unless within the preceding
                    12-month period a licensed health care
                    practitioner has certified that such individual
                    meets such requirements.
                        ``(B) Activities of daily living.--For
                    purposes of subparagraph (A), each of the
                    following is an activity of daily living:
                                ``(i) Eating.
                                ``(ii) Toileting.
                                ``(iii) Transferring.
                                ``(iv) Bathing.
                                ``(v) Dressing.
                                ``(vi) Continence.
                    A contract shall not be treated as a qualified
                    long-term care insurance contract unless the
                    determination of whether an individual is a
                    chronically ill individual takes into account
                    at least 5 of such activities.
                ``(3) Maintenance or personal care services.--The
            term `maintenance or personal care services' means any
            care the primary purpose of which is the provision of
            needed assistance with any of the disabilities as a
            result of which the individual is a chronically ill
            individual (including the protection from threats to
            health and safety due to severe cognitive impairment).
                ``(4) Licensed health care practitioner.--The term
            `licensed health care practitioner' means any physician
            (as defined in section 1861(r)(1) of the Social
            Security Act) and any registered professional nurse,
            licensed social worker, or other individual who meets
            such requirements as may be prescribed by the
            Secretary.
        ``(d) Aggregate Payments in Excess of Limits.--
                ``(1) In general.--If the aggregate of--
                        ``(A) the periodic payments received for
                    any period under all qualified long-term care
                    insurance contracts which are treated as made
                    for qualified long-term care services for an
                    insured, and
                        ``(B) the periodic payments received for
                    such period which are treated under section
                    101(g) as paid by reason of the death of such
                    insured,
            exceeds the per diem limitation for such period, such
            excess shall be includible in gross income without
            regard to section 72. A payment shall not be taken into
            account under subparagraph (B) if the insured is a
            terminally ill individual (as defined in section
            101(g)) at the time the payment is received.
                ``(2) Per diem limitation.--For purposes of
            paragraph (1), the per diem limitation for any period
            is an amount equal to the excess (if any) of--
                        ``(A) the greater of--
                                ``(i) the dollar amount in effect
                            for such period under paragraph (4), or
                                ``(ii) the costs incurred for
                            qualified long-term care services
                            provided for the insured for such
                            period, over
                        ``(B) the aggregate payments received as
                    reimbursements (through insurance or otherwise)
                    for qualified long-term care services provided
                    for the insured during such period.
                ``(3) Aggregation rules.--For purposes of this
            subsection--
                        ``(A) all persons receiving periodic
                    payments described in paragraph (1) with
                    respect to the same insured shall be treated as
                    1 person, and
                        ``(B) the per diem limitation determined
                    under paragraph (2) shall be allocated first to
                    the insured and any remaining limitation shall
                    be allocated among the other such persons in
                    such manner as the Secretary shall prescribe.
                ``(4) Dollar amount.--The dollar amount in effect
            under this subsection shall be $175 per day (or the
            equivalent amount in the case of payments on another
            periodic basis).
                ``(5) Inflation adjustment.--In the case of a
            calendar year after 1997, the dollar amount contained
            in paragraph (4) shall be increased at the same time
            and in the same manner as amounts are increased
            pursuant to section 213(d)(10).
                ``(6) Periodic payments.--For purposes of this
            subsection, the term `periodic payment' means any
            payment (whether on a periodic basis or otherwise) made
            without regard to the extent of the costs incurred by
            the payee for qualified long-term care services.
        ``(e) Treatment of Coverage Provided as Part of a Life
    Insurance Contract.--Except as otherwise provided in
    regulations prescribed by the Secretary, in the case of any
    long-term care insurance coverage (whether or not qualified)
    provided by a rider on or as part of a life insurance
    contract--
                ``(1) In general.--This section shall apply as if
            the portion of the contract providing such coverage is
            a separate contract.
                ``(2) Application of 7702.--Section 7702(c)(2)
            (relating to the guideline premium limitation) shall be
            applied by increasing the guideline premium limitation
            with respect to a life insurance contract, as of any
            date--
                        ``(A) by the sum of any charges (but not
                    premium payments) against the life insurance
                    contract's cash surrender value (within the
                    meaning of section 7702(f)(2)(A)) for such
                    coverage made to that date under the contract,
                    less
                        ``(B) any such charges the imposition of
                    which reduces the premiums paid for the
                    contract (within the meaning of section
                    7702(f)(1)).
                ``(3) Application of section 213.--No deduction
            shall be allowed under section 213(a) for charges
            against the life insurance contract's cash surrender
            value described in paragraph (2), unless such charges
            are includible in income as a result of the application
            of section 72(e)(10) and the rider is a qualified long-
            term care insurance contract under subsection (b).
                ``(4) Portion defined.--For purposes of this
            subsection, the term `portion' means only the terms and
            benefits under a life insurance contract that are in
            addition to the terms and benefits under the contract
            without regard to long-term care insurance coverage.
        ``(f) Treatment of Certain State-Maintained Plans.--
                ``(1) In general.--If--
                        ``(A) an individual receives coverage for
                    qualified long-term care services under a State
                    long-term care plan, and
                        ``(B) the terms of such plan would satisfy
                    the requirements of subsection (b) were such
                    plan an insurance contract,
            such plan shall be treated as a qualified long-term
            care insurance contract for purposes of this title.
                ``(2) State long-term care plan.--For purposes of
            paragraph (1), the term `State long-term care plan'
            means any plan--
                        ``(A) which is established and maintained
                    by a State or an instrumentality of a State,
                        ``(B) which provides coverage only for
                    qualified long-term care services, and
                        ``(C) under which such coverage is provided
                    only to--
                                ``(i) employees and former
                            employees of a State (or any political
                            subdivision or instrumentality of a
                            State),
                                ``(ii) the spouses of such
                            employees, and
                                ``(iii) individuals bearing a
                            relationship to such employees or
                            spouses which is described in any of
                            paragraphs (1) through (8) of section
                            152(a).''
        (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A)
    is amended by inserting ``(other than a qualified long-term
    care insurance contract, as defined in section 7702B(b))''
    after ``insurance contract''.
        (c) Long-Term Care Insurance Not Permitted Under Cafeteria
    Plans or Flexible Spending Arrangements.--
                (1) Cafeteria plans.--Section 125(f) is amended by
            adding at the end the following new sentence: ``Such
            term shall not include any product which is advertised,
            marketed, or offered as long-term care insurance.''
                (2) Flexible spending arrangements.--Section 106
            (relating to contributions by employer to accident and
            health plans), as amended by section 301(c), is amended
            by adding at the end the following new subsection:
        ``(c) Inclusion of Long-Term Care Benefits Provided Through
    Flexible Spending Arrangements.--
                ``(1) In general.--Effective on and after January
            1, 1997, gross income of an employee shall include
            employer-provided coverage for qualified long-term care
            services (as defined in section 7702B(c)) to the extent
            that such coverage is provided through a flexible
            spending or similar arrangement.
                ``(2) Flexible spending arrangement.--For purposes
            of this subsection, a flexible spending arrangement is
            a benefit program which provides employees with
            coverage under which--
                        ``(A) specified incurred expenses may be
                    reimbursed (subject to reimbursement maximums
                    and other reasonable conditions), and
                        ``(B) the maximum amount of reimbursement
                    which is reasonably available to a participant
                    for such coverage is less than 500 percent of
                    the value of such coverage.
            In the case of an insured plan, the maximum amount
            reasonably available shall be determined on the basis
            of the underlying coverage.''
        (d) Continuation Coverage Rules Not To Apply.--
                (1) Paragraph (2) of section 4980B(g) is amended by
            adding at the end the following new sentence: ``Such
            term shall not include any plan substantially all of
            the coverage under which is for qualified long-term
            care services (as defined in section 7702B(c)).''
                (2) Paragraph (1) of section 607 of the Employee
            Retirement Income Security Act of 1974 is amended by
            adding at the end the following new sentence: ``Such
            term shall not include any plan substantially all of
            the coverage under which is for qualified long-term
            care services (as defined in section 7702B(c) of such
            Code).''
                (3) Paragraph (1) of section 2208 of the Public
            Health Service Act is amended by adding at the end the
            following new sentence: ``Such term shall not include
            any plan substantially all of the coverage under which
            is for qualified long-term care services (as defined in
            section 7702B(c) of such Code).''
        (e) Clerical Amendment.--The table of sections for chapter
    79 is amended by inserting after the item relating to section
    7702A the following new item:

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

        (f) Effective Dates.--
                (1) General effective date.--
                        (A) In general.--Except as provided in
                    subparagraph (B), the amendments made by this
                    section shall apply to contracts issued after
                    December 31, 1996.
                        (B) Reserve method.--The amendment made by
                    subsection (b) shall apply to contracts issued
                    after December 31, 1997.
                (2) Continuation of existing policies.--In the case
            of any contract issued before January 1, 1997, which
            met the long-term care insurance requirements of the
            State in which the contract was sitused at the time the
            contract was issued--
                        (A) such contract shall be treated for
                    purposes of the Internal Revenue Code of 1986
                    as a qualified long-term care insurance
                    contract (as defined in section 7702B(b) of
                    such Code), and
                        (B) services provided under, or reimbursed
                    by, such contract shall be treated for such
                    purposes as qualified long-term care services
                    (as defined in section 7702B(c) of such Code).
            In the case of an individual who is covered on December
            31, 1996, under a State long-term care plan (as defined
            in section 7702B(f)(2) of such Code), the terms of such
            plan on such date shall be treated for purposes of the
            preceding sentence as a contract issued on such date
            which met the long-term care insurance requirements of
            such State.
                (3) Exchanges of existing policies.--If, after the
            date of enactment of this Act and before January 1,
            1998, a contract providing for long-term care insurance
            coverage is exchanged solely for a qualified long-term
            care 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.
                (5) Application of per diem limitation to existing
            contracts.--The amount of per diem payments made under
            a contract issued on or before July 31, 1996, with
            respect to an insured which are excludable from gross
            income by reason of section 7702B of the Internal
            Revenue Code of 1986 (as added by this section) shall
            not be reduced under subsection (d)(2)(B) thereof by
            reason of reimbursements received under a contract
            issued on or before such date. The preceding sentence
            shall cease to apply as of the date (after July 31,
            1996) such contract is exchanged or there is any
            contract modification which results in an increase in
            the amount of such per diem payments or the amount of
            such reimbursements.
        (g) Long-Term Care Study Request.--The Chairman of the
    Committee on Ways and Means of the House of Representatives and
    the Chairman of the Committee on Finance of the Senate shall
    jointly request the National Association of Insurance
    Commissioners, in consultation with representatives of the
    insurance industry and consumer organizations, to formulate,
    develop, and conduct a study to determine the marketing and
    other effects of per diem limits on certain types of long-term
    care policies. If the National Association of Insurance
    Commissioners agrees to the study request, the National
    Association of Insurance Commissioners shall report the results
    of its study to such committees not later than 2 years after
    accepting the request.

    SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL CARE.

        (a) General Rule.--Paragraph (1) of section 213(d)
    (defining medical care) is amended by striking ``or'' at the
    end of subparagraph (B), by redesignating subparagraph (C) as
    subparagraph (D), and by inserting after subparagraph (B) the
    following new subparagraph:
                        ``(C) for qualified long-term care services
                    (as defined in section 7702B(c)), or''.
        (b) Technical Amendments.--
                (1) Subparagraph (D) of section 213(d)(1) (as
            redesignated by subsection (a)) is amended by inserting
            before the period ``or for any qualified long-term care
            insurance contract (as defined in section 7702B(b))''.
                (2)(A) Paragraph (1) of section 213(d) is amended
            by adding at the end the following new flush sentence:
            ``In the case of a qualified long-term care insurance
            contract (as defined in section 7702B(b)), only
            eligible long-term care premiums (as defined in
            paragraph (10)) shall be taken into account under
            subparagraph (D).''
                (B) Paragraph (2) of section 162(l) is amended by
            adding at the end the following new subparagraph:
                        ``(C) Long-term care premiums.--In the case
                    of a qualified long-term care insurance
                    contract (as defined in section 7702B(b)), only
                    eligible long-term care premiums (as defined in
                    section 213(d)(10)) shall be taken into account
                    under paragraph (1).''
                (C) Subsection (d) of section 213 is amended by
            adding at the end the following new paragraphs:
                ``(10) Eligible long-term care premiums.--
                        ``(A) In general.--For purposes of this
                    section, the term `eligible long-term care
                    premiums' means the amount paid during a
                    taxable year for any qualified long-term care
                    insurance contract (as defined in section
                    7702B(b)) covering an individual, to the extent
                    such amount does not exceed the limitation
                    determined under the following table:

    ``In the case of an individual with an attained age before the 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.
                ``(11) Certain payments to relatives treated as not
            paid for medical care.--An amount paid for a qualified
            long-term care service (as defined in section 7702B(c))
            provided to an individual shall be treated as not paid
            for medical care if such service is provided--
                        ``(A) by the spouse of the individual or by
                    a relative (directly or through a partnership,
                    corporation, or other entity) unless the
                    service is provided by a licensed professional
                    with respect to such service, or
                        ``(B) by a corporation or partnership which
                    is related (within the meaning of section
                    267(b) or 707(b)) to the individual.
            For purposes of this paragraph, the term `relative'
            means an individual bearing a relationship to the
            individual which is described in any of paragraphs (1)
            through (8) of section 152(a). This paragraph shall not
            apply for purposes of section 105(b) with respect to
            reimbursements through insurance.'' .
                (3) Paragraph (6) of section 213(d) is amended--
                        (A) by striking ``subparagraphs (A) and
                    (B)'' and inserting ``subparagraphs (A), (B),
                    and (C)'', and
                        (B) by striking ``paragraph (1)(C)'' in
                    subparagraph (A) and inserting ``paragraph
                    (1)(D)''.
                (4) Paragraph (7) of section 213(d) is amended by
            striking ``subparagraphs (A) and (B)'' and inserting
            ``subparagraphs (A), (B), and (C)''.
        (c) Effective Date.--The amendments made by this section
    shall apply to taxable years beginning after December 31, 1996.

    SEC. 323. REPORTING REQUIREMENTS.

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

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

        ``(a) Requirement of Reporting.--Any person who pays long-
    term care benefits shall make a return, according to the forms
    or regulations prescribed by the Secretary, setting forth--
                ``(1) the aggregate amount of such benefits paid by
            such person to any individual during any calendar year,
                ``(2) whether or not such benefits are paid in
            whole or in part on a per diem or other periodic basis
            without regard to the expenses incurred during the
            period to which the payments relate,
                ``(3) the name, address, and TIN of such
            individual, and
                ``(4) the name, address, and TIN of the chronically
            ill or terminally ill individual on account of whose
            condition such benefits are paid.
        ``(b) Statements To Be Furnished to Persons With Respect to
    Whom Information Is Required.--Every person required to make a
    return under subsection (a) shall furnish to each individual
    whose name is required to be set forth in such return a written
    statement showing--
                ``(1) the name of the person making the payments,
            and
                ``(2) the aggregate amount of long-term care
            benefits paid to the individual which are required to
            be shown on such return.
    The written statement required under the preceding sentence
    shall be furnished to the individual on or before January 31 of
    the year following the calendar year for which the return under
    subsection (a) was required to be made.
        ``(c) Long-Term Care Benefits.--For purposes of this
    section, the term `long-term care benefit' means--
                ``(1) any payment under a product which is
            advertised, marketed, or offered as long-term care
            insurance, and
                ``(2) any payment which is excludable from gross
            income by reason of section 101(g).''.
        (b) Penalties.--
                (1) Subparagraph (B) of section 6724(d)(1) is
            amended by redesignating clauses (ix) through (xiv) as
            clauses (x) through (xv), respectively, and by
            inserting after clause (viii) the following new clause:
                                ``(ix) section 6050Q (relating to
                            certain long-term care benefits),''.
                (2) Paragraph (2) of section 6724(d) is amended by
            redesignating subparagraphs (Q) through (T) as
            subparagraphs (R) through (U), respectively, and by
            inserting after subparagraph (P) the following new
            subparagraph:
                        ``(Q) section 6050Q(b) (relating to certain
                    long-term care benefits),''.
        (c) Clerical Amendment.--The table of sections for subpart
    B of part III of subchapter A of chapter 61 is amended by
    adding at the end the following new item:

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

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

                    PART II--CONSUMER PROTECTION PROVISIONS

    SEC. 325. POLICY REQUIREMENTS.

        Section 7702B (as added by section 321) is amended by
    adding at the end the following new subsection:
        ``(g) Consumer Protection Provisions.--
                ``(1) In general.--The requirements of this
            subsection are met with respect to any contract if the
            contract meets--
                        ``(A) the requirements of the model
                    regulation and model Act described in paragraph
                    (2),
                        ``(B) the disclosure requirement of
                    paragraph (3), and
                        ``(C) the requirements relating to
                    nonforfeitability under paragraph (4).
                ``(2) Requirements of model regulation and act.--
                        ``(A) In general.--The requirements of this
                    paragraph are met with respect to any contract
                    if such contract meets--
                                ``(i) Model regulation.--The
                            following requirements of the model
                            regulation:
                                        ``(I) Section 7A (relating
                                    to guaranteed renewal or
                                    noncancellability), and the
                                    requirements of section 6B of
                                    the model Act relating to such
                                    section 7A.
                                        ``(II) Section 7B (relating
                                    to prohibitions on limitations
                                    and exclusions).
                                        ``(III) Section 7C
                                    (relating to extension of
                                    benefits).
                                        ``(IV) Section 7D (relating
                                    to continuation or conversion
                                    of coverage).
                                        ``(V) Section 7E (relating
                                    to discontinuance and
                                    replacement of policies).
                                        ``(VI) Section 8 (relating
                                    to unintentional lapse).
                                        ``(VII) Section 9 (relating
                                    to disclosure), other than
                                    section 9F thereof.
                                        ``(VIII) Section 10
                                    (relating to prohibitions
                                    against post-claims
                                    underwriting).
                                        ``(IX) Section 11 (relating
                                    to minimum standards).
                                        ``(X) Section 12 (relating
                                    to requirement to offer
                                    inflation protection), except
                                    that any requirement for a
                                    signature on a rejection of
                                    inflation protection shall
                                    permit the signature to be on
                                    an application or on a separate
                                    form.
                                        ``(XI) Section 23 (relating
                                    to prohibition against
                                    preexisting conditions and
                                    probationary periods in
                                    replacement policies or
                                    certificates).
                                ``(ii) Model act.--The following
                            requirements of the model Act:
                                        ``(I) Section 6C (relating
                                    to preexisting conditions).
                                        ``(II) Section 6D (relating
                                    to prior hospitalization).
                        ``(B) Definitions.--For purposes of this
                    paragraph--
                                ``(i) Model provisions.--The terms
                            `model regulation' and `model Act' mean
                            the long-term care 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.
                                ``(iii) Determination.--For
                            purposes of this section and section
                            4980C, the determination of whether any
                            requirement of a model regulation or
                            the model Act has been met shall be
                            made by the Secretary.
                ``(3) Disclosure requirement.--The requirement of
            this paragraph is met with respect to any contract if
            such contract meets the requirements of section
            4980C(d).
                ``(4) Nonforfeiture requirements.--
                        ``(A) In general.--The requirements of this
                    paragraph are met with respect to any level
                    premium contract, if the issuer of such
                    contract offers to the policyholder, including
                    any group policyholder, a nonforfeiture
                    provision meeting the requirements of
                    subparagraph (B).
                        ``(B) Requirements of provision.--The
                    nonforfeiture provision required under
                    subparagraph (A) shall meet the following
                    requirements:
                                ``(i) The nonforfeiture provision
                            shall be appropriately captioned.
                                ``(ii) The nonforfeiture provision
                            shall provide for a benefit available
                            in the event of a default in the
                            payment of any premiums and the amount
                            of the benefit may be adjusted
                            subsequent to being initially granted
                            only as necessary to reflect changes in
                            claims, persistency, and interest as
                            reflected in changes in rates for
                            premium paying contracts approved by
                            the Secretary for the same contract
                            form.
                                ``(iii) The nonforfeiture provision
                            shall provide at least one of the
                            following:
                                        ``(I) Reduced paid-up
                                    insurance.
                                        ``(II) Extended term
                                    insurance.
                                        ``(III) Shortened benefit
                                    period.
                                        ``(IV) Other similar
                                    offerings approved by the
                                    Secretary.
                ``(5) Cross reference.--

              ``For coordination of the requirements of this subsection with
            State requirements, see section 4980C(f).''

    SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
                        INSURANCE CONTRACTS.

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

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

        ``(a) General Rule.--There is hereby imposed on any person
    failing to meet the requirements of subsection (c) or (d) a tax
    in the amount determined under subsection (b).
        ``(b) Amount.--
                ``(1) In general.--The amount of the tax imposed by
            subsection (a) shall be $100 per insured for each day
            any requirement of subsection (c) or (d) is not met
            with respect to each qualified long-term care insurance
            contract.
                ``(2) Waiver.--In the case of a failure which is
            due to reasonable cause and not to willful neglect, the
            Secretary may waive part or all of the tax imposed by
            subsection (a) to the extent that payment of the tax
            would be excessive relative to the failure involved.
        ``(c) Responsibilities.--The requirements of this
    subsection are as follows:
                ``(1) Requirements of model provisions.--
                        ``(A) Model regulation.--The following
                    requirements of the model regulation must be
                    met:
                                ``(i) Section 13 (relating to
                            application forms and replacement
                            coverage).
                                ``(ii) Section 14 (relating to
                            reporting requirements), except that
                            the issuer shall also report at least
                            annually the number of claims denied
                            during the reporting period for each
                            class of business (expressed as a
                            percentage of claims denied), other
                            than claims denied for failure to meet
                            the waiting period or because of any
                            applicable preexisting condition.
                                ``(iii) Section 20 (relating to
                            filing requirements for marketing).
                                ``(iv) Section 21 (relating to
                            standards for marketing), including
                            inaccurate completion of medical
                            histories, other than sections 21C(1)
                            and 21C(6) thereof, except that--
                                        ``(I) in addition to such
                                    requirements, no person shall,
                                    in selling or offering to sell
                                    a qualified long-term care
                                    insurance contract,
                                    misrepresent a material fact;
                                    and
                                        ``(II) no such requirements
                                    shall include a requirement to
                                    inquire or identify whether a
                                    prospective applicant or
                                    enrollee for long-term care
                                    insurance has accident and
                                    sickness insurance.
                                ``(v) Section 22 (relating to
                            appropriateness of recommended
                            purchase).
                                ``(vi) Section 24 (relating to
                            standard format outline of coverage).
                                ``(vii) Section 25 (relating to
                            requirement to deliver shopper's
                            guide).
                        ``(B) Model act.--The following
                    requirements of the model Act must be met:
                                ``(i) Section 6F (relating to right
                            to return), except that such section
                            shall also apply to denials of
                            applications and any refund shall be
                            made within 30 days of the return or
                            denial.
                                ``(ii) Section 6G (relating to
                            outline of coverage).
                                ``(iii) Section 6H (relating to
                            requirements for certificates under
                            group plans).
                                ``(iv) Section 6I (relating to
                            policy summary).
                                ``(v) Section 6J (relating to
                            monthly reports on accelerated death
                            benefits).
                                ``(vi) Section 7 (relating to
                            incontestability period).
                        ``(C) Definitions.--For purposes of this
                    paragraph, the terms `model regulation' and
                    `model Act' have the meanings given such terms
                    by section 7702B(g)(2)(B).
                ``(2) Delivery of policy.--If an application for a
            qualified long-term care insurance contract (or for a
            certificate under such a contract for a group) is
            approved, the issuer shall deliver to the applicant (or
            policyholder or certificateholder) the contract (or
            certificate) of insurance not later than 30 days after
            the date of the approval.
                ``(3) Information on denials of claims.--If a claim
            under a qualified long-term care insurance contract is
            denied, the issuer shall, within 60 days of the date of
            a written request by the policyholder or
            certificateholder (or representative)--
                        ``(A) provide a written explanation of the
                    reasons for the denial, and
                        ``(B) make available all information
                    directly relating to such denial.
        ``(d) Disclosure.--The requirements of this subsection are
    met if the issuer of a long-term care insurance policy
    discloses in such policy and in the outline of coverage
    required under subsection (c)(1)(B)(ii) that the policy is
    intended to be a qualified long-term care insurance contract
    under section 7702B(b).
        ``(e) Qualified Long-Term Care Insurance Contract
    Defined.--For purposes of this section, the term `qualified
    long-term care insurance contract' has the meaning given such
    term by section 7702B.
        ``(f) Coordination With State Requirements.--If a State
    imposes any requirement which is more stringent than the
    analogous requirement imposed by this section or section
    7702B(g), the requirement imposed by this section or section
    7702B(g) shall be treated as met if the more stringent State
    requirement is met.''.
        (b) Conforming Amendment.--The table of sections for
    chapter 43 is amended by adding at the end the following new
    item:

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

    SEC. 327. EFFECTIVE DATES.

        (a) In General.--The provisions of, and amendments made by,
    this part shall apply to contracts issued after December 31,
    1996. The provisions of section 321(f) (relating to transition
    rule) shall apply to such contracts.
        (b) Issuers.--The amendments made by section 326 shall
    apply to actions taken after December 31, 1996.

              Subtitle D--Treatment of Accelerated Death Benefits

    SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY RECIPIENT.

        (a) In General.--Section 101 (relating to certain death
    benefits) is amended by adding at the end the following new
    subsection:
        ``(g) Treatment of Certain Accelerated Death Benefits.--
                ``(1) In general.--For purposes of this section,
            the following amounts shall be treated as an amount
            paid by reason of the death of an insured:
                        ``(A) Any amount received under a life
                    insurance contract on the life of an insured
                    who is a terminally ill individual.
                        ``(B) Any amount received under a life
                    insurance contract on the life of an insured
                    who is a chronically ill individual.
                ``(2) Treatment of viatical settlements.--
                        ``(A) In general.--If any portion of the
                    death benefit under a life insurance contract
                    on the life of an insured described in
                    paragraph (1) is sold or assigned to a viatical
                    settlement provider, the amount paid for the
                    sale or assignment of such portion shall be
                    treated as an amount paid under the life
                    insurance contract by reason of the death of
                    such insured.
                        ``(B) Viatical settlement provider.--
                                ``(i) In general.--The term
                            `viatical settlement provider' means
                            any person regularly engaged in the
                            trade or business of purchasing, or
                            taking assignments of, life insurance
                            contracts on the lives of insureds
                            described in paragraph (1) if--
                                        ``(I) such person is
                                    licensed for such purposes
                                    (with respect to insureds
                                    described in the same
                                    subparagraph of paragraph (1)
                                    as the insured) in the State in
                                    which the insured resides, or
                                        ``(II) in the case of an
                                    insured who resides in a State
                                    not requiring the licensing of
                                    such persons for such purposes
                                    with respect to such insured,
                                    such person meets the
                                    requirements of clause (ii) or
                                    (iii), whichever applies to
                                    such insured.
                                ``(ii) Terminally ill insureds.--A
                            person meets the requirements of this
                            clause with respect to an insured who
                            is a terminally ill individual if such
                            person--
                                        ``(I) meets the
                                    requirements of sections 8 and
                                    9 of the Viatical Settlements
                                    Model Act of the National
                                    Association of Insurance
                                    Commissioners, and
                                        ``(II) meets the
                                    requirements of the Model
                                    Regulations of the National
                                    Association of Insurance
                                    Commissioners (relating to
                                    standards for evaluation of
                                    reasonable payments) in
                                    determining amounts paid by
                                    such person in connection with
                                    such purchases or assignments.
                                ``(iii) Chronically ill insureds.--
                            A person meets the requirements of this
                            clause with respect to an insured who
                            is a chronically ill individual if such
                            person--
                                        ``(I) meets requirements
                                    similar to the requirements
                                    referred to in clause (ii)(I),
                                    and
                                        ``(II) meets the standards
                                    (if any) of the National
                                    Association of Insurance
                                    Commissioners for evaluating
                                    the reasonableness of amounts
                                    paid by such person in
                                    connection with such purchases
                                    or assignments with respect to
                                    chronically ill individuals.
                ``(3) Special rules for chronically ill insureds.--
            In the case of an insured who is a chronically ill
            individual--
                        ``(A) In general.--Paragraphs (1) and (2)
                    shall not apply to any payment received for any
                    period unless--
                                ``(i) such payment is for costs
                            incurred by the payee (not compensated
                            for by insurance or otherwise) for
                            qualified long-term care services
                            provided for the insured for such
                            period, and
                                ``(ii) the terms of the contract
                            giving rise to such payment satisfy--
                                        ``(I) the requirements of
                                    section 7702B(b)(1)(B), and
                                        ``(II) the requirements (if
                                    any) applicable under
                                    subparagraph (B).
                    For purposes of the preceding sentence, the
                    rule of section 7702B(b)(2)(B) shall apply.
                        ``(B) Other requirements.--The requirements
                    applicable under this subparagraph are--
                                ``(i) those requirements of section
                            7702B(g) and section 4980C which the
                            Secretary specifies as applying to such
                            a purchase, assignment, or other
                            arrangement,
                                ``(ii) standards adopted by the
                            National Association of Insurance
                            Commissioners which specifically apply
                            to chronically ill individuals (and, if
                            such standards are adopted, the
                            analogous requirements specified under
                            clause (i) shall cease to apply), and
                                ``(iii) standards adopted by the
                            State in which the policyholder resides
                            (and if such standards are adopted, the
                            analogous requirements specified under
                            clause (i) and (subject to section
                            4980C(f)) standards under clause (ii),
                            shall cease to apply).
                        ``(C) Per diem payments.--A payment shall
                    not fail to be described in subparagraph (A) by
                    reason of being made on a per diem or other
                    periodic basis without regard to the expenses
                    incurred during the period to which the payment
                    relates.
                        ``(D) Limitation on exclusion for periodic
                    payments.--

              ``For limitation on amount of periodic payments which are
            treated as described in paragraph (1), see section 7702B(d).''

                ``(4) Definitions.--For purposes of this
            subsection--
                        ``(A) Terminally ill individual.--The term
                    `terminally ill individual' means an individual
                    who has been certified by a physician as having
                    an illness or physical condition which can
                    reasonably be expected to result in death in 24
                    months or less after the date of the
                    certification.
                        ``(B) Chronically ill individual.--The term
                    `chronically ill individual' has the meaning
                    given such term by section 7702B(c)(2); except
                    that such term shall not include a terminally
                    ill individual.
                        ``(C) Qualified long-term care services.--
                    The term `qualified long-term care services'
                    has the meaning given such term by section
                    7702B(c).
                        ``(D) Physician.--The term `physician' has
                    the meaning given to such term by section
                    1861(r)(1) of the Social Security Act (42
                    U.S.C. 1395x(r)(1)).
                ``(5) Exception for business-related policies.--
            This subsection shall not apply in the case of any
            amount paid to any taxpayer other than the insured if
            such taxpayer has an insurable interest with respect to
            the life of the insured by reason of the insured being
            a director, officer, or employee of the taxpayer or by
            reason of the insured being financially interested in
            any trade or business carried on by the taxpayer.''.
        (b) Effective Date.--The amendment made by subsection (a)
    shall apply to amounts received after December 31, 1996.

    SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED
                        DEATH BENEFIT RIDERS.

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

                       Subtitle E--State Insurance Pools

    SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED ORGANIZATIONS
                        PROVIDING HEALTH COVERAGE FOR HIGH-RISK
                        INDIVIDUALS.

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

    SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED WORKMEN'S
                        COMPENSATION REINSURANCE ORGANIZATIONS.

        (a) In General.--Subsection (c) of section 501 (relating to
    list of exempt organizations), as amended by section 341, is
    amended by adding at the end the following new paragraph:
                ``(27) Any membership organization if--
                        ``(A) such organization is established
                    before June 1, 1996, by a State exclusively to
                    reimburse its members for losses arising under
                    workmen's compensation acts,
                        ``(B) such State requires that the
                    membership of such organization consist of--
                                ``(i) all persons who issue
                            insurance covering workmen's
                            compensation losses in such State, and
                                ``(ii) all persons and governmental
                            entities who self-insure against such
                            losses, and
                        ``(C) such organization operates as a non-
                    profit organization by--
                                ``(i) returning surplus income to
                            its members or workmen's compensation
                            policyholders on a periodic basis, and
                                ``(ii) reducing initial premiums in
                            anticipation of investment income.''
        (b) Effective Date.--The amendment made by this section
    shall apply to taxable years ending after the date of the
    enactment of this Act.

                Subtitle F--Organizations Subject to Section 833

    SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.

        (a) In General.--Section 833(c) (relating to organization
    to which section applies) is amended by adding at the end the
    following new paragraph:
                ``(4) Treatment as existing blue cross or blue
            shield organization.--
                        ``(A) In general.--Paragraph (2) shall be
                    applied to an organization described in
                    subparagraph (B) as if it were a Blue Cross or
                    Blue Shield organization.
                        ``(B) Applicable organization.--An
                    organization is described in this subparagraph
                    if it--
                                ``(i) is organized under, and
                            governed by, State laws which are
                            specifically and exclusively applicable
                            to not-for-profit health insurance or
                            health service type organizations, and
                                ``(ii) is not a Blue Cross or Blue
                            Shield organization or health
                            maintenance organization.''.
        (b) Effective Date.--The amendment made by this section
    shall apply to taxable years ending after December 31, 1996.

                Subtitle G--IRA Distributions to the Unemployed

    SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT
                        ADDITIONAL TAX TO PAY FINANCIALLY DEVASTATING
                        MEDICAL EXPENSES.

        (a) In General.--Section 72(t)(3)(A) is amended by striking
    ``(B),''.
        (b) Distributions for Payment of Health Insurance Premiums
    of Certain Unemployed Individuals.--Paragraph (2) of section
    72(t) is amended by adding at the end the following new
    subparagraph:
                        ``(D) Distributions to unemployed
                    individuals for health insurance premiums.--
                                ``(i) In general.--Distributions
                            from an individual retirement plan to
                            an individual after separation from
                            employment--
                                        ``(I) if such individual
                                    has received unemployment
                                    compensation for 12 consecutive
                                    weeks under any Federal or
                                    State unemployment compensation
                                    law by reason of such
                                    separation,
                                        ``(II) if such
                                    distributions are made during
                                    any taxable year during which
                                    such unemployment compensation
                                    is paid or the succeeding
                                    taxable year, and
                                        ``(III) to the extent such
                                    distributions do not exceed the
                                    amount paid during the taxable
                                    year for insurance described in
                                    section 213(d)(1)(D) with
                                    respect to the individual and
                                    the individual's spouse and
                                    dependents (as defined in
                                    section 152).
                                ``(ii) Distributions after
                            reemployment.--Clause (i) shall not
                            apply to any distribution made after
                            the individual has been employed for at
                            least 60 days after the separation from
                            employment to which clause (i) applies.
                                ``(iii) Self-employed
                            individuals.--To the extent provided in
                            regulations, a self-employed individual
                            shall be treated as meeting the
                            requirements of clause (i)(I) if, under
                            Federal or State law, the individual
                            would have received unemployment
                            compensation but for the fact the
                            individual was self-employed.''.
        (c) Conforming Amendment.--Subparagraph (B) of section
    72(t)(2) is amended by striking ``or (C)'' and inserting ``,
    (C), or (D)''.
        (d) Effective Date.--The amendments made by this section
    shall apply to distributions after December 31, 1996.

    Subtitle H--Organ and Tissue Donation Information Included With Income
                              Tax Refund Payments

    SEC. 371. ORGAN AND TISSUE DONATION INFORMATION INCLUDED WITH INCOME
                        TAX REFUND PAYMENTS.

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

    TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS

         Subtitle A--Application and Enforcement of Group Health Plan
                                  Requirements

    SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
                        REQUIREMENTS.

        (a) In General.--The Internal Revenue Code of 1986 is
    amended by adding at the end the following new subtitle:

     ``Subtitle K--Group Health Plan Portability, Access, and Renewability
                                  Requirements

            ``Chapter 100. Group health plan portability, access, and
                      renewability requirements.

    ``CHAPTER 100--GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
                                  REQUIREMENTS

            ``Sec. 9801. Increased portability through limitation on
                      preexisting condition exclusions.
            ``Sec. 9802. Prohibiting discrimination against individual
                      participants and beneficiaries based on health status.
            ``Sec. 9803. Guaranteed renewability in multiemployer plans and
                      certain multiple employer welfare arrangements.
            ``Sec. 9804. General exceptions.
            ``Sec. 9805. Definitions.
            ``Sec. 9806. Regulations.

    ``SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON PREEXISTING
                        CONDITION EXCLUSIONS.

        ``(a) Limitation on Preexisting Condition Exclusion Period;
    Crediting for Periods of Previous Coverage.--Subject to
    subsection (d), a group health plan may, with respect to a
    participant or beneficiary, impose a preexisting condition
    exclusion only if--
                ``(1) such exclusion relates to a condition
            (whether physical or mental), regardless of the cause
            of the condition, for which medical advice, diagnosis,
            care, or treatment was recommended or received within
            the 6-month period ending on the enrollment date;
                ``(2) such exclusion extends for a period of not
            more than 12 months (or 18 months in the case of a late
            enrollee) after the enrollment date; and
                ``(3) the period of any such preexisting condition
            exclusion is reduced by the length of the aggregate of
            the periods of creditable coverage (if any) applicable
            to the participant or beneficiary as of the enrollment
            date.
        ``(b) Definitions.--For purposes of this section--
                ``(1) Preexisting condition exclusion.--
                        ``(A) In general.--The term `preexisting
                    condition exclusion' means, with respect to
                    coverage, a limitation or exclusion of benefits
                    relating to a condition based on the fact that
                    the condition was present before the date of
                    enrollment for such coverage, whether or not
                    any medical advice, diagnosis, care, or
                    treatment was recommended or received before
                    such date.
                        ``(B) Treatment of genetic information.--
                    For purposes of this section, genetic
                    information shall not be treated as a condition
                    described in subsection (a)(1) in the absence
                    of a diagnosis of the condition related to such
                    information.
                ``(2) Enrollment date.--The term `enrollment date'
            means, with respect to an individual covered under a
            group health plan, the date of enrollment of the
            individual in the plan or, if earlier, the first day of
            the waiting period for such enrollment.
                ``(3) Late enrollee.--The term `late enrollee'
            means, with respect to coverage under a group health
            plan, a participant or beneficiary who enrolls under
            the plan other than during--
                        ``(A) the first period in which the
                    individual is eligible to enroll under the
                    plan, or
                        ``(B) a special enrollment period under
                    subsection (f).
                ``(4) Waiting period.--The term `waiting period'
            means, with respect to a group health plan and an
            individual who is a potential participant or
            beneficiary in the plan, the period that must pass with
            respect to the individual before the individual is
            eligible to be covered for benefits under the terms of
            the plan.
        ``(c) Rules Relating to Crediting Previous Coverage.--
                ``(1) Creditable coverage defined.--For purposes of
            this part, the term `creditable coverage' means, with
            respect to an individual, coverage of the individual
            under any of the following:
                        ``(A) A group health plan.
                        ``(B) Health insurance coverage.
                        ``(C) Part A or part B of title XVIII of
                    the Social Security Act.
                        ``(D) Title XIX of the Social Security Act,
                    other than coverage consisting solely of
                    benefits under section 1928.
                        ``(E) Chapter 55 of title 10, United States
                    Code.
                        ``(F) A medical care program of the Indian
                    Health Service or of a tribal organization.
                        ``(G) A State health benefits risk pool.
                        ``(H) A health plan offered under chapter
                    89 of title 5, United States Code.
                        ``(I) A public health plan (as defined in
                    regulations).
                        ``(J) A health benefit plan under section
                    5(e) of the Peace Corps Act (22 U.S.C. 2504(e).
            Such term does not include coverage consisting solely
            of coverage of excepted benefits (as defined in section
            9805(c)).
                ``(2) Not counting periods before significant
            breaks in coverage.--
                        ``(A) In general.--A period of creditable
                    coverage shall not be counted, with respect to
                    enrollment of an individual under a group
                    health plan, if, after such period and before
                    the enrollment date, there was a 63-day period
                    during all of which the individual was not
                    covered under any creditable coverage.
                        ``(B) Waiting period not treated as a break
                    in coverage.--For purposes of subparagraph (A)
                    and subsection (d)(4), any period that an
                    individual is in a waiting period for any
                    coverage under a group health plan or is in an
                    affiliation period shall not be taken into
                    account in determining the continuous period
                    under subparagraph (A).
                        ``(C) Affiliation period.--
                                ``(i) In general.--For purposes of
                            this section, the term `affiliation
                            period' means a period which, under the
                            terms of the health insurance coverage
                            offered by the health maintenance
                            organization, must expire before the
                            health insurance coverage becomes
                            effective. During such an affiliation
                            period, the organization is not
                            required to provide health care
                            services or benefits and no premium
                            shall be charged to the participant or
                            beneficiary.
                                ``(ii) Beginning.--Such period
                            shall begin on the enrollment date.
                                ``(iii) Runs concurrently with
                            waiting periods.--Any such affiliation
                            period shall run concurrently with any
                            waiting period under the plan.
                ``(3) Method of crediting coverage.--
                        ``(A) Standard method.--Except as otherwise
                    provided under subparagraph (B), for purposes
                    of applying subsection (a)(3), a group health
                    plan shall count a period of creditable
                    coverage without regard to the specific
                    benefits for which coverage is offered during
                    the period.
                        ``(B) Election of alternative method.--A
                    group health plan may elect to apply subsection
                    (a)(3) based on coverage of any benefits within
                    each of several classes or categories of
                    benefits specified in regulations rather than
                    as provided under subparagraph (A). Such
                    election shall be made on a uniform basis for
                    all participants and beneficiaries. Under such
                    election a group health plan shall count a
                    period of creditable coverage with respect to
                    any class or category of benefits if any level
                    of benefits is covered within such class or
                    category.
                        ``(C) Plan notice.--In the case of an
                    election with respect to a group health plan
                    under subparagraph (B), the plan shall--
                                ``(i) prominently state in any
                            disclosure statements concerning the
                            plan, and state to each enrollee at the
                            time of enrollment under the plan, that
                            the plan has made such election, and
                                ``(ii) include in such statements a
                            description of the effect of this
                            election.
                ``(4) Establishment of period.--Periods of
            creditable coverage with respect to an individual shall
            be established through presentation of certifications
            described in subsection (e) or in such other manner as
            may be specified in regulations.
        ``(d) Exceptions.--
                ``(1) Exclusion not applicable to certain
            newborns.--Subject to paragraph (4), a group health
            plan may not impose any preexisting condition exclusion
            in the case of an individual who, as of the last day of
            the 30-day period beginning with the date of birth, is
            covered under creditable coverage.
                ``(2) Exclusion not applicable to certain adopted
            children.--Subject to paragraph (4), a group health
            plan may not impose any preexisting condition exclusion
            in the case of a child who is adopted or placed for
            adoption before attaining 18 years of age and who, as
            of the last day of the 30-day period beginning on the
            date of the adoption or placement for adoption, is
            covered under creditable coverage. The previous
            sentence shall not apply to coverage before the date of
            such adoption or placement for adoption.
                ``(3) Exclusion not applicable to pregnancy.--For
            purposes of this section, a group health plan may not
            impose any preexisting condition exclusion relating to
            pregnancy as a preexisting condition.
                ``(4) Loss if break in coverage.--Paragraphs (1)
            and (2) shall no longer apply to an individual after
            the end of the first 63-day period during all of which
            the individual was not covered under any creditable
            coverage.
        ``(e) Certifications and Disclosure of Coverage.--
                ``(1) Requirement for certification of period of
            creditable coverage.--
                        ``(A) In general.--A group health plan
                    shall provide the certification described in
                    subparagraph (B)--
                                ``(i) at the time an individual
                            ceases to be covered under the plan or
                            otherwise becomes covered under a COBRA
                            continuation provision,
                                ``(ii) in the case of an individual
                            becoming covered under such a
                            provision, at the time the individual
                            ceases to be covered under such
                            provision, and
                                ``(iii) on the request on behalf of
                            an individual made not later than 24
                            months after the date of cessation of
                            the coverage described in clause (i) or
                            (ii), whichever is later.
                    The certification under clause (i) may be
                    provided, to the extent practicable, at a time
                    consistent with notices required under any
                    applicable COBRA continuation provision.
                        ``(B) Certification.--The certification
                    described in this subparagraph is a written
                    certification of--
                                ``(i) the period of creditable
                            coverage of the individual under such
                            plan and the coverage under such COBRA
                            continuation provision, and
                                ``(ii) the waiting period (if any)
                            (and affiliation period, if applicable)
                            imposed with respect to the individual
                            for any coverage under such plan.
                        ``(C) Issuer compliance.--To the extent
                    that medical care under a group health plan
                    consists of health insurance coverage offered
                    in connection with the plan, the plan is deemed
                    to have satisfied the certification requirement
                    under this paragraph if the issuer provides for
                    such certification in accordance with this
                    paragraph.
                ``(2) Disclosure of information on previous
            benefits.--
                        ``(A) In general.--In the case of an
                    election described in subsection (c)(3)(B) by a
                    group health plan, if the plan enrolls an
                    individual for coverage under the plan and the
                    individual provides a certification of coverage
                    of the individual under paragraph (1)--
                                ``(i) upon request of such plan,
                            the entity which issued the
                            certification provided by the
                            individual shall promptly disclose to
                            such requesting plan information on
                            coverage of classes and categories of
                            health benefits available under such
                            entity's plan, and
                                ``(ii) such entity may charge the
                            requesting plan or issuer for the
                            reasonable cost of disclosing such
                            information.
                ``(3) Regulations.--The Secretary shall establish
            rules to prevent an entity's failure to provide
            information under paragraph (1) or (2) with respect to
            previous coverage of an individual from adversely
            affecting any subsequent coverage of the individual
            under another group health plan or health insurance
            coverage.
        ``(f) Special Enrollment Periods.--
                ``(1) Individuals losing other coverage.--A group
            health plan shall permit an employee who is eligible,
            but not enrolled, for coverage under the terms of the
            plan (or a dependent of such an employee if the
            dependent is eligible, but not enrolled, for coverage
            under such terms) to enroll for coverage under the
            terms of the plan if each of the following conditions
            is met:
                        ``(A) The employee or dependent was covered
                    under a group health plan or had health
                    insurance coverage at the time coverage was
                    previously offered to the employee or
                    individual.
                        ``(B) The employee stated in writing at
                    such time that coverage under a group health
                    plan or health insurance coverage was the
                    reason for declining enrollment, but only if
                    the plan sponsor (or the health insurance
                    issuer offering health insurance coverage in
                    connection with the plan) required such a
                    statement at such time and provided the
                    employee with notice of such requirement (and
                    the consequences of such requirement) at such
                    time.
                        ``(C) The employee's or dependent's
                    coverage described in subparagraph (A)--
                                ``(i) was under a COBRA
                            continuation provision and the coverage
                            under such provision was exhausted; or
                                ``(ii) was not under such a
                            provision and either the coverage was
                            terminated as a result of loss of
                            eligibility for the coverage (including
                            as a result of legal separation,
                            divorce, death, termination of
                            employment, or reduction in the number
                            of hours of employment) or employer
                            contributions towards such coverage
                            were terminated.
                        ``(D) Under the terms of the plan, the
                    employee requests such enrollment not later
                    than 30 days after the date of exhaustion of
                    coverage described in subparagraph (C)(i) or
                    termination of coverage or employer
                    contribution described in subparagraph (C)(ii).
                ``(2) For dependent beneficiaries.--
                        ``(A) In general.--If--
                                ``(i) a group health plan makes
                            coverage available with respect to a
                            dependent of an individual,
                                ``(ii) the individual is a
                            participant under the plan (or has met
                            any waiting period applicable to
                            becoming a participant under the plan
                            and is eligible to be enrolled under
                            the plan but for a failure to enroll
                            during a previous enrollment period),
                            and
                                ``(iii) a person becomes such a
                            dependent of the individual through
                            marriage, birth, or adoption or
                            placement for adoption,
                    the group health plan shall provide for a
                    dependent special enrollment period described
                    in subparagraph (B) during which the person
                    (or, if not otherwise enrolled, the individual)
                    may be enrolled under the plan as a dependent
                    of the individual, and in the case of the birth
                    or adoption of a child, the spouse of the
                    individual may be enrolled as a dependent of
                    the individual if such spouse is otherwise
                    eligible for coverage.
                        ``(B) Dependent special enrollment
                    period.--The dependent special enrollment
                    period under this subparagraph shall be a
                    period of not less than 30 days and shall begin
                    on the later of--
                                ``(i) the date dependent coverage
                            is made available, or
                                ``(ii) the date of the marriage,
                            birth, or adoption or placement for
                            adoption (as the case may be) described
                            in subparagraph (A)(iii).
                        ``(C) No waiting period.--If an individual
                    seeks coverage of a dependent during the first
                    30 days of such a dependent special enrollment
                    period, the coverage of the dependent shall
                    become effective--
                                ``(i) in the case of marriage, not
                            later than the first day of the first
                            month beginning after the date the
                            completed request for enrollment is
                            received;
                                ``(ii) in the case of a dependent's
                            birth, as of the date of such birth; or
                                ``(iii) in the case of a
                            dependent's adoption or placement for
                            adoption, the date of such adoption or
                            placement for adoption.

    ``SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL PARTICIPANTS
                        AND BENEFICIARIES BASED ON HEALTH STATUS.

        ``(a) In Eligibility to Enroll.--
                ``(1) In general.--Subject to paragraph (2), a
            group health plan may not establish rules for
            eligibility (including continued eligibility) of any
            individual to enroll under the terms of the plan based
            on any of the following factors in relation to the
            individual or a dependent of the individual:
                        ``(A) Health status.
                        ``(B) Medical condition (including both
                    physical and mental illnesses).
                        ``(C) Claims experience.
                        ``(D) Receipt of health care.
                        ``(E) Medical history.
                        ``(F) Genetic information.
                        ``(G) Evidence of insurability (including
                    conditions arising out of acts of domestic
                    violence).
                        ``(H) Disability.
                ``(2) No application to benefits or exclusions.--To
            the extent consistent with section 9801, paragraph (1)
            shall not be construed--
                        ``(A) to require a group health plan to
                    provide particular benefits (or benefits with
                    respect to a specific procedure, treatment, or
                    service) other than those provided under the
                    terms of such plan; or
                        ``(B) to prevent such a plan from
                    establishing limitations or restrictions on the
                    amount, level, extent, or nature of the
                    benefits or coverage for similarly situated
                    individuals enrolled in the plan or coverage.
                ``(3) Construction.--For purposes of paragraph (1),
            rules for eligibility to enroll under a plan include
            rules defining any applicable waiting periods for such
            enrollment.
        ``(b) In Premium Contributions.--
                ``(1) In general.--A group health plan may not
            require any individual (as a condition of enrollment or
            continued enrollment under the plan) to pay a premium
            or contribution which is greater than such premium or
            contribution for a similarly situated individual
            enrolled in the plan on the basis of any factor
            described in subsection (a)(1) in relation to the
            individual or to an individual enrolled under the plan
            as a dependent of the individual.
                ``(2) Construction.--Nothing in paragraph (1) shall
            be construed--
                        ``(A) to restrict the amount that an
                    employer may be charged for coverage under a
                    group health plan; or
                        ``(B) to prevent a group health plan from
                    establishing premium discounts or rebates or
                    modifying otherwise applicable copayments or
                    deductibles in return for adherence to programs
                    of health promotion and disease prevention.

    ``SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND CERTAIN
                        MULTIPLE EMPLOYER WELFARE ARRANGEMENTS.

        ``(a) In General.--A group health plan which is a
    multiemployer plan (as defined in section 414(f)) or which is a
    multiple employer welfare arrangement may not deny an employer
    continued access to the same or different coverage under such
    plan, other than--
                ``(1) for nonpayment of contributions;
                ``(2) for fraud or other intentional
            misrepresentation of material fact by the employer;
                ``(3) for noncompliance with material plan
            provisions;
                ``(4) because the plan is ceasing to offer any
            coverage in a geographic area;
                ``(5) in the case of a plan that offers benefits
            through a network plan, because there is no longer any
            individual enrolled through the employer who lives,
            resides, or works in the service area of the network
            plan and the plan applies this paragraph uniformly
            without regard to the claims experience of employers or
            a factor described in section 9802(a)(1) in relation to
            such individuals or their dependents; or
                ``(6) for failure to meet the terms of an
            applicable collective bargaining agreement, to renew a
            collective bargaining or other agreement requiring or
            authorizing contributions to the plan, or to employ
            employees covered by such an agreement.
        ``(b) Multiple Employer Welfare Arrangement.--For purposes
    of subsection (a), the term `multiple employer welfare
    arrangement' has the meaning given such term by section 3(40)
    of the Employee Retirement Income Security Act of 1974, as in
    effect on the date of the enactment of this section.

    ``SEC. 9804. GENERAL EXCEPTIONS.

        ``(a) Exception for Certain Plans.--The requirements of
    this chapter shall not apply to--
                ``(1) any governmental plan, and
                ``(2) any group health plan for any plan year if,
            on the first day of such plan year, such plan has less
            than 2 participants who are current employees.
        ``(b) Exception for Certain Benefits.--The requirements of
    this chapter shall not apply to any group health plan in
    relation to its provision of excepted benefits described in
    section 9805(c)(1).
        ``(c) Exception for Certain Benefits If Certain Conditions
    Met.--
                ``(1) Limited, excepted benefits.--The requirements
            of this chapter shall not apply to any group health
            plan in relation to its provision of excepted benefits
            described in section 9805(c)(2) if the benefits--
                        ``(A) are provided under a separate policy,
                    certificate, or contract of insurance; or
                        ``(B) are otherwise not an integral part of
                    the plan.
                ``(2) Noncoordinated, excepted benefits.--The
            requirements of this chapter shall not apply to any
            group health plan in relation to its provision of
            excepted benefits described in section 9805(c)(3) if
            all of the following conditions are met:
                        ``(A) The benefits are provided under a
                    separate policy, certificate, or contract of
                    insurance.
                        ``(B) There is no coordination between the
                    provision of such benefits and any exclusion of
                    benefits under any group health plan maintained
                    by the same plan sponsor.
                        ``(C) Such benefits are paid with respect
                    to an event without regard to whether benefits
                    are provided with respect to such an event
                    under any group health plan maintained by the
                    same plan sponsor.
                ``(3) Supplemental excepted benefits.--The
            requirements of this chapter shall not apply to any
            group health plan in relation to its provision of
            excepted benefits described in section 9805(c)(4) if
            the benefits are provided under a separate policy,
            certificate, or contract of insurance.

    ``SEC. 9805. DEFINITIONS.

        ``(a) Group Health Plan.--For purposes of this chapter, the
    term `group health plan' has the meaning given to such term by
    section 5000(b)(1).
        ``(b) Definitions Relating to Health Insurance.--For
    purposes of this chapter--
                ``(1) Health insurance coverage.--
                        ``(A) In general.--Except as provided in
                    subparagraph (B), the term `health insurance
                    coverage' means benefits consisting of medical
                    care (provided directly, through insurance or
                    reimbursement, or otherwise) under any hospital
                    or medical service policy or certificate,
                    hospital or medical service plan contract, or
                    health maintenance organization contract
                    offered by a health insurance issuer.
                        ``(B) No application to certain excepted
                    benefits.--In applying subparagraph (A),
                    excepted benefits described in subsection
                    (c)(1) shall not be treated as benefits
                    consisting of medical care.
                ``(2) Health insurance issuer.--The term `health
            insurance issuer' means an insurance company, insurance
            service, or insurance organization (including a health
            maintenance organization, as defined in paragraph (3))
            which is licensed to engage in the business of
            insurance in a State and which is subject to State law
            which regulates insurance (within the meaning of
            section 514(b)(2) of the Employee Retirement Income
            Security Act of 1974, as in effect on the date of the
            enactment of this section). Such term does not include
            a group health plan.
                ``(3) Health maintenance organization.--The term
            `health maintenance organization' means--
                        ``(A) a Federally qualified health
                    maintenance organization (as defined in section
                    1301(a) of the Public Health Service Act (42
                    U.S.C. 300e(a))),
                        ``(B) an organization recognized under
                    State law as a health maintenance organization,
                    or
                        ``(C) a similar organization regulated
                    under State law for solvency in the same manner
                    and to the same extent as such a health
                    maintenance organization.
        ``(c) Excepted Benefits.--For purposes of this chapter, the
    term `excepted benefits' means benefits under one or more (or
    any combination thereof) of the following:
                ``(1) Benefits not subject to requirements.--
                        ``(A) Coverage only for accident, or
                    disability income insurance, or any combination
                    thereof.
                        ``(B) Coverage issued as a supplement to
                    liability insurance.
                        ``(C) Liability insurance, including
                    general liability insurance and automobile
                    liability insurance.
                        ``(D) Workers' compensation or similar
                    insurance.
                        ``(E) Automobile medical payment insurance.
                        ``(F) Credit-only insurance.
                        ``(G) Coverage for on-site medical clinics.
                        ``(H) Other similar insurance coverage,
                    specified in regulations, under which benefits
                    for medical care are secondary or incidental to
                    other insurance benefits.
                ``(2) Benefits not subject to requirements if
            offered separately.--
                        ``(A) Limited scope dental or vision
                    benefits.
                        ``(B) Benefits for long-term care, nursing
                    home care, home health care, community-based
                    care, or any combination thereof.
                        ``(C) Such other similar, limited benefits
                    as are specified in regulations.
                ``(3) Benefits not subject to requirements if
            offered as independent, noncoordinated benefits.--
                        ``(A) Coverage only for a specified disease
                    or illness.
                        ``(B) Hospital indemnity or other fixed
                    indemnity insurance.
                ``(4) Benefits not subject to requirements if
            offered as separate insurance policy.--Medicare
            supplemental health insurance (as defined under section
            1882(g)(1) of the Social Security Act), coverage
            supplemental to the coverage provided under chapter 55
            of title 10, United States Code, and similar
            supplemental coverage provided to coverage under a
            group health plan.
        ``(d) Other Definitions.--For purposes of this chapter--
                ``(1) COBRA continuation provision.--The term
            `COBRA continuation provision' means any of the
            following:
                        ``(A) Section 4980B, other than subsection
                    (f)(1) thereof insofar as it relates to
                    pediatric vaccines.
                        ``(B) Part 6 of subtitle B of title I of
                    the Employee Retirement Income Security Act of
                    1974 (29 U.S.C. 1161 et seq.), other than
                    section 609 of such Act.
                        ``(C) Title XXII of the Public Health
                    Service Act.
                ``(2) Governmental plan.--The term `governmental
            plan' has the meaning given such term by section
            414(d).
                ``(3) Medical care.--The term `medical care' has
            the meaning given such term by section 213(d)
            determined without regard to--
                        ``(A) paragraph (1)(C) thereof, and
                        ``(B) so much of paragraph (1)(D) thereof
                    as relates to qualified long-term care
                    insurance.
                ``(4) Network plan.--The term `network plan' means
            health insurance coverage of a health insurance issuer
            under which the financing and delivery of medical care
            are provided, in whole or in part, through a defined
            set of providers under contract with the issuer.
                ``(5) Placed for adoption defined.--The term
            `placement', or being `placed', for adoption, in
            connection with any placement for adoption of a child
            with any person, means the assumption and retention by
            such person of a legal obligation for total or partial
            support of such child in anticipation of adoption of
            such child. The child's placement with such person
            terminates upon the termination of such legal
            obligation.

    ``SEC. 9806. REGULATIONS.

        ``The Secretary, consistent with section 104 of the Health
    Care Portability and Accountability Act of 1996, may promulgate
    such regulations as may be necessary or appropriate to carry
    out the provisions of this chapter. The Secretary may
    promulgate any interim final rules as the Secretary determines
    are appropriate to carry out this chapter.''
        (b) Clerical Amendment.--The table of subtitles of such
    Code is amended by adding at the end the following new item:
            ``Subtitle K. Group health plan portability, access, and
                      renewability requirements.''
        (c) Effective Date.--
                (1) In general.--The amendments made by this
            section shall apply to plan years beginning after June
            30, 1997.
                (2) Determination of creditable coverage.--
                        (A) Period of coverage.--
                                (i) In general.--Subject to clause
                            (ii), no period before July 1, 1996,
                            shall be taken into account under
                            chapter 100 of the Internal Revenue
                            Code of 1986 (as added by this section)
                            in determining creditable coverage.
                                (ii) Special rule for certain
                            periods.--The Secretary of the
                            Treasury, consistent with section 104,
                            shall provide for a process whereby
                            individuals who need to establish
                            creditable coverage for periods before
                            July 1, 1996, and who would have such
                            coverage credited but for clause (i)
                            may be given credit for creditable
                            coverage for such periods through the
                            presentation of documents or other
                            means.
                        (B) Certifications, etc.--
                                (i) In general.--Subject to clauses
                            (ii) and (iii), subsection (e) of
                            section 9801 of the Internal Revenue
                            Code of 1986 (as added by this section)
                            shall apply to events occurring after
                            June 30, 1996.
                                (ii) No certification required to
                            be provided before june 1, 1997.--In no
                            case is a certification required to be
                            provided under such subsection before
                            June 1, 1997.
                                (iii) Certification only on written
                            request for events occurring before
                            october 1, 1996.--In the case of an
                            event occurring after June 30, 1996,
                            and before October 1, 1996, a
                            certification is not required to be
                            provided under such subsection unless
                            an individual (with respect to whom the
                            certification is otherwise required to
                            be made) requests such certification in
                            writing.
                        (C) Transitional rule.--In the case of an
                    individual who seeks to establish creditable
                    coverage for any period for which certification
                    is not required because it relates to an event
                    occurring before June 30, 1996--
                                (i) the individual may present
                            other credible evidence of such
                            coverage in order to establish the
                            period of creditable coverage; and
                                (ii) a group health plan and a
                            health insurance issuer shall not be
                            subject to any penalty or enforcement
                            action with respect to the plan's or
                            issuer's crediting (or not crediting)
                            such coverage if the plan or issuer has
                            sought to comply in good faith with the
                            applicable requirements under the
                            amendments made by this section.
                (3) Special rule for collective bargaining
            agreements.--Except as provided in paragraph (2), in
            the case of a group health plan maintained pursuant to
            1 or more collective bargaining agreements between
            employee representatives and one or more employers
            ratified before the date of the enactment of this Act,
            the amendments made by this section shall not apply to
            plan years beginning before the later of--
                        (A) the date on which the last of the
                    collective bargaining agreements relating to
                    the plan terminates (determined without regard
                    to any extension thereof agreed to after the
                    date of the enactment of this Act), or
                        (B) July 1, 1997.
            For purposes of subparagraph (A), any plan amendment
            made pursuant to a collective bargaining agreement
            relating to the plan which amends the plan solely to
            conform to any requirement added by this section shall
            not be treated as a termination of such collective
            bargaining agreement.
                (4) Timely regulations.--The Secretary of the
            Treasury, consistent with section 104, shall first
            issue by not later than April 1, 1997, such regulations
            as may be necessary to carry out the amendments made by
            this section.
                (5) Limitation on actions.--No enforcement action
            shall be taken, pursuant to the amendments made by this
            section, against a group health plan or health
            insurance issuer with respect to a violation of a
            requirement imposed by such amendments before January
            1, 1998, or, if later, the date of issuance of
            regulations referred to in paragraph (4), if the plan
            or issuer has sought to comply in good faith with such
            requirements.

    SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
                        REQUIREMENTS.

        (a) In General.--Chapter 43 of the Internal Revenue Code of
    1986 (relating to qualified pension, etc., plans) is amended by
    adding after section 4980C the following new section:

    ``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN REQUIREMENTS.

        ``(a) General Rule.--There is hereby imposed a tax on any
    failure of a group health plan to meet the requirements of
    chapter 100 (relating to group health plan portability, access,
    and renewability requirements).
        ``(b) Amount of Tax.--
                ``(1) In general.--The amount of the tax imposed by
            subsection (a) on any failure shall be $100 for each
            day in the noncompliance period with respect to each
            individual to whom such failure relates.
                ``(2) Noncompliance period.--For purposes of this
            section, the term `noncompliance period' means, with
            respect to any failure, the period--
                        ``(A) beginning on the date such failure
                    first occurs, and
                        ``(B) ending on the date such failure is
                    corrected.
                ``(3) Minimum tax for noncompliance period where
            failure discovered after notice of examination.--
            Notwithstanding paragraphs (1) and (2) of subsection
            (c)--
                        ``(A) In general.--In the case of 1 or more
                    failures with respect to an individual--
                                ``(i) which are not corrected
                            before the date a notice of examination
                            of income tax liability is sent to the
                            employer, and
                                ``(ii) which occurred or continued
                            during the period under examination,
                    the amount of tax imposed by subsection (a) by
                    reason of such failures with respect to such
                    individual shall not be less than the lesser of
                    $2,500 or the amount of tax which would be
                    imposed by subsection (a) without regard to
                    such paragraphs.
                        ``(B) Higher minimum tax where violations
                    are more than de minimis.--To the extent
                    violations for which any person is liable under
                    subsection (e) for any year are more than de
                    minimis, subparagraph (A) shall be applied by
                    substituting `$15,000' for `$2,500' with
                    respect to such person.
                        ``(C) Exception for church plans.--This
                    paragraph shall not apply to any failure under
                    a church plan (as defined in section 414(e)).
        ``(c) Limitations on Amount of Tax.--
                ``(1) Tax not to apply where failure not discovered
            exercising reasonable diligence.--No tax shall be
            imposed by subsection (a) on any failure during any
            period for which it is established to the satisfaction
            of the Secretary that the person otherwise liable for
            such tax did not know, and exercising reasonable
            diligence would not have known, that such failure
            existed.
                ``(2) Tax not to apply to failures corrected within
            certain periods.--No tax shall be imposed by subsection
            (a) on any failure if--
                        ``(A) such failure was due to reasonable
                    cause and not to willful neglect, and
                        ``(B)(i) in the case of a plan other than a
                    church plan (as defined in section 414(e)),
                    such failure is corrected during the 30-day
                    period beginning on the 1st date the person
                    otherwise liable for such tax knew, or
                    exercising reasonable diligence would have
                    known, that such failure existed, and
                        ``(ii) in the case of a church plan (as so
                    defined), such failure is corrected before the
                    close of the correction period (determined
                    under the rules of section 414(e)(4)(C)).
                ``(3) Overall limitation for unintentional
            failures.--In the case of failures which are due to
            reasonable cause and not to willful neglect--
                        ``(A) Single employer plans.--
                                ``(i) In general.--In the case of
                            failures with respect to plans other
                            than specified multiple employer health
                            plans, the tax imposed by subsection
                            (a) for failures during the taxable
                            year of the employer shall not exceed
                            the amount equal to the lesser of--
                                        ``(I) 10 percent of the
                                    aggregate amount paid or
                                    incurred by the employer (or
                                    predecessor employer) during
                                    the preceding taxable year for
                                    group health plans, or
                                        ``(II) $500,000.
                                ``(ii) Taxable years in the case of
                            certain controlled groups.--For
                            purposes of this subparagraph, if not
                            all persons who are treated as a single
                            employer for purposes of this section
                            have the same taxable year, the taxable
                            years taken into account shall be
                            determined under principles similar to
                            the principles of section 1561.
                        ``(B) Specified multiple employer health
                    plans.--
                                ``(i) In general.--In the case of
                            failures with respect to a specified
                            multiple employer health plan, the tax
                            imposed by subsection (a) for failures
                            during the taxable year of the trust
                            forming part of such plan shall not
                            exceed the amount equal to the lesser
                            of--
                                        ``(I) 10 percent of the
                                    amount paid or incurred by such
                                    trust during such taxable year
                                    to provide medical care (as
                                    defined in section 9805(d)(3))
                                    directly or through insurance,
                                    reimbursement, or otherwise, or
                                        ``(II) $500,000.
                            For purposes of the preceding sentence,
                            all plans of which the same trust forms
                            a part shall be treated as 1 plan.
                                ``(ii) Special rule for employers
                            required to pay tax.--If an employer is
                            assessed a tax imposed by subsection
                            (a) by reason of a failure with respect
                            to a specified multiple employer health
                            plan, the limit shall be determined
                            under subparagraph (A) (and not under
                            this subparagraph) and as if such plan
                            were not a specified multiple employer
                            health plan.
                ``(4) Waiver by secretary.--In the case of a
            failure which is due to reasonable cause and not to
            willful neglect, the Secretary may waive part or all of
            the tax imposed by subsection (a) to the extent that
            the payment of such tax would be excessive relative to
            the failure involved.
        ``(d) Tax Not To Apply to Certain Insured Small Employer
    Plans.--
                ``(1) In general.--In the case of a group health
            plan of a small employer which provides health
            insurance coverage solely through a contract with a
            health insurance issuer, no tax shall be imposed by
            this section on the employer on any failure which is
            solely because of the health insurance coverage offered
            by such issuer.
                ``(2) Small employer.--
                        ``(A) In general.--For purposes of
                    paragraph (1), the term `small employer' means,
                    with respect to a calendar year and a plan
                    year, an employer who employed an average of at
                    least 2 but not more than 50 employees on
                    business days during the preceding calendar
                    year and who employs at least 2 employees on
                    the first day of the plan year. For purposes of
                    the preceding sentence, all persons treated as
                    a single employer under subsection (b), (c),
                    (m), or (o) of section 414 shall be treated as
                    1 employer.
                        ``(B) Employers not in existence in
                    preceding year.--In the case of an employer
                    which was not in existence throughout the
                    preceding calendar year, the determination of
                    whether such employer is a small employer shall
                    be based on the average number of employees
                    that it is reasonably expected such employer
                    will employ on business days in the current
                    calendar year.
                        ``(C) Predecessors.--Any reference in this
                    paragraph to an employer shall include a
                    reference to any predecessor of such employer.
                ``(3) Health insurance coverage; health insurance
            issuer.--For purposes of paragraph (1), the terms
            `health insurance coverage' and `health insurance
            issuer' have the respective meanings given such terms
            by section 9805.
        ``(e) Liability for Tax.--The following shall be liable for
    the tax imposed by subsection (a) on a failure:
                ``(1) Except as otherwise provided in this
            subsection, the employer.
                ``(2) In the case of a multiemployer plan, the
            plan.
                ``(3) In the case of a failure under section 9803
            (relating to guaranteed renewability) with respect to a
            plan described in subsection (f)(2)(B), the plan.
        ``(f) Definitions.--For purposes of this section--
                ``(1) Group health plan.--The term `group health
            plan' has the meaning given such term by section
            9805(a).
                ``(2) Specified multiple employer health plan.--The
            term `specified multiple employer health plan' means a
            group health plan which is--
                        ``(A) any multiemployer plan, or
                        ``(B) any multiple employer welfare
                    arrangement (as defined in section 3(40) of the
                    Employee Retirement Income Secrurity Act of
                    1974, as in effect on the date of the enactment
                    of this section).
                ``(3) Correction.--A failure of a group health plan
            shall be treated as corrected if--
                        ``(A) such failure is retroactively undone
                    to the extent possible, and
                        ``(B) the person to whom the failure
                    relates is placed in a financial position which
                    is as good as such person would have been in
                    had such failure not occurred.''
        (b) Clerical Amendment.--The table of sections for chapter
    43 of such Code is amended by adding after the item relating to
    section 4980C the following new item:

            ``Sec. 4980D. Failure to meet certain group health plan
                      requirements.''

        (c) Effective Date.--The amendments made by this section
    shall apply to failures under chapter 100 of the Internal
    Revenue Code of 1986 (as added by section 401 of this Act).

    Subtitle B--Clarification of Certain Continuation Coverage Requirements

    SEC. 421. COBRA CLARIFICATIONS.

        (a) Public Health Service Act.--
                (1) Period of coverage.--Section 2202(2) of the
            Public Health Service Act (42 U.S.C. 300bb-2(2)) is
            amended--
                        (A) in subparagraph (A)--
                                (i) by transferring the sentence
                            immediately preceding clause (iv) so as
                            to appear immediately following such
                            clause (iv); and
                                (ii) in the last sentence (as so
                            transferred)--
                                        (I) by striking ``an
                                    individual'' and inserting ``a
                                    qualified beneficiary'';
                                        (II) by striking ``at the
                                    time of a qualifying event
                                    described in section 2203(2)''
                                    and inserting ``at any time
                                    during the first 60 days of
                                    continuation coverage under
                                    this title'';
                                        (III) by striking ``with
                                    respect to such event,''; and
                                        (IV) by inserting ``(with
                                    respect to all qualified
                                    beneficiaries)'' after ``29
                                    months'';
                        (B) in subparagraph (D)(i), by inserting
                    before ``, or'' the following: ``(other than
                    such an exclusion or limitation which does not
                    apply to (or is satisfied by) such beneficiary
                    by reason of chapter 100 of the Internal
                    Revenue Code of 1986, part 7 of subtitle B of
                    title I of the Employee Retirement Income
                    Security Act of 1974, or title XXVII of this
                    Act)''; and
                        (C) in subparagraph (E), by striking ``at
                    the time of a qualifying event described in
                    section 2203(2)'' and inserting ``at any time
                    during the first 60 days of continuation
                    coverage under this title''.
                (2) Notices.--Section 2206(3) of the Public Health
            Service Act (42 U.S.C. 300bb-6(3)) is amended by
            striking ``at the time of a qualifying event described
            in section 2203(2)'' and inserting ``at any time during
            the first 60 days of continuation coverage under this
            title''.
                (3) Birth or adoption of a child.--Section
            2208(3)(A) of the Public Health Service Act (42 U.S.C.
            300bb-8(3)(A)) is amended by adding at the end thereof
            the following new flush sentence:
            ``Such term shall also include a child who is born to
            or placed for adoption with the covered employee during
            the period of continuation coverage under this
            title.''.
        (b) Employee Retirement Income Security Act of 1974.--
                (1) Period of coverage.--Section 602(2) of the
            Employee Retirement Income Security Act of 1974 (29
            U.S.C. 1162(2)) is amended--
                        (A) in the last sentence of subparagraph
                    (A)--
                                (i) by striking ``an individual''
                            and inserting ``a qualified
                            beneficiary'';
                                (ii) by striking ``at the time of a
                            qualifying event described in section
                            603(2)'' and inserting ``at any time
                            during the first 60 days of
                            continuation coverage under this
                            part'';
                                (iii) by striking ``with respect to
                            such event''; and
                                (iv) by inserting ``(with respect
                            to all qualified beneficiaries)'' after
                            ``29 months'';
                        (B) in subparagraph (D)(i), by inserting
                    before ``, or'' the following: ``(other than
                    such an exclusion or limitation which does not
                    apply to (or is satisfied by) such beneficiary
                    by reason of chapter 100 of the Internal
                    Revenue Code of 1986, part 7 of this subtitle,
                    or title XXVII of the Public Health Service
                    Act)''; and
                        (C) in subparagraph (E), by striking ``at
                    the time of a qualifying event described in
                    section 603(2)'' and inserting ``at any time
                    during the first 60 days of continuation
                    coverage under this part''.
                (2) Notices.--Section 606(a)(3) of the Employee
            Retirement Income Security Act of 1974 (29 U.S.C.
            1166(a)(3)) is amended by striking ``at the time of a
            qualifying event described in section 603(2)'' and
            inserting ``at any time during the first 60 days of
            continuation coverage under this part''.
                (3) Birth or adoption of a child.--Section
            607(3)(A) of the Employee Retirement Income Security
            Act of 1974 (29 U.S.C. 1167(3)) is amended by adding at
            the end thereof the following new flush sentence:
            ``Such term shall also include a child who is born to
            or placed for adoption with the covered employee during
            the period of continuation coverage under this part.''.
        (c) Internal Revenue Code of 1986.--
                (1) Period of coverage.--Section 4980B(f)(2)(B) of
            the Internal Revenue Code of 1986 is amended--
                        (A) in the last sentence of clause (i)--
                                (i) by striking ``at the time of a
                            qualifying event described in paragraph
                            (3)(B)'' and inserting ``at any time
                            during the first 60 days of
                            continuation coverage under this
                            section'';
                                (ii) by striking ``with respect to
                            such event''; and
                                (iii) by inserting ``(with respect
                            to all qualified beneficiaries)'' after
                            ``29 months'';
                        (B) in clause (iv)(I), by inserting before
                    ``, or'' the following: ``(other than such an
                    exclusion or limitation which does not apply to
                    (or is satisfied by) such beneficiary by reason
                    of chapter 100 of this title, part 7 of
                    subtitle B of title I of the Employee
                    Retirement Income Security Act of 1974, or
                    title XXVII of the Public Health Service
                    Act)''; and
                        (C) in clause (v), by striking ``at the
                    time of a qualifying event described in
                    paragraph (3)(B)'' and inserting ``at any time
                    during the first 60 days of continuation
                    coverage under this section''.
                (2) Notices.--Section 4980B(f)(6)(C) of the
            Internal Revenue Code of 1986 is amended by striking
            ``at the time of a qualifying event described in
            paragraph (3)(B)'' and inserting ``at any time during
            the first 60 days of continuation coverage under this
            section''.
                (3) Birth or adoption of a child.--Section
            4980B(g)(1)(A) of the Internal Revenue Code of 1986 is
            amended by adding at the end thereof the following new
            flush sentence:
                            ``Such term shall also include a child
                            who is born to or placed for adoption
                            with the covered employee during the
                            period of continuation coverage under
                            this section.''.
        (d) Effective Date.--The amendments made by this section
    shall become effective on January 1, 1997, regardless of
    whether the qualifying event occurred before, on, or after such
    date.
        (e) Notification of Changes.--Not later than November 1,
    1996, each group health plan (covered under title XXII of the
    Public Health Service Act, part 6 of subtitle B of title I of
    the Employee Retirement Income Security Act of 1974, and
    section 4980B(f) of the Internal Revenue Code of 1986) shall
    notify each qualified beneficiary who has elected continuation
    coverage under such title, part or section of the amendments
    made by this section.

                            TITLE V--REVENUE OFFSETS

    SEC. 500. AMENDMENT OF 1986 CODE.

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

                    Subtitle A--Company-Owned Life Insurance

    SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT TO
                        COMPANY-OWNED LIFE INSURANCE.

        (a) In General.--Paragraph (4) of section 264(a) is
    amended--
                (1) by inserting ``, or any endowment or annuity
            contracts owned by the taxpayer covering any
            individual,'' after ``the life of any individual'', and
                (2) by striking all that follows ``carried on by
            the taxpayer'' and inserting a period.
        (b) Exception for Contracts Relating to Key Persons;
    Permissible Interest Rates.--Section 264 is amended--
                (1) by striking ``Any'' in subsection (a)(4) and
            inserting ``Except as provided in subsection (d),
            any'', and
                (2) by adding at the end the following new
            subsection:
        ``(d) Special Rules For Application of Subsection (a)(4).--
                ``(1) Exception for key persons.--Subsection (a)(4)
            shall not apply to any interest paid or accrued on any
            indebtedness with respect to policies or contracts
            covering an individual who is a key person to the
            extent that the aggregate amount of such indebtedness
            with respect to policies and contracts covering such
            individual does not exceed $50,000.
                ``(2) Interest rate cap on key persons and pre-1986
            contracts.--
                        ``(A) In general.--No deduction shall be
                    allowed by reason of paragraph (1) or the last
                    sentence of subsection (a) with respect to
                    interest paid or accrued for any month
                    beginning after December 31, 1995, to the
                    extent the amount of such interest exceeds the
                    amount which would have been determined if the
                    applicable rate of interest were used for such
                    month.
                        ``(B) Applicable rate of interest.--For
                    purposes of subparagraph (A)--
                                ``(i) In general.--The applicable
                            rate of interest for any month is the
                            rate of interest described as Moody's
                            Corporate Bond Yield Average-Monthly
                            Average Corporates as published by
                            Moody's Investors Service, Inc., or any
                            successor thereto, for such month.
                                ``(ii) Pre-1986 contracts.--In the
                            case of indebtedness on a contract
                            purchased on or before June 20, 1986--
                                        ``(I) which is a contract
                                    providing a fixed rate of
                                    interest, the applicable rate
                                    of interest for any month shall
                                    be the Moody's rate described
                                    in clause (i) for the month in
                                    which the contract was
                                    purchased, or
                                        ``(II) which is a contract
                                    providing a variable rate of
                                    interest, the applicable rate
                                    of interest for any month in an
                                    applicable period shall be such
                                    Moody's rate for the third
                                    month preceding the first month
                                    in such period.

                            For purposes of subclause (II), the
                            taxpayer shall elect an applicable
                            period for such contract on its return
                            of tax imposed by this chapter for its
                            first taxable year ending on or after
                            October 13, 1995. Such applicable
                            period shall be for any number of
                            months (not greater than 12) specified
                            in the election and may not be changed
                            by the taxpayer without the consent of
                            the Secretary.
                ``(3) Key person.--For purposes of paragraph (1),
            the term `key person' means an officer or 20-percent
            owner, except that the number of individuals who may be
            treated as key persons with respect to any taxpayer
            shall not exceed the greater of--
                        ``(A) 5 individuals, or
                        ``(B) the lesser of 5 percent of the total
                    officers and employees of the taxpayer or 20
                    individuals.
                ``(4) 20-percent owner.--For purposes of this
            subsection, the term `20-percent owner' means--
                        ``(A) if the taxpayer is a corporation, any
                    person who owns directly 20 percent or more of
                    the outstanding stock of the corporation or
                    stock possessing 20 percent or more of the
                    total combined voting power of all stock of the
                    corporation, or
                        ``(B) if the taxpayer is not a corporation,
                    any person who owns 20 percent or more of the
                    capital or profits interest in the employer.
                ``(5) Aggregation rules.--
                        ``(A) In general.--For purposes of
                    paragraph (4)(A) and applying the $50,000
                    limitation in paragraph (1)--
                                ``(i) all members of a controlled
                            group shall be treated as 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
            October 13, 1995.
                (2) Transition rule for existing indebtedness.--
                        (A) In general.--In the case of--
                                (i) indebtedness incurred before
                            January 1, 1996, or
                                (ii) indebtedness incurred before
                            January 1, 1997 with respect to any
                            contract or policy entered into in 1994
                            or 1995,

                    the amendments made by this section shall not
                    apply to qualified interest paid or accrued on
                    such indebtedness after October 13, 1995, and
                    before January 1, 1999.
                        (B) Qualified interest.--For purposes of
                    subparagraph (A), the qualified interest with
                    respect to any indebtedness for any month is
                    the amount of interest (otherwise deductible)
                    which would be paid or accrued for such month
                    on such indebtedness if--
                                (i) in the case of any interest
                            paid or accrued after December 31,
                            1995, indebtedness with respect to no
                            more than 20,000 insured individuals
                            were taken into account, and
                                (ii) the lesser of the following
                            rates of interest were used for such
                            month:
                                        (I) The rate of interest
                                    specified under the terms of
                                    the indebtedness as in effect
                                    on October 13, 1995 (and
                                    without regard to modification
                                    of such terms after such date).
                                        (II) The applicable
                                    percentage of the rate of
                                    interest described as Moody's
                                    Corporate Bond Yield Average-
                                    Monthly Average Corporates as
                                    published by Moody's Investors
                                    Service, Inc., or any successor
                                    thereto, for such month.

                    For purposes of clause (i), all persons treated
                    as a single employer under subsection (a) or
                    (b) of section 52 of the Internal Revenue Code
                    of 1986 or subsection (m) or (o) of section 414
                    of such Code shall be treated as 1 person.
                    Subclause (II) of clause (ii) shall not apply
                    to any month before January 1, 1996.
                        (C) Applicable percentage.--For purposes of
                    subparagraph (B), the applicable percentage is
                    as follows:
        For calendar year:                                The percentage is:
            1996............................................    100 percent
            1997............................................     90 percent
            1998............................................     80 percent.
                (3) Special rule for grandfathered contracts.--This
            section shall not apply to any contract purchased on or
            before June 20, 1986, except that section 264(d)(2) of
            the Internal Revenue Code of 1986 shall apply to
            interest paid or accrued after October 13, 1995.
        (d) Spread of Income Inclusion on Surrender, Etc. of
    Contracts.--
                (1) In general.--If any amount is received under
            any life insurance policy or endowment or annuity
            contract described in paragraph (4) of section 264(a)
            of the Internal Revenue Code of 1986--
                        (A) on the complete surrender, redemption,
                    or maturity of such policy or contract during
                    calendar year 1996, 1997, or 1998, or
                        (B) in full discharge during any such
                    calendar year of the obligation under the
                    policy or contract which is in the nature of a
                    refund of the consideration paid for the policy
                    or contract,

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

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

    Subtitle B--Treatment of Individuals Who Lose United States Citizenship

    SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS WHO
                        LOSE UNITED STATES CITIZENSHIP.

        (a) In General.--Subsection (a) of section 877 is amended
    to read as follows:
        ``(a) Treatment of Expatriates.--
                ``(1) In general.--Every nonresident alien
            individual who, within the 10-year period immediately
            preceding the close of the taxable year, lost United
            States citizenship, unless such loss did not have for 1
            of its principal purposes the avoidance of taxes under
            this subtitle or subtitle B, shall be taxable for such
            taxable year in the manner provided in subsection (b)
            if the tax imposed pursuant to such subsection exceeds
            the tax which, without regard to this section, is
            imposed pursuant to section 871.
                ``(2) Certain individuals treated as having tax
            avoidance purpose.--For purposes of paragraph (1), an
            individual shall be treated as having a principal
            purpose to avoid such taxes if--
                        ``(A) the average annual net income tax (as
                    defined in section 38(c)(1)) of such individual
                    for the period of 5 taxable years ending before
                    the date of the loss of United States
                    citizenship is greater than $100,000, or
                        ``(B) the net worth of the individual as of
                    such date is $500,000 or more.

            In the case of the loss of United States citizenship in
            any calendar year after 1996, such $100,000 and
            $500,000 amounts shall be increased by an amount equal
            to such dollar amount multiplied by the cost-of-living
            adjustment determined under section 1(f)(3) for such
            calendar year by substituting `1994' for `1992' in
            subparagraph (B) thereof. Any increase under the
            preceding sentence shall be rounded to the nearest
            multiple of $1,000.''.
        (b) Exceptions.--
                (1) In general.--Section 877 is amended by striking
            subsection (d), by redesignating subsection (c) as
            subsection (d), and by inserting after subsection (b)
            the following new subsection:
        ``(c) Tax Avoidance Not Presumed in Certain Cases.--
                ``(1) In general.--Subsection (a)(2) shall not
            apply to an individual if--
                        ``(A) such individual is described in a
                    subparagraph of paragraph (2) of this
                    subsection, and
                        ``(B) within the 1-year period beginning on
                    the date of the loss of United States
                    citizenship, such individual submits a ruling
                    request for the Secretary's determination as to
                    whether such loss has for 1 of its principal
                    purposes the avoidance of taxes under this
                    subtitle or subtitle B.
                ``(2) Individuals described.--
                        ``(A) Dual citizenship, etc.--An individual
                    is described in this subparagraph if--
                                ``(i) the individual became at
                            birth a citizen of the United States
                            and a citizen of another country and
                            continues to be a citizen of such other
                            country, or
                                ``(ii) the individual becomes (not
                            later than the close of a reasonable
                            period after loss of United States
                            citizenship) a citizen of the country
                            in which--
                                        ``(I) such individual was
                                    born,
                                        ``(II) if such individual
                                    is married, such individual's
                                    spouse was born, or
                                        ``(III) either of such
                                    individual's parents were born.
                        ``(B) Long-term foreign residents.--An
                    individual is described in this subparagraph
                    if, for each year in the 10-year period ending
                    on the date of loss of United States
                    citizenship, the individual was present in the
                    United States for 30 days or less. The rule of
                    section 7701(b)(3)(D)(ii) shall apply for
                    purposes of this subparagraph.
                        ``(C) Renunciation upon reaching age of
                    majority.--An individual is described in this
                    subparagraph if the individual's loss of United
                    States citizenship occurs before such
                    individual attains age 18\1/2\.
                        ``(D) Individuals specified in
                    regulations.--An individual is described in
                    this subparagraph if the individual is
                    described in a category of individuals
                    prescribed by regulation by the Secretary.''
                (2) Technical amendment.--Paragraph (1) of section
            877(b) of such Code is amended by striking ``subsection
            (c)'' and inserting ``subsection (d)''.
        (c) Treatment of Property Disposed of in Nonrecognition
    Transactions; Treatment of Distributions From Certain
    Controlled Foreign Corporations.--Subsection (d) of section
    877, as redesignated by subsection (b), is amended to read as
    follows:
        ``(d) Special Rules for Source, Etc.--For purposes of
    subsection (b)--
                ``(1) Source rules.--The following items of gross
            income shall be treated as income from sources within
            the United States:
                        ``(A) Sale of property.--Gains on the sale
                    or exchange of property (other than stock or
                    debt obligations) located in the United States.
                        ``(B) Stock or debt obligations.--Gains on
                    the sale or exchange of stock issued by a
                    domestic corporation or debt obligations of
                    United States persons or of the United States,
                    a State or political subdivision thereof, or
                    the District of Columbia.
                        ``(C) Income or gain derived from
                    controlled foreign corporation.--Any income or
                    gain derived from stock in a foreign
                    corporation but only--
                                ``(i) if the individual losing
                            United States citizenship owned (within
                            the meaning of section 958(a)), or is
                            considered as owning (by applying the
                            ownership rules of section 958(b)), at
                            any time during the 2-year period
                            ending on the date of the loss of
                            United States citizenship, more than 50
                            percent of--
                                        ``(I) the total combined
                                    voting power of all classes of
                                    stock entitled to vote of such
                                    corporation, or
                                        ``(II) the total value of
                                    the stock of such corporation,
                                    and
                                ``(ii) to the extent such income or
                            gain does not exceed the earnings and
                            profits attributable to such stock
                            which were earned or accumulated before
                            the loss of citizenship and during
                            periods that the ownership requirements
                            of clause (i) are met.
                ``(2) Gain recognition on certain exchanges.--
                        ``(A) In general.--In the case of any
                    exchange of property to which this paragraph
                    applies, notwithstanding any other provision of
                    this title, such property shall be treated as
                    sold for its fair market value on the date of
                    such exchange, and any gain shall be recognized
                    for the taxable year which includes such date.
                        ``(B) Exchanges to which paragraph
                    applies.--This paragraph shall apply to any
                    exchange during the 10-year period described in
                    subsection (a) if--
                                ``(i) gain would not (but for this
                            paragraph) be recognized on such
                            exchange in whole or in part for
                            purposes of this subtitle,
                                ``(ii) income derived from such
                            property was from sources within the
                            United States (or, if no income was so
                            derived, would have been from such
                            sources), and
                                ``(iii) income derived from the
                            property acquired in the exchange would
                            be from sources outside the United
                            States.
                        ``(C) Exception.--Subparagraph (A) shall
                    not apply if the individual enters into an
                    agreement with the Secretary which specifies
                    that any income or gain derived from the
                    property acquired in the exchange (or any other
                    property which has a basis determined in whole
                    or part by reference to such property) during
                    such 10-year period shall be treated as from
                    sources within the United States. If the
                    property transferred in the exchange is
                    disposed of by the person acquiring such
                    property, such agreement shall terminate and
                    any gain which was not recognized by reason of
                    such agreement shall be recognized as of the
                    date of such disposition.
                        ``(D) Secretary may extend period.--To the
                    extent provided in regulations prescribed by
                    the Secretary, subparagraph (B) shall be
                    applied by substituting the 15-year period
                    beginning 5 years before the loss of United
                    States citizenship for the 10-year period
                    referred to therein.
                        ``(E) Secretary may require recognition of
                    gain in certain cases.--To the extent provided
                    in regulations prescribed by the Secretary--
                                ``(i) the removal of appreciated
                            tangible personal property from the
                            United States, and
                                ``(ii) any other occurrence which
                            (without recognition of gain) results
                            in a change in the source of the income
                            or gain from property from sources
                            within the United States to sources
                            outside the United States,

                    shall be treated as an exchange to which this
                    paragraph applies.
                ``(3) Substantial diminishing of risks of
            ownership.--For purposes of determining whether this
            section applies to any gain on the sale or exchange of
            any property, the running of the 10-year period
            described in subsection (a) shall be suspended for any
            period during which the individual's risk of loss with
            respect to the property is substantially diminished
            by--
                        ``(A) the holding of a put with respect to
                    such property (or similar property),
                        ``(B) the holding by another person of a
                    right to acquire the property, or
                        ``(C) a short sale or any other
                    transaction.
                ``(4) Treatment of property contributed to
            controlled foreign corporations.--
                        ``(A) In general.--If--
                                ``(i) an individual losing United
                            States citizenship contributes property
                            to any corporation which, at the time
                            of the contribution, is described in
                            subparagraph (B), and
                                ``(ii) income derived from such
                            property was from sources within the
                            United States (or, if no income was so
                            derived, would have been from such
                            sources),

                    during the 10-year period referred to in
                    subsection (a), any income or gain on such
                    property (or any other property which has a
                    basis determined in whole or part by reference
                    to such property) received or accrued by the
                    corporation shall be treated as received or
                    accrued directly by such individual and not by
                    such corporation. The preceding sentence shall
                    not apply to the extent the property has been
                    treated under subparagraph (C) as having been
                    sold by such corporation.
                        ``(B) Corporation described.--A corporation
                    is described in this subparagraph with respect
                    to an individual if, were such individual a
                    United States citizen--
                                ``(i) such corporation would be a
                            controlled foreign corporation (as
                            defined in 957), and
                                ``(ii) such individual would be a
                            United States shareholder (as defined
                            in section 951(b)) with respect to such
                            corporation.
                        ``(C) Disposition of stock in
                    corporation.--If stock in the corporation
                    referred to in subparagraph (A) (or any other
                    stock which has a basis determined in whole or
                    part by reference to such stock) is disposed of
                    during the 10-year period referred to in
                    subsection (a) and while the property referred
                    to in subparagraph (A) is held by such
                    corporation, a pro rata share of such property
                    (determined on the basis of the value of such
                    stock) shall be treated as sold by the
                    corporation immediately before such
                    disposition.
                        ``(D) Anti-abuse rules.--The Secretary
                    shall prescribe such regulations as may be
                    necessary to prevent the avoidance of the
                    purposes of this paragraph, including where--
                                ``(i) the property is sold to the
                            corporation, and
                                ``(ii) the property taken into
                            account under subparagraph (A) is sold
                            by the corporation.
                        ``(E) Information reporting.--The Secretary
                    shall require such information reporting as is
                    necessary to carry out the purposes of this
                    paragraph.''
        (d) Credit for Foreign Taxes Imposed on United States
    Source Income.--
                (1) Subsection (b) of section 877 is amended by
            adding at the end the following new sentence: ``The tax
            imposed solely by reason of this section shall be
            reduced (but not below zero) by the amount of any
            income, war profits, and excess profits taxes (within
            the meaning of section 903) paid to any foreign country
            or possession of the United States on any income of the
            taxpayer on which tax is imposed solely by reason of
            this section.''
                (2) Subsection (a) of section 877, as amended by
            subsection (a), is amended by inserting ``(after any
            reduction in such tax under the last sentence of such
            subsection)'' after ``such subsection''.
        (e) Comparable Estate and Gift Tax Treatment.--
                (1) Estate tax.--
                        (A) In general.--Subsection (a) of section
                    2107 is amended to read as follows:
        ``(a) Treatment of Expatriates.--
                ``(1) Rate of tax.--A tax computed in accordance
            with the table contained in section 2001 is hereby
            imposedon the transfer of the taxable estate,
    determined as provided in section 2106, of every decedent nonresident
    not a citizen of the United States if, within the 10-year period ending
    with the date of death, such decedent lost United States citizenship,
    unless such loss did not have for 1 of its principal purposes the
    avoidance of taxes under this subtitle or subtitle A.
                ``(2) Certain individuals treated as having tax
            avoidance purpose.--
                        ``(A) In general.--For purposes of
                    paragraph (1), an individual shall be treated
                    as having a principal purpose to avoid such
                    taxes if such individual is so treated under
                    section 877(a)(2).
                        ``(B) Exception.--Subparagraph (A) shall
                    not apply to a decedent meeting the
                    requirements of section 877(c)(1).''.
                        (B) Credit for foreign death taxes.--
                    Subsection (c) of section 2107 is amended by
                    redesignating paragraph (2) as paragraph (3)
                    and by inserting after paragraph (1) the
                    following new paragraph:
                ``(2) Credit for foreign death taxes.--
                        ``(A) In general.--The tax imposed by
                    subsection (a) shall be credited with the
                    amount of any estate, inheritance, legacy, or
                    succession taxes actually paid to any foreign
                    country in respect of any property which is
                    included in the gross estate solely by reason
                    of subsection (b).
                        ``(B) Limitation on credit.--The credit
                    allowed by subparagraph (A) for such taxes paid
                    to a foreign country shall not exceed the
                    lesser of--
                                ``(i) the amount which bears the
                            same ratio to the amount of such taxes
                            actually paid to such foreign country
                            in respect of property included in the
                            gross estate as the value of the
                            property included in the gross estate
                            solely by reason of subsection (b)
                            bears to the value of all property
                            subjected to such taxes by such foreign
                            country, or
                                ``(ii) such property's
                            proportionate share of the excess of--
                                        ``(I) the tax imposed by
                                    subsection (a), over
                                        ``(II) the tax which would
                                    be imposed by section 2101 but
                                    for this section.
                        ``(C) Proportionate share.--For purposes of
                    subparagraph (B), a property's proportionate
                    share is the percentage of the value of the
                    property which is included in the gross estate
                    solely by reason of subsection (b) bears to the
                    total value of the gross estate.''.
                        (C) Expansion of inclusion in gross estate
                    of stock of foreign corporations.--Paragraph
                    (2) of section 2107(b) is amended by striking
                    ``more than 50 percent of'' and all that
                    follows and inserting ``more than 50 percent
                    of--
                        ``(A) the total combined voting power of
                    all classes of stock entitled to vote of such
                    corporation, or
                        ``(B) the total value of the stock of such
                    corporation,''.
                (2) Gift tax.--
                        (A) In general.--Paragraph (3) of section
                    2501(a) is amended to read as follows:
                ``(3) Exception.--
                        ``(A) Certain individuals.--Paragraph (2)
                    shall not apply in the case of a donor who,
                    within the 10-year period ending with the date
                    of transfer, lost United States citizenship,
                    unless such loss did not have for 1 of its
                    principal purposes the avoidance of taxes under
                    this subtitle or subtitle A.
                        ``(B) Certain individuals treated as having
                    tax avoidance purpose.--For purposes of
                    subparagraph (A), an individual shall be
                    treated as having a principal purpose to avoid
                    such taxes if such individual is so treated
                    under section 877(a)(2).
                        ``(C) Exception for certain individuals.--
                    Subparagraph (B) shall not apply to a decedent
                    meeting the requirements of section 877(c)(1).
                        ``(D) Credit for foreign gift taxes.--The
                    tax imposed by this section solely by reason of
                    this paragraph shall be credited with the
                    amount of any gift tax actually paid to any
                    foreign country in respect of any gift which is
                    taxable under this section solely by reason of
                    this paragraph.''.
        (f) Comparable Treatment of Lawful Permanent Residents Who
    Cease To Be Taxed as Residents.--
                (1) In general.--Section 877 is amended by
            redesignating subsection (e) as subsection (f) and by
            inserting after subsection (d) the following new
            subsection:
        ``(e) Comparable Treatment of Lawful Permanent Residents
    Who Cease To Be Taxed as Residents.--
                ``(1) In general.--Any long-term resident of the
            United States who--
                        ``(A) ceases to be a lawful permanent
                    resident of the United States (within the
                    meaning of section 7701(b)(6)), or
                        ``(B) commences to be treated as a resident
                    of a foreign country under the provisions of a
                    tax treaty between the United States and the
                    foreign country and who does not waive the
                    benefits of such treaty applicable to residents
                    of the foreign country,

            shall be treated for purposes of this section and
            sections 2107, 2501, and 6039F in the same manner as if
            such resident were a citizen of the United States who
            lost United States citizenship on the date of such
            cessation or commencement.
                ``(2) Long-term resident.--For purposes of this
            subsection, the term `long-term resident' means any
            individual (other than a citizen of the United States)
            who is a lawful permanent resident of the United States
            in at least 8 taxable years during the period of 15
            taxable years ending with the taxable year during which
            the event described in subparagraph (A) or (B) of
            paragraph (1) occurs. For purposes of the preceding
            sentence, an individual shall not be treated as a
            lawful permanent resident for any taxable year if such
            individual is treated as a resident of a foreign
            country for the taxable year under the provisions of a
            tax treaty between the United States and the foreign
            country and does not waive the benefits of such treaty
            applicable to residents of the foreign country.
                ``(3) Special rules.--
                        ``(A) Exceptions not to apply.--Subsection
                    (c) shall not apply to an individual who is
                    treated as provided in paragraph (1).
                        ``(B) Step-up in basis.--Solely for
                    purposes of determining any tax imposed by
                    reason of this subsection, property which was
                    held by the long-term resident on the date the
                    individual first became a resident of the
                    United States shall be treated as having a
                    basis on such date of not less than the fair
                    market value of such property on such date. The
                    preceding sentence shall not apply if the
                    individual elects not to have such sentence
                    apply. Such an election, once made, shall be
                    irrevocable.
                ``(4) Authority to exempt individuals.--This
            subsection shall not apply to an individual who is
            described in a category of individuals prescribed by
            regulation by the Secretary.
                ``(5) Regulations.--The Secretary shall prescribe
            such regulations as may be appropriate to carry out
            this subsection, including regulations providing for
            the application of this subsection in cases where an
            alien individual becomes a resident of the United
            States during the 10-year period after being treated as
            provided in paragraph (1).''.
                (2) Conforming amendments.--
                        (A) Section 2107 is amended by striking
                    subsection (d), by redesignating subsection (e)
                    as subsection (d), and by inserting after
                    subsection (d) (as so redesignated) the
                    following new subsection:
        ``(e) Cross Reference.--
              ``For comparable treatment of long-term lawful permanent
            residents who ceased to be taxed as residents, see section
            877(e).''.
                        (B) Paragraph (3) of section 2501(a) (as
                    amended by subsection (e)) is amended by adding
                    at the end the following new subparagraph:
                        ``(E) Cross reference.--
              ``For comparable treatment of long-term lawful permanent
            residents who ceased to be taxed as residents, see section
            877(e).''.
        (g) Effective Date.--
                (1) In general.--The amendments made by this
            section shall apply to--
                        (A) individuals losing United States
                    citizenship (within the meaning of section 877
                    of the Internal Revenue Code of 1986) on or
                    after February 6, 1995, and
                        (B) long-term residents of the United
                    States with respect to whom an event described
                    in subparagraph (A) or (B) of section 877(e)(1)
                    of such Code occurs on or after February 6,
                    1995.
                (2) Ruling requests.--In no event shall the 1-year
            period referred to in section 877(c)(1)(B) of such
            Code, as amended by this section, expire before the
            date which is 90 days after the date of the enactment
            of this Act.
                (3) Special rule.--
                        (A) In general.--In the case of an
                    individual who performed an act of expatriation
                    specified in paragraph (1), (2), (3), or (4) of
                    section 349(a) of the Immigration and
                    Nationality Act (8 U.S.C. 1481(a)(1)-(4))
                    before February 6, 1995, but who did not, on or
                    before such date, furnish to the United States
                    Department of State a signed statement of
                    voluntary relinquishment of United States
                    nationality confirming the performance of such
                    act, the amendments made by this section and
                    section 512 shall apply to such individual
                    except that the 10-year period described in
                    section 877(a) of such Code shall not expire
                    before the end of the 10-year period beginning
                    on the date such statement is so furnished.
                        (B) Exception.--Subparagraph (A) shall not
                    apply if the individual establishes to the
                    satisfaction of the Secretary of the Treasury
                    that such loss of United States citizenship
                    occurred before February 6, 1994.

    SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES CITIZENSHIP.

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

    ``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
                        CITIZENSHIP.

        ``(a) In General.--Notwithstanding any other provision of
    law, any individual who loses United States citizenship (within
    the meaning of section 877(a)) shall provide a statement which
    includes the information described in subsection (b). Such
    statement shall be--
                ``(1) provided not later than the earliest date of
            any act referred to in subsection (c), and
                ``(2) provided to the person or court referred to
            in subsection (c) with respect to such act.
        ``(b) Information To Be Provided.--Information required
    under subsection (a) shall include--
                ``(1) the taxpayer's TIN,
                ``(2) the mailing address of such individual's
            principal foreign residence,
                ``(3) the foreign country in which such individual
            is residing,
                ``(4) the foreign country of which such individual
            is a citizen,
                ``(5) in the case of an individual having a net
            worth of at least the dollar amount applicable under
            section 877(a)(2)(B), information detailing the assets
            and liabilities of such individual, and
                ``(6) such other information as the Secretary may
            prescribe.
        ``(c) Acts Described.--For purposes of this section, the
    acts referred to in this subsection are--
                ``(1) the individual's renunciation of his United
            States nationality before a diplomatic or consular
            officer of the United States pursuant to paragraph (5)
            of section 349(a) of the Immigration and Nationality
            Act (8 U.S.C. 1481(a)(5)),
                ``(2) the individual's furnishing to the United
            States Department of State a signed statement of
            voluntary relinquishment of United States nationality
            confirming the performance of an act of expatriation
            specified in paragraph (1), (2), (3), or (4) of section
            349(a) of the Immigration and Nationality Act (8 U.S.C.
            1481(a)(1)-(4)),
                ``(3) the issuance by the United States Department
            of State of a certificate of loss of nationality to the
            individual, or
                ``(4) the cancellation by a court of the United
            States of a naturalized citizen's certificate of
            naturalization.
        ``(d) Penalty.--Any individual failing to provide a
    statement required under subsection (a) shall be subject to a
    penalty for each year (of the 10-year period beginning on the
    date of loss of United States citizenship) during any portion
    of which such failure continues in an amount equal to the
    greater of--
                ``(1) 5 percent of the tax required to be paid
            under section 877 for the taxable year ending during
            such year, or
                ``(2) $1,000,

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

    Notwithstanding any other provision of law, not later than 30
    days after the close of each calendar quarter, the Secretary
    shall publish in the Federal Register the name of each
    individual losing United States citizenship (within the meaning
    of section 877(a)) with respect to whom the Secretary receives
    information under the preceding sentence during such quarter.
        ``(f) Reporting by Long-Term Lawful Permanent Residents Who
    Cease To Be Taxed as Residents.--In lieu of applying the last
    sentence of subsection (a), any individual who is required to
    provide a statement under this section by reason of section
    877(e)(1) shall provide such statement with the return of tax
    imposed by chapter 1 for the taxable year during which the
    event described in such section occurs.
        ``(g) Exemption.--The Secretary may by regulations exempt
    any class of individuals from the requirements of this section
    if he determines that applying this section to such individuals
    is not necessary to carry out the purposes of this section.''.
        (b) Clerical Amendment.--The table of sections for such
    subpart A is amended by inserting after the item relating to
    section 6039E the following new item:

            ``Sec. 6039F. Information on individuals losing United States
                      citizenship.''.
        (c) Effective Date.--The amendments made by this section
    shall apply to--
                (1) individuals losing United States citizenship
            (within the meaning of section 877 of the Internal
            Revenue Code of 1986) on or after February 6, 1995, and
                (2) long-term residents of the United States with
            respect to whom an event described in subparagraph (A)
            or (B) of section 877(e)(1) of such Code occurs on or
            after such date.

    In no event shall any statement required by such amendments be
    due before the 90th day after the date of the enactment of this
    Act.

    SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND
                        RESIDENTS LIVING ABROAD.

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

    Subtitle C--Repeal of Financial Institution Transition Rule to Interest
                                Allocation Rules

    SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO INTEREST
                        ALLOCATION RULES.

        (a) In General.--Paragraph (5) of section 1215(c) of the
    Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is
    hereby repealed.
        (b) Effective Date.--
                (1) In general.--The amendment made by this section
            shall apply to taxable years beginning after December
            31, 1995.
                (2) Special rule.--In the case of the first taxable
            year beginning after December 31, 1995, the pre-
            effective date portion of the interest expense of the
            corporation referred to in such paragraph (5) of such
            section 1215(c) for such taxable year shall be
            allocated and apportioned without regard to such
            amendment. For purposes of the preceding sentence, the
            pre-effective date portion is the amount which bears
            the same ratio to the interest expense for such taxable
            year as the number of days during such taxable year
            before the date of the enactment of this Act bears to
            366.
          And the Senate agree to the same.
                                       Bill Archer,
                                       Bill Thomas,
                                       Tom Bliley,
                                       Michael Bilirakis,
                                       William F. Goodling,
                                       H.W. Fawell,
                                       Henry Hyde,
                                       Bill McCollum,
                                       J. Dennis Hastert,
                                     Managers on the Part of the House.

                                       Bill Roth,
                                       Nancy Landon Kassebaum,
                                       Trent Lott,
                                       Ted Kennedy,
                                    Managers on the Part of the Senate.
           JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

          The managers on the part of the House and the Senate at
    the conference on the disagreeing votes of the two Houses on
    the amendment of the Senate to the bill (H.R. 3103) 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, submit the following joint
    statement to the House and the Senate in explanation of the
    effect of the action agreed upon by the managers and
    recommended in the accompanying conference report:
          The Senate amendment struck all of the House bill after
    the enacting clause and inserted a substitute text.
          The House recedes from its disagreement to the amendment
    of the Senate with an amendment that is a substitute for the
    House bill and the Senate amendment. The differences between
    the House bill, the Senate amendment, and the substitute agreed
    to in conference are noted below, except for clerical
    corrections, conforming changes made necessary by agreements
    reached by the conferees, and minor drafting and clerical
    changes.

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

                                  I. Structure

    House bill
          The House bill would amend the Internal Revenue Code
    (IRC) and the Employee Retirement Income Security Act of 1974
    (ERISA), and includes free-standing provisions.
    Senate amendment
          The Senate amendment includes free-standing provisions.
    Conference agreement
          The conference agreement adds new provisions to the
    Employee Retirement Income Security Act of 1974 (ERISA), the
    Public Health Services (PHS) Act, and the Internal Revenue Code
    (IRC).

             II. Availability and Portability of Group Health Plans

    Current law
          Current federal law does not impose any requirements on
    employers to provide or contribute toward the health insurance
    coverage of their employees or their employees' dependents.
    However, specific federal requirements do apply to existing
    employer-sponsored health plans (e.g., fiduciary, notification
    and disclosure requirements under ERISA and COBRA continuation
    coverage, non-discrimination requirements under ERISA and the
    Internal Revenue Code.)
    House bill
          The House bill would provide for federal requirements on
    group health plans (and insurers and health maintenance
    organizations (HMOs) selling to such plans) relating to
    portability, the use of preexisting medical condition, and
    discrimination based on health status.
    Senate amendment
          The Senate amendment would provide for federal
    requirements on group health plans, health plan issuers
    (entities licensed by the state to offer a group or individual
    health plan) and employee health benefit plans, relating to
    portability, the use of preexisting medical conditions, and
    discrimination based on health status.
    Conference agreement
          The conference agreement provides for federal
    requirements on group health plans and health insurance issuers
    offering group health insurance coverage relating to
    portability, access, and renewability.

                                 a. definitions

          (Also see item IX below.)
    Current law
          Section 5000(b)(1) of the Internal Revenue Code (IRC)
    defines a group health plan as a plan (including a self-insured
    plan) of, or contributed to by, an employer (including a self-
    employed person) or employee organization to provide health
    care (directly or otherwise) to the employees, former
    employees, the employer, others associated or formerly
    associated with the employer in a business relationship, or
    their families.
          Section 607(1) of ERISA defines a group health plan as an
    employee welfare benefit plan providing medical care to
    participants or beneficiaries directly or through insurance,
    reimbursement, or otherwise.
          Church plans are excluded from federal requirements on
    existing employer plans such as ERISA's requirements on
    employee health benefit plans and COBRA continuation coverage
    requirements under the IRC and ERISA.
    House bill
          Group health plan means an employee welfare benefit plan
    to the extent that the plan provides medical care employees and
    their dependents directly or through insurance, reimbursement,
    or otherwise, and includes a group health plan within the
    meaning of section 5000(b)(1) of the IRC.
          The provisions of this subtitle (other than those
    relating to individual coverage) apply to group health plans
    with 2 or more participants as current employees on the first
    day of the plan year.
          The requirements would not apply to church plans unless
    such plans met the exemption for multiple employer health plans
    under subtitle c (see item V). For purposes of applying the
    provisions related to qualified prior coverage (II(B) below), a
    group health plan could elect to disregard periods of coverage
    of an individual under a church plan that is not subject to
    this subtitle.
          Governmental plans could elect not to be a group health
    plan covered under the subtitle. For purposes of applying the
    provisions related to qualified prior coverage, a group health
    plan could elect not to include coverage under a governmental
    plan that elected to be excluded from this subtitle's
    requirements.
    Senate amendment
          Employee health benefit plan means any employee welfare
    benefit plan, governmental plan, or church plan, or any health
    benefit plan under section 5(e) of the Peace Corps Act, that
    provides or pays for health benefit for participants or
    beneficiaries whether directly, through a group health plan
    offered by a health plan issuer (see item III(A) below), or
    otherwise.
    Conference agreement
          The conference agreement defines a group health plan as
    an employee welfare benefit plan to the extent that the plan
    provides medical care to employees or their dependents directly
    or through insurance, reimbursement, or otherwise. Both
    governmental and church plans are included, but certain plans
    with limited coverage are excluded.
          The portability and guaranteed availability provisions
    (other than those relating to individual coverage) apply to
    group health plans with 2 or more participants who are active
    employees on the first day of the plan year. These provisions
    would apply to nonfederal governmental plans, unless they
    elected to be excluded as described below, and to church and
    governmental plans. (See section III(B)(3) below for exceptions
    from availability, renewability, and portability requirements
    for group health plans and group health insurance coverage for
    certain benefits.)
          Nonfederal governmental plans could elect not to be a
    group health plan covered under the amendments to the PHS. An
    election would apply for a single specified plan year, or, in
    the case of a plan provided pursuant to a collective bargaining
    agreement, for the term of such agreement. If a nonfederal
    governmental plan makes this election, it must notify enrollees
    of the fact and consequences of the election. The plan must
    still provide certification and disclosure of creditable
    coverage under the plan to enrollees who leave the plan, for
    purposes of portability.
          Upon request, Medicare, Medicaid, a program of the Indian
    Health Service or a tribal organization, and military-sponsored
    health care programs must also provide notice of previous
    creditable coverage to individuals who leave such coverage.

         b. portability of coverage for previously covered individuals

    Current law
          No provision.
    House bill
          The House bill would provide that in general, a group
    health plan and an insurer or HMO offering health insurance
    coverage in connection with a group health plan would have to
    reduce any preexisting condition limitation period by the
    length of the aggregate period of prior coverage. Prior
    coverage would not qualify under this provision if there was
    more than a 60-day break in coverage under a group health plan.
    (Waiting periods would not be considered a break in coverage.)
    Qualified coverage would include coverage of the individual
    under a group health plan, health insurance coverage, Medicare,
    Medicaid, Tricare, a program of the Indian Health Service, and
    State health insurance coverage or risk pool, and coverage
    under the Federal Employees Health Benefit Program (FEHBP).
    Senate amendment
          The Senate Amendment is similar. An employee benefit plan
    or a health plan issuer offering a group health plan would have
    to reduce any preexisting condition limitation period by 1
    month for each month for which the person was in a period of
    previous qualifying coverage. This provision would not apply if
    there was a break of more than 30 days. (Waiting periods would
    not be considered a break in coverage.) Previous qualifying
    coverage includes enrollment under an employee health benefit
    plan, group health plan, individual health plan, or under a
    public or private health plan established under federal or
    state law.
    Conference agreement
          The conference agreement provides that in general, group
    health plans, and health insurance issuers offering group
    health insurance coverage, would have to reduce any preexisting
    condition limitation period by the length of the aggregate
    period of prior creditable coverage. Prior coverage would not
    qualify under this provision if there was a break in coverage
    under a group health plan that was longer than a 63-day period.
    (Waiting periods and affiliation periods would not be
    considered a break in coverage.) Creditable coverage includes
    coverage of the individual under a group health plan (including
    a governmental or church plan), health insurance coverage
    (either group or individual insurance), Medicare, Medicaid,
    military-sponsored health care, a program of the Indian Health
    Service, a State health benefits risk pool, the FEHBP, a public
    health plan as defined in regulations, and any health benefit
    plan under section 5(e) of the Peace Corps Act. An individual
    would establish a creditable coverage period through
    presentation of certifications describing previous coverage, or
    through other procedures specified in regulations to carry out
    this provision. The conferees intend that creditable coverage
    includes short-term, limited coverage.

             1. Method for establishing qualified coverage periods

    Current law
          No provision.
    House bill
          The House bill would provide that a group health plan or
    insurer or HMO offering health insurance coverage in connection
    with a group health plan could determine qualified coverage
    periods without regard to the specific benefits offered,
    referred to as the standard method. Alternatively, it could
    make such determination on a benefit-specific basis and not
    include as a qualified coverage period a specific benefit that
    had not been included at the end of the most recent period of
    coverage. If this alternative method were to be used, the group
    plan or insurer would be required to state prominently in any
    disclosure statements and to each enrollee at the time of
    enrollment that such a method of determining qualifying
    coverage was being used, and include a description of the
    effect of this method. The plan, insurer, or HMO would request
    a certification from prior plan administrators, insurers, or
    HMOs which discloses the plan statement related to health
    benefits under the plan or other detailed benefit information
    on the benefits available under the previous plan or coverage.
    The entity providing the certification could charge the
    reasonable cost for providing the benefit information to the
    requesting plan or insurer.
    Senate bill
          The Senate Amendment would provide that an employee
    health benefit plan or health plan issuer offering a group plan
    could impose a limitation or exclusion of benefits relating to
    the treatment of a preexisting condition only to the extent
    that such service or benefit was not previously covered under
    the plan in which the participant or beneficiary was enrolled
    immediately prior to enrollment in the plan involved.
    Conference agreement
          The conference agreement provides that a group health
    plan, and issuer offering group health insurance coverage,
    could determine creditable coverage periods without regard to
    the specific benefits covered during the period. Alternatively,
    it could make such determination based on several classes or
    categories of benefits, as specified in regulations. A group
    health plan and issuer would be required to count a period of
    creditable coverage with respect to any class or category of
    benefits if any level of benefits is provided. This alternative
    would have to be used uniformly for all participants and
    beneficiaries.
          It is the intent of the conferees that the alternate
    method be available to account for significant differences in
    benefits. For example, the inclusion versus exclusion of a
    category of benefits such as pharmaceuticals could be
    considered a difference in classes of benefits. Similarly,
    significant differentials in deductibles could be considered
    differences in classes of benefits, but the alternative method
    would not apply to small differences in deductibles, such as
    $250 versus $200. The alternative method would not apply for
    differences in specific services or treatments.
          If the alternate method were to be used, the group health
    plan and issuer would be required to state prominently in any
    disclosure statements that such a method of determining
    qualifying coverage was being used, and would be required to
    include a description of the effect of this election. A group
    health plan using the alternate method would be required to
    notify each enrollee at the time of enrollment that the plan
    had made such an election, and describe the effect. An issuer
    would be required to notify each employer at the time of offer
    or sale of the coverage.

                       2. Certification of prior coverage

    Current law
          No provision.
    House bill
          The House bill would require the plan administrator of a
    group health plan, or the insurer or HMO offering health
    insurance coverage to a group plan, on request made on behalf
    of an individual covered or previously covered within the past
    18 months under the plan or coverage, to provide for a
    certification of the period of coverage of the individual under
    the plan and of the waiting period (if any) imposed.
    Senate amendment
          The Senate Amendment would require an employee health
    plan to provide documentation of coverage to participants and
    beneficiaries whose coverage was terminated under the plan. As
    specified by regulation, the duty of an employee health benefit
    plan to verify previous qualifying coverage would be discharged
    when such plan provided documentation to the participant or
    beneficiary including the following information: (1) the dates
    that the person was covered under the plan; and (2) the
    benefits and cost-sharing arrangement available to the person
    under the plan.
    Conference agreement
          The conference agreement requires the group health plan,
    and health insurance issuer offering group health insurance
    coverage, to provide a certification of the period of
    creditable coverage under the plan, the coverage under any
    applicable COBRA continuation provision, and waiting period (if
    any) (and affiliation period if applicable) imposed on the
    individual. This certification would have to be provided when
    the individual ceases to be covered under the plan or otherwise
    becomes covered under a COBRA continuation provision, after any
    COBRA continuation coverage ceases, and on the request of an
    individual not later than 24 months after coverage ceased. The
    certification may be provided, to the extent practicable, at a
    time consistent with notices required under any applicable
    COBRA continuation provision. A group health plan offering
    medical care through health insurance coverage would not be
    required to provide certification if the health insurance
    issuer provides certification.
          If a group health plan or health insurance issuer elects
    the alternative method of crediting coverage, the plan or
    issuer would request, from prior entities providing coverage,
    information on coverage of classes and categories of benefits
    available under the previous plan or coverage. The entity
    providing the certification could charge the reasonable cost
    for providing such information to the requesting plan or
    insurer. The Secretary is required to establish rules to
    prevent an entity's failure to provide information on health
    benefits under previous coverage from adversely affecting any
    subsequent coverage under another group health plan or health
    insurance coverage.

       c. restrictions on use of pre-existing condition limitation period

    Current law
          No provision.
    House bill
          The House bill would restrict the use of preexisting
    condition limitation periods in group health plans and in plans
    offered by insurers and HMOs to group health plans.
    Senate amendment
          The Senate Amendment is similar but would apply to
    employee health benefit plans and group plans offered by health
    plan issuers.
    Conference agreement
          The conference agreement restricts the use of preexisting
    condition limitation exclusions by group health plans and
    health insurance issuers offering group health insurance
    coverage.

                     1. Definition of preexisting condition

    Current law
          No provision.
    House bill
          The House bill would define a preexisting condition to be
    a condition, regardless of the cause of condition, for which
    medical advice, diagnosis, care, or treatment was recommended
    or received within the 6-months ending on the day before the
    effective date of the coverage or the earliest date upon which
    such coverage would have been effective if no waiting period
    was applicable, whichever was earlier. Genetic information
    would not be considered a preexisting condition, so long as the
    treatment of the condition to which the information was
    applicable had not been sought in the 6-month period just
    described.
    Senate amendment
          The Senate Amendment provides a similar definition of
    preexisting condition. It does not include the genetic
    information language.
    Conference agreement
          The conference agreement defines a preexisting condition
    exclusion to be a limitation or exclusion of benefits relating
    to a condition, whether physical or mental, based on the fact
    that the condition was present before the enrollment date,
    whether or not any medical advice, diagnosis, care, or
    treatment was recommended or received before that date. Genetic
    information would not be considered a condition in the absence
    of a diagnosis of the condition related to such information.

                      2. Restrictions on limitation period

    Current law
          No provision.
    House bill
          The House bill would prohibit a group health plan, and an
    insurer or HMO offering health insurance coverage in connection
    with a group health plan from imposing a preexisting condition
    limitation period in excess of 12 months, or 18 months in the
    event of a late enrollment. A preexisting condition limitation
    period could not be applied to a newborn, adopted child, or
    child placed for adoption, so long as the individual became
    covered within 30 days of birth or adoption or placement for
    adoption. Preexisting condition limitation periods would not
    apply to pregnancies. An HMO could impose an eligibility period
    as an alternative to a preexisting condition limitation period
    but only if it did not exceed 60 days for timely enrollment and
    90 days for late enrollment. An HMO could use alternative
    methods to address adverse selection as approved by state
    regulators.
    Senate amendment
          The Senate Amendment includes a similar provision, but
    with respect to affiliation periods of an HMO, would specify
    that during such a period the plan could not be required to
    provide health care services or benefits and no premium could
    be charged to the participant or beneficiary.
    Conference agreement
          The conference agreement permits a group health plan and
    health insurance issuers to impose a preexisting condition
    exclusion if the exclusion relates to a condition (whether
    physical or mental), regardless of the cause of condition, for
    which medical advice, diagnosis, care, or treatment was
    recommended or received within the 6-month period ending on the
    enrollment date. The exclusion could extend to not more than 12
    months (18 months for late enrollees) after the enrollment
    date. The exclusion would be reduced by the aggregate of the
    periods of creditable coverage. Enrollment date is defined as
    the date of enrollment in the plan or coverage or, if earlier,
    the first day of the waiting period for such enrollment.
          Any waiting period or affiliation period would run
    concurrently with any preexisting condition exclusion period. A
    preexisting condition limitation period could not be applied to
    a newborn, an adopted child or child placed for adoption under
    age 18, so long as the individual becomes covered under
    creditable coverage within 30 days of birth or adoption or
    placement for adoption. These exceptions for newborns and
    certain adopted children would not apply if the individual had
    a break in coverage longer than a 63-day period. Preexisting
    condition exclusions could not apply to pregnancies.
          A group health plan offering health insurance coverage
    through an HMO, or an HMO which offers health insurance
    coverage in connection with a group health plan, may impose an
    affiliation period only if no preexisting condition exclusion
    is imposed, the period is imposed uniformly without regard to
    health status, and does not exceed 2 months for timely
    enrollment and 3 months for late enrollment. It is the intent
    of the conferees that any affiliation period would apply to all
    new enrollees and beneficiaries. During the affiliation period,
    the HMO could not be required to provide health care services
    or benefits and no premium could be charged to the participant
    or beneficiary. The affiliation period would begin on the
    enrollment date and would run concurrently with any other
    applicable waiting period under the plan. An HMO could use
    alternative methods to address adverse selection as approved by
    state regulators.

           d. prohibiting exclusions based on health status (access)

    Current law
          Under section 510 of ERISA, an employee benefit plan may
    not discriminate against a particular beneficiary for
    exercising any right to which he or she is entitled under the
    provisions of an employee benefit plan. Section 105(h) of the
    IRC prohibits discrimination in favor of highly compensated
    individuals by self-insured employer health plans.
    House bill
          Except as specified below, a group health plan, and an
    insurer or HMO offering coverage in connection with a plan,
    cannot exclude an employee or his or her beneficiary from being
    (or continuing to be enrolled) as a participant or beneficiary
    under the plan based on health status. Health status includes,
    with respect to an individual, medical condition, claims
    experience, receipt of health care, medical history, genetic
    information, evidence of insurability (including conditions
    arising out of domestic violence), or disability. A group
    health plan and an insurer or HMO offering coverage in
    connection with a group health plan cannot require a premium or
    contribution which is greater than such premium or contribution
    for a similarly situated participant or beneficiary solely on
    the basis of health status. It can, however, vary the premium
    or contribution based on factors that are not directly related
    to health status (such as scope of benefits, geographic area of
    resident, or wage levels).
          The House bill provides that nothing is intended to
    affect the premium rates an insurer or HMO could charge an
    employer for health insurance coverage provided in connection
    with a group health plan.
          A group health plan (or insurer or HMO providing coverage
    in connection to a group plan) could establish premium
    discounts or modify otherwise applicable copayments or
    deductibles in return for adherence to programs of health
    promotion and disease prevention.
    Senate amendment
          Except as specified below, a health plan issuer offering
    a group health plan may not decline to offer whole group
    coverage to a group purchaser desiring to purchase the
    coverage. An employee health benefit plan or a health plan
    issuer offering a group health plan could not condition
    eligibility, enrollment, or premium contribution requirements
    based on health status, medical condition, claims experience,
    receipt of health care, medical history, evidence of
    insurability (including conditions arising out of domestic
    violence), genetic information, or disability.
          The bill does not include a specific rule of construction
    relating to premium rates charged to group health plans other
    than a prohibition of premium contribution requirements based
    on health status.
          A group health plan (or insurer of HMO providing coverage
    in connection to a group plan) could establish premium
    discounts or modify otherwise applicable copayments or
    deductibles in return for adherence to programs of health
    promotion and disease prevention.
    Conference agreement
          Except as specified below, a group health plan, and a
    health insurance issuer offering group health insurance
    coverage, cannot establish rules for eligibility (including
    continued eligibility) of an individual to enroll under the
    terms of the plan based on any of the following health-related
    factors in relation to the individual or a dependent of the
    individual: health status, medical condition (including both
    physical and mental illness), claims experience, receipt of
    health care, medical history, genetic information, evidence of
    insurability (including conditions arising out of domestic
    violence), or disability.
          The inclusion of evidence of insurability in the
    definition of health status is intended to ensure, among other
    things, that individuals are not excluded from health care
    coverage due to their participation in activities such as
    motorcycling, snowmobiling, all-terrain vehicle riding,
    horseback riding, skiing and other similar activities.
          It is the intent of the conferees that a plan cannot
    knowingly be designed to exclude individuals and their
    dependents on the basis of health status. However, generally
    applicable terms of the plan may have a disparate impact on
    individual enrollees. For example, a plan may exclude all
    coverage of a specific condition, or may include a lifetime cap
    on all benefits, or a lifetime cap on specific benefits.
    Although individuals with the specific condition would be
    adversely affected by an exclusion of coverage for that
    condition, and individuals with serious illnesses may be
    adversely affected by a lifetime cap on all or specific
    benefits, such plan characteristics would be permitted as long
    as they are not directed at individual sick employees or
    dependents.
          The Conference agreement does not require a group health
    plan or health insurance coverage to provide particular
    benefits other than those provided under the terms of the plan
    or coverage. Nor does it prevent any plan or coverage from
    establishing limitations or restrictions on the amount, level,
    extent, or nature of the benefits or coverage for similarly
    situated individuals enrolled in the plan or coverage. Rules
    defining any applicable waiting periods for enrollment may not
    be established based on health status related factors.
          It is the intent of the conferees that a plan or coverage
    cannot single out an individual based on the health status or
    health status related factors of that individual for denial of
    a benefit otherwise provided other individuals covered under
    the plan or coverage. For example, the plan or coverage may not
    deny coverage for prescription drugs to a particular
    beneficiary or dependent if such coverage is available to other
    similarly situated individual covered under the plan or
    coverage. However, the plan or coverage could deny coverage for
    prescription drugs to all beneficiaries and dependents. The
    term ``similarly situated'' means that a plan or coverage would
    be permitted to vary benefits available to different groups of
    employees, such as full-time versus part-time employees or
    employees in different geographic locations. In addition, a
    plan or coverage could have different benefit schedules for
    different collective bargaining units.
          The conference agreement provides that a group health
    plan and an issuer offering group coverage cannot require a
    premium or contribution which is greater than such premium or
    contribution for a similarly situated individual enrolled in
    the plan on the basis of any health status-related factor
    relating to the individual or to any individual enrolled under
    the plan as a dependent of the individual. It does not restrict
    the amount that an employer may be charged for coverage under a
    group health plan. The group health plan and health insurance
    issuer may establish premium discounts or rebates, or modify
    otherwise applicable copayments or deductibles in return for
    adherence to programs of health promotion and disease
    prevention.
          The conferees intend that these provisions preclude
    insurance companies from denying coverage to employers based on
    health status and related factors that they have traditionally
    used. In addition, this provision is meant to prohibit insurers
    or employers from excluding employees in a group from coverage
    or charging them higher premiums based on their health status
    and other related factors that could lead to higher health
    costs. This does not mean that an entire group cannot be
    charged more. But it does preclude health plans from singling
    out individuals in the group for higher premiums or dropping
    them from coverage altogether.

              1. Exceptions to the non-discrimination requirement

    Current law
          No provision.
    House bill
          No provision for group health plans (i.e., the plans of
    the employer). See item III(B) below on requirements on
    insurers and HMOs.
    Senate amendment
          Exceptions are provided to health plan issuers with
    respect to enrollment in the event that: (1) the health plan
    ceases to offer coverage to any additional group purchasers; or
    (2) the issuer can demonstrate to the state insurance regulator
    that to enroll new people would impair its financial or
    provider capacity. See item III-B(3) below.
    Conference agreement
          See item III(B) below on requirements for health plan
    issuers offering group health insurance coverage.

         e. enrollment of eligible individuals who lose other coverage

    Current law
          No provision.
    House bill
          The House bill would require group health plans to permit
    an uncovered employee (or uncovered dependent) otherwise
    eligible for coverage to enroll under at least one benefit
    option if certain conditions are met: (1) the person was
    already covered when the plan was previously offered; (2) the
    person stated in writing at such time that another source of
    coverage was the reason for declining enrollment; (3) the
    person lost coverage as a result of a loss of eligibility or
    termination from or reduction in hours of employment; and (4)
    the person requested enrollment within 30 days after the date
    of the coverage's termination.
          If a group health plan offered dependent coverage, it
    could not require, as a condition of coverage as a dependent, a
    waiting period applicable to: (1) a newborn, (2) adopted child
    or child placed for adoption, or (3) a spouse, at the time of
    marriage if the person had met any applicable waiting period.
          Enrollment of a participant's beneficiary would be
    considered to be timely if a request for enrollment were made
    within 30 days of the date family coverage was first made
    available or, in the case of a newborn or adoption or placement
    for adoption, within 30 days of that event; and in the case of
    marriage, within 30 days of the date of the marriage, if family
    coverage was available.
    Senate amendment
          The Senate Amendment would require employee health
    benefit plans to provide for special enrollment periods
    extending for a reasonable time after certain qualifying events
    to permit the participant to change individual or family basis
    of coverage or to enroll in the plan if coverage would have
    otherwise been available. The qualifying events would be: (1)
    changes in family status affecting eligibility under a plan
    including marriage, separation, divorce, death, birth, or
    placement of a child for adoption; (2) changes in employment
    status that would otherwise cause the loss of eligibility for
    coverage (other than COBRA continuation coverage); or (3)
    changes in employment status of a family member that results in
    a loss of eligibility under a group, individual, or employee
    health benefit plan.
          The special enrollment period would have to ensure that a
    child born or placed for adoption was deemed covered as of the
    date of birth or placement so long as the child was enrolled
    within 30 days.
    Conference agreement
          The conference agreement requires special enrollment
    periods for certain individuals losing other coverage and for
    certain dependent beneficiaries. It requires group health
    plans, and health insurance issuers offering group health
    insurance coverage, to permit eligible employees or dependents
    who lose other coverage to enroll under the terms of the plan
    if each of the following conditions is met: (1) the employee or
    dependent was already covered when the plan was previously
    offered; (2) the employee stated in writing at such time that
    another source of coverage was the reason for declining
    enrollment, but only if the plan sponsor or issuer required
    such a statement and provided the employee with notice of this
    requirement; (3) the person was covered under COBRA
    continuation coverage which was exhausted, or coverage was not
    under a COBRA continuation provision and was terminated as a
    result of a loss of eligibility for the coverage (including as
    a result of legal separation, divorce, death, termination of
    employment, or reduction in hours of employment) or termination
    of employer contributions towards such coverage; and (4) the
    person requested enrollment not later than 30 days after the
    loss of other coverage.
          If a group health plan offers dependent coverage, it must
    offer a dependent special enrollment period for persons
    becoming a dependent through marriage, birth, or adoption or
    placement for adoption. The dependent special enrollment period
    must last for not less than 30 days. The dependent may be
    enrolled as a dependent of the individual. If the individual is
    eligible for enrollment, but not enrolled, the individual may
    also enroll at this time. Moreover, in the case of the birth or
    adoption of a child, the spouse of the individual also may be
    enrolled as a dependent of the individual if the spouse is
    otherwise eligible for coverage but not already enrolled. If an
    individual seeks to enroll a dependent during the first 30 days
    of a dependent special enrollment period, the coverage would
    become effective as of the date of birth, of adoption or
    placement for adoption, or, in the case of marriage, not later
    than the first day of the first month beginning after the date
    the completed request for enrollment was received.

         F. Applicability of renewal requirements to multiple employer
                                  arrangements

    Current law
          Under section 3(37) of ERISA, a multiemployer plan is one
    in which more than one employer contributes and which is
    established through a collective bargaining agreement. (Such
    plans are commonly found in unionized sectors of the building
    and construction, publishing, and entertainment trades, and the
    lumber, maritime, retail, food, hotel, and restaurant
    industries.) Under section 3(40) of ERISA, a multiple employer
    welfare arrangement (MEWA) is an employee welfare benefit plan
    or any other arrangement which offers or provides health
    benefits and meets additional criteria, (e.g., it must offer
    such benefits to the employees of 2 or more employers). There
    is no provision or definition under current law for ``multiple
    employer health plans.''
    House bill
          Such plans could not deny an employer who employees are
    covered under the plan or arrangement continued access to the
    same or different coverage except: (1) for cause (e.g.,
    nonpayment of premiums, fraud, and noncompliance with plan
    provisions); (2) because the plan is not offering coverage in a
    geographic area; or (3) due to a failure to meet the terms of
    an applicable collective bargaining agreement. Certain
    collectively bargained arrangements and ``multiple employer
    health plans'' (MEHPs) would be required to meet specific
    requirements relating to the nondiscrimination requirements.
    (MEHPs are established under this bill (see item V below) and
    are generally non-fully-insured MEWAs that meet certain
    requirements excepting them from state regulation.)
    Senate amendment
          No provision. (Note that the rules regarding group and
    individual health plans (e.g., guaranteed renewal,
    nondiscrimination, and portability) or state laws not preempted
    by the Senate amendment also apply to health plans offered by
    health plan issuers to a purchasing cooperative. See item VIII
    below).
    Conference agreement
          The conference agreement provides that a group health
    plan which is a multiemployer plan or a multiple employer
    welfare arrangement may not deny an employer continued access
    to the same or different coverage under the terms of such plan
    except: (1) for nonpayment of contributions; (2) for fraud; (3)
    for noncompliance with plan provisions; (4) because the plan is
    ceasing to offer any coverage in a geographic area; (5) in the
    case of a network plan, there is no longer any individual
    enrolled through the employer who lives, resides, or works in
    the service area of the network plan, and the plan applies this
    provision uniformly without regard to claims experience or
    health status-related factors; or (6) due to a failure to meet
    the terms of an applicable collective bargaining agreement, to
    renew a collective bargaining agreement or other agreement
    requiring or authorizing contributions to the plan, or to
    employ employees covered by such an agreement.

                G. Enforcement of group health plan requirements

    Current law
          Federal requirements on existing group health plans are
    enforced through various laws, including ERISA, the Public
    Health Service (PHS) Act, the IRC, and Medicare.
    House bill
          The House bill would provide for enforcement of the
    federal group health plan availability and portability
    requirements through the IRC, ERISA, and through civil monetary
    penalties imposed through the Secretary of Health and Human
    Services
    Senate amendment
          The Senate Amendment would provide for enforcement of the
    federal group health plan availability and portability
    requirements through the Secretary of Labor, in consultation
    with the Secretary of Health and Human Services using ERISA
    civil enforcement provisions.
    Conference agreement
          The conference agreement provides for enforcement of the
    federal group health plan availability and portability
    requirements through the IRC, ERISA, and through civil monetary
    penalties imposed through the Secretary of Health and Human
    Services (HHS).

                 1. Enforcement through COBRA provisions of IRC

    Current law
          Plans that fail to comply with the IRC COBRA provision
    are subject to an excise tax of $100 per day per violation. The
    tax is not applied where the failure was determined to be
    unintentional or if the failure was corrected within 30 days.
    An overall limitation on the tax applies in the event of an
    unintentional failure.
    House bill
          The House bill would provide that noncomplying plans and
    insurers and HMOs selling to group health plans would be
    subject to an excise tax of $100 per day per violation enforced
    through the COBRA provisions of the IRC. Penalties would not be
    assessed if the failure was determined to be unintentional or a
    correction was made within 30 days. No tax could be imposed on
    a noncomplying insurer or HMO subject to state insurance
    regulation if the Secretary of Health and Human Services (HHS)
    determined that the state had an effective enforcement
    mechanism. In the case of a group health plan of a small
    employer that provided coverage solely through a contract with
    an insurer or HMO, no tax would be imposed upon the employer if
    the failure was solely because of the product offered by the
    insurer or HMO. No tax penalty would be assessed for a failure
    under this provision if a sanction had been imposed under ERISA
    or by the Secretary of HHS.
    Senate amendment
          No provision.
    Conference agreement
          See Title IV.

                          2. Enforcement through ERISA

    Current law
          Under section 502 of ERISA, employee benefit plans that
    fail to comply with applicable requirements can be sued for
    relief and be subject to civil money penalties, and can be sued
    to recover any benefits due under the plan. Section 504 of
    ERISA provides the Secretary of Labor with investigative
    authority to determine whether any person is out of compliance
    with the law's requirements. Section 506 provides for
    coordination and responsibility of agencies in enforcement.
    Section 510 prohibits a health plan from discriminating against
    a participant or beneficiary for exercising any right under the
    plan.
    House bill
          The House bill would provide that ERISA sanctions apply
    to group health plans by deeming the provisions of subtitle A
    and subtitle D (insofar as it is applicable to this subtitle)
    to be provisions of title I of ERISA. Such sanctions also would
    apply to an insurer or HMO that was subject to state law in the
    event that the Secretary of Labor determined that the state had
    not provided for enforcement of the above provisions of this
    Act. Sanctions would not apply in the event that the Secretary
    of Labor established that none of the persons against whom the
    liability would be imposed knew, or exercising reasonable
    diligence, would have known that a failure existed, or if the
    noncomplying entity acted within 30 days to correct the
    failure. In no case would a civil money penalty be imposed
    under ERISA for a violation for which an excise tax under the
    COBRA enforcement provisions was imposed or for which a civil
    money penalty was imposed by the Secretary of HHS.
    Senate amendment
          The Senate Amendment would provide that for employee
    health benefit plans, the Secretary would be required to
    enforce the reform standards established by the bill in the
    same manner as provided under sections 502, 504, 506, and 510
    of ERISA. (See item IV(I) below for enforcement provisions
    relating to health plan issuers and group health plans sold to
    employers and others.)
    Conference agreement
          The conference agreement provides that provisions with
    respect to group health plans would be enforced under Title I
    of ERISA as under current law. The Secretary of Labor would not
    enforce the provisions of Title I applicable to health
    insurance issuers. However, private right of action under part
    V of ERISA would apply to such issuers. Enforcement of
    provisions with respect to health insurance issuers generally
    would be limited to civil remedies established under the PHS
    Act amendments (as described in the following subsection).
          The conference agreement provides that a state may enter
    into an agreement with the Secretary for delegation to the
    state of some or all of the Secretary's authority under
    sections 502 and 504 of ERISA to enforce the requirements of
    this part in connection with MEWAs providing medical care which
    are not group health plans.

                  3. Enforcement through civil money penalties

    Current law
          No provision.
    House bill
          The House bill would provide that a group health plan,
    insurer, or HMO that failed to meet the above requirements
    would be subject to a civil money penalty. Rules similar to
    those imposed under the COBRA penalties would apply. The
    maximum amount of penalty would be $100 for each day for each
    individual with respect to which a failure occurred. In
    determining the penalty amount, the Secretary of HHS would have
    to take into account the previous record of compliance of the
    person being assessed with the applicable requirements of this
    subtitle, the gravity of the violation, and the overall
    limitations for unintentional failures provided under the IRC
    COBRA provisions. No penalty could be assessed if the failure
    was not intentional or if the failure was corrected within 30
    days. A procedure would be available for administrative and
    judicial review of a penalty assessment. Collected penalties
    would be paid to the Secretary of HHS and would be available
    for the purpose of enforcing the provisions with respect to
    which the penalty was imposed.
          The authority for the Secretary of HHS to impose civil
    money penalties would not apply to enforcement with respect to
    any entity which offered health insurance coverage and which
    was an insurer or HMO subject to state regulation by an
    applicable state authority if the Secretary of HHS determined
    that the state had established an effective enforcement plan.
    In no case would a civil money penalty be imposed under this
    provision for a violation for which an excise tax under COBRA
    or civil money penalty under ERISA was assessed.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement provides that each state may
    require that health insurance issuers that issue, sell, renew,
    or offer health insurance coverage in the state in the small or
    large group markets meet the Act's requirements. In the case of
    a determination by the Secretary of HHS that a state has failed
    to substantially enforce a provision or provisions of part A
    with respect to health insurance issuers in the state, the
    Secretary would enforce such provision or provisions insofar as
    they relate to the issuance, sale, renewal, and offering of
    health insurance coverage in connection with group health plans
    in the state. Secretarial enforcement would apply only in the
    absence of state enforcement and with respect to group health
    plans that are nonfederal governmental plans.
          In the case of a failure by a health insurance issuer,
    the issuer is liable for any penalty. In the case of failure by
    a group health plan that is a nonfederal governmental plan, the
    plan is liable if it is sponsored by 2 or more employers;
    otherwise the employer is liable. Rules similar to those
    imposed under the COBRA penalties would apply. The maximum
    amount of penalty for noncompliance would be $100 per day per
    individual. In determining the penalty amount, the Secretary of
    HHS would have to take into account the previous record of
    compliance and the gravity of the violation. No penalty could
    be assessed if the failure was not intentional or if the
    failure was corrected within 30 days. A procedure would be
    available for administrative and judicial review of a penalty
    assessment. Collected penalties would be paid to the Secretary
    of HHS and would be available for the purpose of enforcing the
    provisions with respect to which the penalty was imposed.

                       4. Coordination in administration

    Current law
          Section 506 of ERISA provides for coordination of other
    federal agencies (e.g., the Internal Revenue Service) with the
    Department of Labor in enforcing ERISA.
    House bill
          The House bill would require the Secretaries of Treasury,
    Labor, and HHS to issue regulations that are not duplicative to
    carry out this subtitle. The bill would require these
    regulations to be issued in a manner that assures coordination
    and nonduplication in their activities under this subtitle.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement provides that the Secretaries of
    Treasury, Labor, and HHS would ensure, through execution of an
    interagency memorandum of understanding, that regulations,
    rulings, and interpretations are administered so as to have the
    same effect at all times. It requires the Secretaries to
    coordinate enforcement policies for the same requirements to
    avoid duplication of enforcement efforts and assign priorities
    in enforcement.
          It is the intent of the conferees that the committees of
    jurisdiction should work together to assure the coordination of
    policies under this Act. Such coordination is considered
    necessary to maintain consistency in the IRC, ERISA, and the
    PHS Act.

       III. Availability, Portability, and Renewability Requirements on
        Insurers, HMOs, and Issuers of Health Plans in the Group Market

    Current law
          The McCarran Ferguson Act of 1945 (P.L. 79-15) exempts
    the business of insurance from federal antitrust regulation to
    the extent that it is regulated by the states and indicates
    that no federal law should be interpreted as overriding state
    insurance regulation unless it does so explicitly. Section
    514(b)(2)(A) of ERISA leaves to the states the regulation of
    insurance. (Employee benefit plans are not insurance and are
    regulated by the federal government.)
    House bill
          The House bill would establish federal requirements on
    insurers and HMOs selling in the group market to provide for
    guaranteed availability of health insurance coverage.
    Senate amendment
          The Senate Amendment is similar but would apply
    requirements to health plan issuers offering plans in the group
    market.
    Conference agreement
          The conference agreement establishes federal requirements
    on health insurance issuers offering group health insurance
    coverage to provide for guaranteed availability of health
    insurance coverage.

                                 a. definitions

    Current law
          No provision.
    House bill
          The House bill would define insurer to mean an insurance
    company, insurance service, or insurance organization which is
    licensed to engage in the business of insurance in a state and
    which (except for the purposes of individual health insurance
    availability provisions of this subtitle) is subject to state
    law which regulates insurance within the meaning of section
    514(b)(2)(A) of ERISA.
          The House bill would define a health maintenance
    organization to mean (a) a federally qualified HMO, (b) an
    organization recognized under state law as an HMO, or (c) a
    similar organization regulated under state law for solvency in
    the same manner and extent as an HMO, if (other than for the
    purposes of individual health insurance availability provisions
    of the bill) it is subject to state law which regulates
    insurance within the meaning of section 514(b)(2) of ERISA.
          Under the House bill, a bona fide association would be
    defined as an association which (a) has been actively in
    existence for at least 5 years; (b) has been formed and
    maintained in good faith for purposes other than obtaining
    insurance; (c) does not condition membership in the association
    on health status; (d) makes health insurance coverage offered
    through the association available to any individual who is a
    member (or dependent of a member) of the association at the
    time the coverage is initially issued; (e) does not make health
    insurance coverage offered through the association available to
    any member who is not a member (or dependent of a member) of
    the association at the time coverage is initially issued; (f)
    does not impose preexisting condition exclusions consistent
    with the requirements of this bill relating to group health
    plans; and (g) provides for renewal and continuation of
    coverage consistent with the requirements of this bill.
    Senate amendment
          The Senate Amendment would define health plan issuer as
    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.
          The Senate Amendment does not use the terms health
    maintenance organization, or bona fide association.
    Conference agreement
          The conference agreement defines a health insurance
    issuer as an insurance company, insurance service, or insurance
    organization, including an HMO, which is licensed to engage in
    the business of insurance in a state and which is subject to
    state law which regulates insurance within the meaning of
    section 514(b)(2) of ERISA. A group health plan is not a health
    insurance issuer.
          An HMO is: (a) a federally qualified HMO, (b) an
    organization recognized under state law as an HMO, or (c) a
    similar organization regulated under state law for solvency in
    the same manner and extent as an HMO.
          A bona fide association is an association which: (a) has
    been actively in existence for at least 5 years; (b) has been
    formed and maintained in good faith for purposes other than
    obtaining insurance; (c) does not condition membership in the
    association on any health status-related factor; (d) makes
    health insurance coverage offered through the association
    available to any member, or individuals eligible for coverage
    through such member, regardless of any health status-related
    factor; (e) does not make health insurance coverage offered
    through the association available other than in connection with
    a member of the association; and (f) meets additional
    requirements as may be imposed under state law.

                     b. guaranteed availability of coverage

    Current law
          No provision.
    House bill
          The House bill would require each insurer or HMO offering
    health insurance coverage in the small group market to accept
    every small employer in the state that applied for coverage and
    to accept for enrollment under such coverage every eligible
    individual who applied for enrollment during the initial
    enrollment period in which the individual first became eligible
    for the group coverage. No restriction could be imposed on an
    eligible individual based on his or her health status. An
    eligible individual is determined in accordance with the terms
    of the plan consistent with all applicable state laws.
    Senate amendment
          The Senate Amendment would require a health plan issuer
    offering a group health plan to accept the whole group desiring
    to purchase the coverage. A health plan issuer offering a group
    health plan could not condition eligibility, continuation of
    eligibility, enrollment, or premium contribution requirements
    based on health status. (Health status is defined the same as
    under the House bill.)
    Conference agreement
          The conference agreement requires each health insurance
    issuer that offers health insurance coverage in the small group
    market in a state to accept every small employer in the state
    that applies for coverage, and to accept for enrollment under
    such coverage every eligible individual who applies for
    enrollment during the period in which the individual first
    became eligible to enroll under the terms of the group health
    plan. The health plan issuer may not impose restrictions on any
    eligible individual being a participant or beneficiary based on
    his or her health status, or the health status of dependents.
    An eligible individual is determined in accordance with the
    terms of the plan, as provided by the health insurance issuer
    under the rules of the issuer which are uniformly applicable in
    a state to small employers in the small group market, and
    consistent with all applicable state laws governing the issuer
    and market.

                            1. Scope of requirement

    Current law
          No provision.
     House bill
          The House bill provides that the guaranteed availability
    requirement apply to the small group market only. Small groups
    are those with 2 to 50 employees.
    Senate amendment
          The Senate Amendment provides that the guaranteed
    availability requirement apply to all health plan issuers and
    group health plans.
    Conference agreement
          The conference agreement provides that the guaranteed
    availability requirement applies to the small group market
    only. Small groups are those with 2 to 50 employees on a
    typical business day.
          To assure access in the large group market, the
    conference agreement provides that the Secretary of HHS request
    that the chief executive officer of each state submit a report
    on the access of large employers to health insurance coverage
    and the circumstances for lack of access to coverage, if any,
    of large employers, and classes of employers. The Secretary
    shall request the reports not later than December 31, 2000 and
    every 3 years thereafter. Based on the state reports and other
    information, the Secretary would be required to prepare a
    report for Congress, every 3 years, describing the access to
    health insurance for large employers, and classes of employers
    in each state. The Secretary may include recommendations to
    assure access.
          In addition, the Comptroller General will submit to
    Congress not later than 18 months after the date of enactment
    of this Act, a report on access of classes of large employers
    to health insurance coverage in the different states, and the
    circumstances for lack of access, if any.

          2. Restrictions on preexisting condition limitation periods

    Current law
          No provision.
    House bill
          The House bill would provide for the same restrictions on
    the use of preexisting condition limitations by each insurer
    and HMO that offers health insurance coverage in connection
    with a group health plan as those described in above item II-
    (C).
    Senate amendment
          The Senate amendment would provide for the same
    restrictions on the use of preexisting condition limitations by
    health plan issuers as described in above item II-(C).
    Conference agreement
          The conference agreement provides us for the same
    restrictions on the use of preexisting condition limitations by
    each health insurance issuer that offers group health insurance
    coverage as those described in above item II-(C).

                    3. Exceptions to guaranteed availability

    Current law
          No provision.
    House bill
          The House bill would provide that an HMO or an insurer
    offering coverage in the small group market through a network
    plan could: (1) limit employers for such coverage to those with
    eligible individuals whose place of employment or residence was
    in the plan's or HMO's service area; (2) limit the individuals
    who might be enrolled to those whose place of residence or
    employment was within the service area; (3) within the service
    area, deny coverage if the plan or HMO demonstrated lack of
    capacity to deliver services adequately, but only if it was
    applying the capacity limit to all employers without regard to
    the group's claims experience or the health status of its
    participants and beneficiaries. Those denying coverage on the
    basis of capacity could not offer small groups coverage in the
    service area for 180 days. Similar exceptions would apply in
    the event of financial capacity limits.
    Senate amendment
          The Senate amendment would provide that a health plan
    issuer offering a group health plan could cease offering
    coverage to group purchasers if (1) the plan ceased to offer
    coverage to any additional group purchasers, and (2) the issuer
    could demonstrate to the applicable certifying authority that
    its financial or provider capacity would be impaired if the
    issuer were required to offer coverage to additional group
    purchasers. Such an issuer would be prohibited from offering
    coverage for 6 months or until the issuer could demonstrate
    that the capacity was adequate, whichever was later. An issuer
    would only be eligible for this exception if it offered
    coverage on a first-come-first-served basis or other basis
    established by a state to ensure a fair opportunity to enroll
    and avoid risk selection.
    Conference agreement
          The conference agreement provides that a health insurance
    issuer offering coverage in the small group market through a
    network plan could: (1) limit employers for such coverage to
    those with eligible individuals who live, work, or reside in
    the service area for the network plan; (2) within the service
    area, deny coverage to small employers if the issuer has
    demonstrated, if required, to the applicable state authority,
    the lack of capacity to deliver services adequately to
    additional groups, but only if it was applying the capacity
    limit to all employers uniformly without regard to claims
    experience or any health status-related factor. An issuer
    denying coverage on the basis of capacity could not offer
    coverage in the small group market in the service area for 180
    days.
          A health insurance issuer may deny coverage in the small
    group market if the issuer has demonstrated, if required, to
    the applicable state authority, that it does not have the
    financial reserves necessary to underwrite additional coverage.
    The issuer would be required to apply the financial capacity
    limit to all employers in the small group market in the state,
    consistent with applicable state law, and without regard to
    claims experience or health status-related factors. An issuer
    denying coverage on the basis of financial capacity could not
    offer coverage in the small group market in the service area
    for 180 days or until the issuer has demonstrated, if required,
    to the applicable state authority, that it has adequate
    capacity, whichever is later. A State may provide for
    determination of adequate capacity on a service-area-specific
    basis. It is the intent of the conferees that an issuer denying
    coverage on the basis of capacity limitations may demonstrate
    compliance if enrollment is provided on a first-come first-
    serve basis, or other state approved method.
          The conference agreement imposes requirements for renewal
    and continuation on issuers offering health insurance plans to
    bona fide associations, but does not require these issuers to
    guarantee issue of the coverage offered to bona fide
    associations. The conferees do not intend the provision to mean
    that issuers of coverage to an association have to offer a
    particular association plan to any other employer. Thus issuers
    offering coverage to associations are not required to guarantee
    issue the association's plan to other small employers.
    Nondiscrimination rules would apply to these association plans,
    and no employee or dependent could be excluded from coverage on
    the basis of any health status-related factor.
          The conference agreement provides exceptions to the
    availability, renewability and portability requirements for
    group health plans and group health insurance coverage for
    certain benefits, sometimes under certain conditions. First,
    these requirements would not apply to provision of certain
    excepted benefits including: coverage only for accident, or
    disability insurance, or any combination thereof; coverage
    issued as a supplement to liability insurance; liability
    insurance; workers' compensation or similar insurance;
    automobile medical payment insurance; credit-only insurance;
    coverage for on-site medical clinics; and, other similar
    coverage, as specified in regulations, under which benefits for
    medical care are secondary or incidental to other insurance
    benefits.
          Second, if the following benefits are (a) provided under
    a separate policy, certificate, or contract or insurance, or
    (b) if the benefits are otherwise not an integral part of the
    plan, the requirements would not apply to: limited scope dental
    or vision benefits; benefits for long-term care, nursing home
    care, home health care, community-based care, or any
    combination thereof; or, similar limited benefits as specified
    in regulations.
          Third, if the following benefits: (a) are provided under
    a separate policy, certificate, or contract of insurance; (b)
    there is no coordination between the provision of these
    benefits and any exclusion of benefits under any group health
    plan maintained by the same plan sponsor; and (c) such benefits
    are paid with respect to an event without regard to whether
    benefits are provided for that event under any group health
    plan maintained by the same plan sponsor, the requirements
    would not apply to: coverage only for a specified disease or
    illness, or hospital indemnity or other fixed indemnity
    insurance.
          Fourth, if the following benefits are provided under a
    separate policy, certificate, or contract of insurance, the
    requirements would not apply to: Medicare supplemental health
    insurance; coverage supplemental to coverage provided under
    military health care; and, similar supplemental coverage
    provided to coverage under a group health plan.

     4. Exceptions for failure to meet participation or contribution rules

    Current law
          No provision.
    House bill
          The House bill would provide that an exception to the
    guaranteed availability requirement would apply in the case of
    any group health plan which failed to meet the participation or
    contribution rules of the insurer or HMO. Such participation
    and contribution rules would have to be uniformly applicable
    and in accordance with state law.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement provides that an exception to
    the guaranteed availability requirement would apply in the case
    of any group health plan which failed to meet the participation
    or contribution rules of the health insurance issuer. Such
    participation and contribution rules would have to be in
    accordance with state law.

                           c. guaranteed renewability

    Current law
          No provision.
    House bill
          The House bill would provide that regardless of the size
    of the group, insurers and HMOs would be required to renew or
    continue in force coverage at the option of the covered
    employer with certain exceptions.
    Senate amendment
          The Senate provision is similar but at the option of the
    group purchaser.
    Conference agreement
          The conference agreement provides that a health insurance
    issuer offering group health insurance coverage in the small or
    large group market would be required to renew or continue in
    force coverage at the option of the plan sponsor of the plan.

           1. Exceptions to guaranteed renewability of group coverage

    Current law
          No provision.
    House bill
          The House bill would provide exceptions to the guaranteed
    renewability requirement for: nonpayment of premiums, fraud,
    violation of participation and contribution rules, termination
    of the plan in a state or geographic area, or the employer
    moved outside the service area (but only if this last provision
    was applied uniformly without regard to health status).
    Exceptions to guaranteed renewability would also apply in the
    event that the insurer or plan no longer offered a particular
    type of coverage but only if prior notice was provided, the
    employer was given the chance to buy another plan offered by
    the insurer or HMO, and the termination was applied uniformly
    without regard to health status or insurability. An exception
    would also apply in the event of discontinuance of all
    coverage, but only if certain conditions were met. In this
    instance, the insurer or HMO could not market small and/or
    large group coverage for 5 years.
    Senate amendment
          The Senate Amendment is similar. It would include as
    exceptions to the guaranteed renewability requirement the loss
    of eligibility of COBRA continuation coverage, and failure of a
    participant or beneficiary to meet requirements for eligibility
    for coverage under the group health plan that are not
    prohibited by this subtitle.
          A network plan could deny continued participation under
    the plan to participant or beneficiaries who did not live,
    reside, or work in an area in which the plan was offered, but
    only if the denial was applied uniformly, without regard to
    health status or insurability.
          The provisions relating to discontinuation of a plan or
    of coverage in general are similar to the House bill.
    Conference agreement
          The conference agreement provides exceptions to the
    guaranteed renewability requirement for one or more of the
    following: (1) nonpayment of premiums; (2) fraud; (3) violation
    of participation or contribution rules; (4) termination of
    coverage in the market in accordance with applicable state law,
    as outlined below; (5) for network plans, no enrollees
    connected to the plan live, reside, or work in the service area
    of the issuer, or area for which the issuer is authorized to do
    business, and, in the case of the small group market only if
    the issuer would deny enrollment to the plan under regulations
    governing guaranteed availability of coverage; (6) for coverage
    made available to bona fide associations, if membership in the
    association ceases, but only if coverage is terminated
    uniformly without regard to any health status-related factor
    relating to any covered individual.
          Exceptions to guaranteed renewability would also apply if
    the issuer or plan no longer offered a particular type of group
    coverage in the small or large group market so long as the
    issuer, in accordance with applicable state law: (1) provided
    prior notice to each plan sponsor and participants and
    beneficiaries; (2) gave the plan sponsor the chance to purchase
    all (or, in the case of the large group market, any) other
    plans offered by the issuer in such market; and (3) applied the
    termination uniformly without regard to the claims experience
    of the sponsors or any health status-related factor to any
    participants or beneficiaries covered or new participants or
    beneficiaries who may become eligible for such coverage.
          An exception would also apply in the event of
    discontinuance of all coverage, but only if certain conditions
    were met. In this instance, the issuer could not offer coverage
    in the market and state involved for 5 years.
          Issuers would be permitted to modify the health insurance
    coverage for a product offered to a group health plan in the
    large group market, and in the small group market if the
    modification was effective on a uniform basis among group
    health plans with that product.
          For example, the conferees intend that issuers could
    uniformly modify the terms of treatment for particular
    conditions among group health plans within a type of coverage.
    An exception would apply to coverage available in the small
    group market only through 1 or more bona fide associations.
    Issuers could modify a product offered to a group plan in the
    large group market.
          See section B(3) above for exceptions from availability,
    renewability, and portability requirements for certain
    benefits.

              d. disclosure of information by health plan issuers

    Current law
          Section 101 of ERISA requires covered plans to furnish
    summary plan descriptions and other information and notices to
    plan participants and the Secretary of Labor. Section 104 of
    ERISA requires covered plans to file certain information with
    the Secretary of Labor and to furnish certain information to
    plan participants.
    House bill
          The House bill does not include a provision.
    Senate amendment
          The Senate Amendment would require that in connection
    with the offering of any group health plan to a small employer
    (defined under state law or, if not so defined, one with not
    more than 50 employees), that a health plan issuer make a
    reasonable disclosure as part of its solicitation and sales
    materials of certain information, such as the provisions of the
    plan concerning the right of the issuer to change premium rates
    and the factors that could affect such changes, the provisions
    of the plan relating to renewability and any preexisting
    condition provisions, and descriptive information about the
    plan's benefits and premiums. The information would have to be
    understandable by the average small employer and sufficiently
    accurate and comprehensive to reasonably inform employers,
    participants, and beneficiaries of their rights and obligations
    under the plan. These requirements would not apply to
    proprietary and trade secret information under applicable law
    and do not preempt state reporting and disclosure requirements.
          The Senate Amendment would amend section 104(b)(1) of
    ERISA relating to the summary plan description to provide that
    if there is a modification or change described in the summary
    plan description that is a material reduction in covered
    services or benefits provided, a summary of such changes would
    have to be furnished to participants within 60 days after the
    date of its adoption. Alternatively, plans sponsors could
    provide such a description at regular intervals of not more
    than 90 days. The bill requires the Secretary of Labor to issue
    regulations providing alternative mechanisms to delivering by
    mail through which employee benefit plans may notify
    participants of material reductions in covered services. It
    further amends the summary plan description provisions of ERISA
    to require the inclusion of certain information.
    Conference agreement
          The conference agreement requires a health plan issuer
    offering any health insurance coverage to a small employer to
    make a reasonable disclosure of the availability of information
    as part of its solicitation and sales materials. At the small
    employer's request, the issuer must provide the provisions of
    the plan concerning the right of the issuer to change premium
    rates and the factors that could affect such changes, the
    provisions of the plan relating to renewability and any
    preexisting condition provisions, and the benefits and premiums
    under all health insurance coverage for which the employer is
    qualified. The information would have to be understandable by
    the average small employer and sufficient to reasonably inform
    small employers of their rights and obligations under the
    health insurance coverage. These requirements would not apply
    to proprietary and trade secret information under applicable
    law.
          The conference agreement would amend section 104(b)(1) of
    ERISA relating to the summary plan description to provide that
    if there is a material reduction in covered services or
    benefits, a summary of such changes would have to be furnished
    to participants within 60 days after the date of its adoption.
    Alternatively, plan sponsors could provide a description at
    regular intervals of not more than 90 days. The conference
    agreement requires the Secretary of Labor to issue regulations
    within 180 days of enactment of this Act which would provide
    for alternative mechanisms, besides delivery by mail, through
    which employee benefit plans may notify participants of
    material reductions in covered services. It further amends the
    summary plan description provisions of ERISA to require the
    inclusion of certain information.
          The conference agreement would amend section 101 of ERISA
    to permit the Secretary, in accordance with regulations
    prescribed by the Secretary, to require MEWAs that provide
    medical care benefits, but are not group health plans, to
    report, not more frequently than annually, in such form and
    manner as the Secretary may require to determine the extent to
    which the requirements of this part are being carried out.

                              e. state flexibility

    Current law
          The McCarran Ferguson Act of 1945 (P.L. 79-15) exempts
    the business of insurance from federal antitrust regulation to
    the extent that it is regulated by the states and indicates
    that no federal law should be interpreted as overriding state
    insurance regulation unless it does so explicitly. Section 514
    of ERISA leaves to the states the regulation of insurance.
    (Employee benefit plans are not insurance and are regulated by
    the federal government.)
    House bill
          The House bill would provide that unless preempted by
    section 514 of ERISA, state laws would not be preempted that
    (1) related to matters not specifically addressed in subtitles
    A and B, or (2) that required insurers or HMOs to: (a) impose a
    limitation or exclusion of benefits relating to the treatment
    of a preexisting condition for periods shorter than specified
    in the bill, (b) allowed persons to be considered to be in a
    period of previous qualifying coverage if they experienced a
    lapse in coverage greater than 60 days, or (c) had a look-back
    provision shorter than 6 months.
    Senate amendment
          The Senate Amendment does not include ``related to
    matters not specifically addressed in subtitles A and B.'' The
    Senate Amendment would provide that unless preempted by section
    514 of ERISA, state laws would not be preempted that (1)
    required 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
    specified in the bill; (2) allowed individuals, participants,
    and beneficiaries to be considered in a period of previous
    qualifying coverage if such person experienced a lapse in
    coverage that was greater than the 30-days provided under this
    bill; or (3) required issuers to have a lookback period shorter
    than provided for under this subtitle.
    Conference agreement
          The conference agreement provides that any provision of
    state law which establishes, implements, or continues in effect
    any standard or requirement solely relating to health insurance
    issuers in connection with health insurance coverage would not
    be superseded unless the state standard or requirement prevents
    the application of a federal requirement of this part. Nothing
    in this part of the Act would affect or modify the provisions
    of section 514 of ERISA with respect to group health plans.
          The conferees intend the narrowest preemption. State laws
    which are broader than federal requirements would not prevent
    the application of federal requirements. For example, states
    may require guaranteed availability of coverage for groups of
    more than 50 employees, or for groups of 1.
          The conference agreement provides special rules in the
    case of portability requirements. State laws applicable to a
    preexisting condition exclusion which differ from the standards
    or requirements specified in this part would be superseded
    except if they: (1) shorten the lookback period in
    determination of a preexisting condition limitation (from 6
    months to any shorter period of time); (2) shorter the length
    of a preexisting condition limitation exclusion (from 12
    months, or 18 months for late enrollees, to any shorter
    period); (3) lengthen the break in coverage time from 63 days
    to any greater number; (4) lengthen the time for enrollment of
    newborns, or certain children adopted or placed for adoption,
    from 30 days to any greater number; (5) prohibit the imposition
    of any preexisting condition exclusions in cases not described,
    or expand the exclusions described; (6) require additional
    special enrollment periods; (7) reduce the maximum period
    permitted in an affiliation period.
          A group health plan or health insurance coverage is not
    required to provide specific benefits other than those provided
    under the terms of such plan or coverage.

                          IV. Individual Market Rules

    Current law
          The individual health insurance market is currently
    regulated by the states. As of December, 1995, 11 states
    required that individual insurers write policies on a
    guaranteed issue basis; 16 states required guaranteed renewal;
    and 22 states limited the use of preexisting condition
    limitation periods.
    House bill
          The House bill would provide for federal requirements to
    guarantee availability of individual health insurance coverage
    to certain qualified individuals with prior group coverage,
    without limitation or exclusion of benefits, and to guarantee
    renewability of individual health insurance coverage.
    Senate amendment
          Similar.
    Conference agreement
          The conference agreement provides for federal
    requirements to guarantee availability of individual health
    insurance coverage to certain qualified individuals with prior
    group coverage, without limitation or exclusion of benefits,
    and to guarantee renewability of individual health insurance
    coverage.

       A. Guaranteed availability of individual health insurance coverage

    Current law
          No provision.
    House bill
          The House bill would include goals that any qualifying
    individual would be able to obtain qualifying coverage and that
    qualifying individuals would receive credit for prior coverage
    toward the new coverage's preexisting condition exclusion
    period, if any. If states fail to implement programs meeting
    these goals, a federal fall back requirement would take effect
    requiring that each individual insurer enroll all eligible
    individuals and that such persons receive credit for their
    prior coverage toward any preexisting condition limitation
    period. (See item IV(D) below on exceptions for network plans
    and HMOs.)
          The House bill would require that any preexisting
    condition exclusion period be reduced by the length of the
    aggregate period of qualified prior coverage. To determine
    qualified coverage, the plan could choose one of two
    alternatives: (1) it could disregard specific benefits covered
    and include all periods of coverage from qualified sources; or
    (2) it could examine prior coverage on a benefit-specific
    basis, and exclude from qualified coverage any specific
    benefits not covered under the most recent prior plan. If the
    second method were chosen, plans would be required to disclose
    this procedure at the time of enrollment or sale of the plan.
    Senate amendment
          The Senate Amendment would provide that all health plan
    issuers that issue or renew individual health plans must enroll
    all eligible individuals except if the insurer demonstrates
    that it would have financial problems, or, that its ability to
    service individuals already enrolled in the plan would diminish
    if new enrollees were allowed to join the plan. In these cases,
    the insurer would be prohibited from enrolling new individuals
    for a period of 6 months, or, if later, when the insurer could
    demonstrate that they could properly service new entrants. An
    insurer would have to enroll individuals on a first-come-first-
    served basis, or other basis determined by the state, to be
    eligible for this limitation. States implementing guaranteed
    availability programs meeting certain requirements would be
    excepted from the federal requirements.
          The Senate amendment would provide that a health plan
    issuer may not impose a limitation or exclusion of benefits on
    benefits that were covered under prior health plans.
    Conference agreement
          The conference agreement provides that each health
    insurance issuer that offers health insurance coverage in the
    individual market in a state may not decline to offer coverage
    to, or deny enrollment of an eligible individual and may not
    impose any preexisting condition exclusions with respect to
    such coverage. This requirement will not apply in States with
    acceptable alternative mechanisms as described in section IV(E)
    below. In addition, in States without an acceptable alternative
    mechanism, a health insurance issuer may limit the coverage
    offered as described in section IV(C).

                       B. Qualifying/eligible individuals

    Current law
          No provision.
    House bill
          The House bill would provide that qualifying individuals
    are individuals: with 18 or more months of qualified coverage
    periods; with most recent prior coverage from a group health
    plan, governmental plan, or church plan; ineligible for group
    health coverage, Medicare Parts A or B, Medicaid, and without
    individual coverage; not terminated from most recent prior
    coverage for nonpayment of premiums or fraud; who, if eligible
    for continuation coverage under COBRA or similar state program,
    elected and exhausted this coverage; and who applied for
    individual coverage not more than 60 days after the last day of
    coverage under a group plan, or the termination date of COBRA
    benefits.
    Senate amendment
          Similar, but individual would have to apply for
    individual coverage not more than 30 days after the last day of
    coverage under a group plan.
    Conference agreement
          The conference agreement defines eligible individuals as
    individuals: with 18 or more months of aggregate creditable
    coverage; with most recent prior coverage from a group health
    plan, governmental plan, or church plan (or health insurance
    coverage offered in connection with any such plan); ineligible
    for group health coverage, Medicare Parts A or B, Medicaid (or
    any successor program), and without any other health insurance
    coverage; not terminated from their most recent prior coverage
    for nonpayment of premiums or fraud; and who, if eligible for
    continuation coverage under COBRA or a similar state program,
    elected and exhausted this coverage.

                             C. Qualifying coverage

    Current law
          No provision.
    House bill
          The House bill would require coverage with an actuarial
    value of benefits not less than the weighted average actuarial
    value of the benefits provided by all the individual health
    insurance coverage (excluding coverage issued under this
    section) during the previous year, issued by: (1) the insurer
    or HMO in the state; or (2) all insurers and HMOs in the state.
    Requires that the actuarial value of benefits be calculated
    based on a standardized population and a set of standardized
    utilization and cost factors.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement requires individual health
    insurance issuers to offer coverage to eligible individuals
    under all policy forms with exceptions. First, a health
    insurance issuer may not offer coverage under all policy forms
    if the state is implementing an acceptable alternative
    mechanism (see section IV(E) below). If a state is not
    implementing an acceptable alternative mechanism, the health
    insurance issuer may elect to limit the policy forms offered to
    eligible individuals so long as it offers at least two
    different policy forms of health insurance coverage both of
    which are designed for, made generally available and actively
    marketed to, and enroll both eligible and other individuals by
    the issuer. In addition, the 2 policy forms must meet one of
    the following: (1) the 2 policy forms have the largest and next
    to the largest premium volume; or (2) the 2 policy forms are
    representative of individual health insurance coverage by the
    issuer. An issuer must apply the election uniformly to all
    eligible individuals in the state for that issuer, and the
    election will be effective for policies offered for not less
    than 2 years.
          The 2 representative policy forms would include a lower
    and higher-level of coverage, each of which has benefits
    substantially similar to other individual health insurance
    coverage offered by the issuer in the state. The lower-level
    policy form would have benefits with an actuarial value at
    least 85 percent, but not greater than 100 percent of a
    weighted average benefit. The higher-level policy form would
    have benefits with an actuarial value: (1) at least 15 percent
    greater than the actuarial value of the lower-level policy
    form; and (2) between 100 and 120 percent of the weighted
    average benefit. Both products must include benefits
    substantially similar to other individual health insurance
    coverage offered by the issuer in the state. The weighted
    average may be either: (1) the average actuarial value of the
    benefits from individual coverage provided by the issuer; or
    (2) the average actuarial value of the benefits from individual
    coverage provided by all issuers in the state. The weighted
    average will be based on coverage provided during the previous
    year and exclude coverage of eligible individuals. Actuarial
    values will be calculated based on a standardized population
    and a set of standardized utilization and cost factors.
          Network plans may limit coverage to those who live,
    reside, or work within the service area for the network plan.
    Within the service area for the plan, the issuer may deny
    coverage to individuals if the issuer has demonstrated, if
    required, to the applicable state authority that it will not
    have the capacity to deliver services adequately to additional
    individual enrollees. Denial must be made uniformly to
    individuals without regard to any health status-related factor
    and without regard to whether the individuals are eligible
    individuals. Upon denial, the issuer may not offer coverage in
    the individual market within the service area for 180 days.
    Similar rules apply for financial capacity limits.

                             D. Guaranteed renewal

    Current law
          No provision.
    House bill
          The House bill would require that individual coverage is
    renewable at the option of the individual except for:
    nonpayment; fraud; termination of all individual coverage by
    the insurer or HMO, or termination of coverage in a geographic
    area in the case of network or HMO plans; movement of the
    individual outside the insurer's service area; termination of
    the particular type of coverage by the insurer or HMO, after
    the insurer has provided 90 day notice, offered the option to
    purchase any other coverage, and acted without regard to health
    status or insurability; discontinuation of all individual
    coverage by the insurer or HMO, after 180 days notice; uniform
    modification of all health plans within the individual's type
    of coverage.
    Senate amendment
          The Senate Amendment would require that individual
    coverage is renewable at the option of the individual except
    for: nonpayment; fraud; termination of the particular type of
    coverage by the insurer or HMO, which has provided 90 day
    notice, offered the option to purchase any other coverage, and
    acted without regard to health status or insurability;
    termination of all individual coverage by the insurer or HMO,
    after 180 days notice, and prohibition against market re-entry
    for 5 years; change such that the individual lives or works
    outside the insurer's service area but only if denial of
    coverage is applied uniformly without regard to the health
    status or insurability of the individual.
    Conference agreement
          The conference agreement provides that a health insurance
    issuer that provides individual health insurance coverage to an
    individual must renew or continue in force such coverage at the
    option of the individual. It provides exceptions to the
    guaranteed renewability requirement for one or more of the
    following: (1) nonpayment of premiums or untimely payment; (2)
    fraud; (3) termination of coverage in the market (as outlined
    below) in accordance with applicable state law; (4) for network
    plans, the individual no longer lives, resides, or works in the
    service area of the issuer, or area for which the issuer is
    authorized to do business but only if coverage is terminated
    uniformly without regard to any health status-related factor;
    (5) for coverage made available to bona fide associations, if
    membership in the association ceases, but only if the coverage
    is terminated uniformly without regard to any health status-
    related factor.
          An issuer may discontinue a particular type of coverage
    in the individual market only if the issuer: (1) provides prior
    notice to each covered individual; (2) offers each individual
    the option to purchase any other individual health insurance
    coverage offered by the issuer for individuals; and (3) acts
    uniformly without regard to any health status-related factor of
    enrolled individuals or individuals who may become eligible for
    such coverage. An issuer may elect to discontinue offering all
    health insurance coverage in the individual market in a state
    only if certain conditions are met. In this case, the issuer
    could not issue coverage in the market and state involved for 5
    years. Issuers could modify the health insurance coverage for a
    policy form offered to individuals in the individual market so
    long as the modification was consistent with state law and was
    effective on a uniform basis among all individuals with that
    policy form.
          In the case of health insurance coverage that is made
    available by a health insurance issuer in the individual market
    to individuals only through one or more associations, the
    issuer would be required to meet the Act's requirements related
    to individuals.
          Health insurance issuers in the individual market must
    provide certifications of coverage in the same manner as health
    insurance issuers in the small group market.

                  E. OPTIONAL STATE PROGRAMS/STATE FLEXIBILITY

                                 1. In general

    Current law
          No provision.
    House bill.
          The House bill would provide that a state may establish
    public or private mechanisms to meet the goals of guaranteed
    availability of coverage. The chief executive officer of the
    state must notify the Secretary of HHS if the state elects to
    use state mechanisms. Under a state mechanism, a state may
    define qualified coverage as coverage with benefits not less
    than the weighted average actuarial value of the benefits
    provided by all the individual health insurance coverage
    (excluding coverage issued under this section) during the
    previous year, issued by: the insurer or HMO in the state; or
    all insurers and HMOs in the state. The state may elect to
    establish qualified coverage for all insurers and HMOs in the
    state after it has established qualified coverage for each
    insurer or HMO.
          State mechanisms could include one or more, or a
    combination of: health insurance coverage pools or programs
    authorized or established by the state; mandatory group
    conversion policies; guaranteed issue of one or more plans; or
    open enrollment by one or more insurers or HMOs. This list is
    not exclusive.
          A state with a health insurance coverage pool or risk
    pool in effect on March 12, 1996, which offers qualified
    coverage, would automatically be considered to have met the
    Federal access objectives.
          In general, states would have until July 1, 1997 to
    implement a state program. States without a regular legislative
    session between January 1, 1997 and June 30, 1997 would have a
    deadline of July 1, 1998.
    Senate amendment
          Similar. The Senate Amendment would provide that a state
    may adopt alternative public or private mechanisms to provide
    access to affordable health benefits for eligible individuals.
    The Governor of the state must notify the Secretary of Health
    and Human Services that the state has adopted an alternative
    mechanism which achieves the goals of portability and
    renewability, and that the state intends to implement this
    mechanism.
          State mechanisms could include guaranteed issue, open
    enrollment by one or more health plan issuers, high-risk pools,
    mandatory conversion policies, or any combination of these
    mechanisms. A state high risk pool would meet the portability
    and renewability requirements if it is: (a) open to eligible
    individuals; (b) limits preexisting condition waiting periods;
    and (c) is consistent with premium rates and covered benefits
    in the National Association of Insurance Commissioners (NAIC)
    Model Health Plan for Uninsurable Individuals Act. States which
    adopt a NAIC model act, including group to individual market
    portability provisions that meet the Federal portability and
    renewability goals, would not be subject to federal rules.
          A state may notify the Secretary, within 6 months after
    enactment of this Act, that state alternate mechanism(s) would
    meet portability and renewability goals. The Secretary would
    not determine if the state mechanism meets the goals until 12
    months after the initial state notification, or January 1,
    1998, whichever is later. The Secretary would not make a
    determination until January 1, 1999 for states without
    legislative sessions within the 12 months after enactment of
    this Act.
    Conference agreement
          The conference agreement provides that a state may
    implement an acceptable alternative mechanism that is designed
    to provide access to health benefits for individuals. This
    mechanism must: (1) provide a choice of health insurance
    coverage to all eligible individuals; (2) not impose any
    preexisting condition exclusions; and (3) include at least one
    policy form of coverage that is comparable to either
    comprehensive health insurance coverage offered in the
    individual market in the state or a standard option of coverage
    available under the group or individual health insurance laws
    in the state. If a state elects to implement the following
    mechanisms, the state must also meet the preceding
    requirements. These mechanisms are: (1) the NAIC Small Employer
    and Individual Health Insurance Availability Model Act (as it
    applies to individual health insurance coverage) or the
    Individual Health Insurance Portability Model Act; (2) a
    qualified high risk pool that meets certain specified
    requirements; or (3) other mechanisms that provide for risk
    adjustment, risk spreading, or a risk spreading mechanism (by
    an issuer or among issuers or policies of an issuer), or
    otherwise provide some financial subsidies for participating
    insurers or eligible individuals, or, alternatively, a
    mechanism under which each eligible individual is provided a
    choice of all individual health insurance coverage otherwise
    available.
          Examples of potential alternative mechanisms include
    health insurance coverage pools or programs, mandatory group
    conversion policies, guaranteed issue of one or more plans of
    individual health insurance coverage, or open enrollment by one
    or more health insurance issuers, or a combination of such
    mechanisms.
          A state is presumed to be implementing an acceptable
    alternative mechanism as of January 1, 1998, by not later than
    July 1, 1997, the chief executive officer of the state notifies
    the Secretary that the state has enacted any necessary
    legislation as of January 1, 1998 and provides the Secretary
    with information needed to review the mechanism and its
    implementation, or proposed implementation. The state must
    provide this information to the Secretary every 3 years to
    continue to be presumed to have an acceptable alternative
    mechanism. If a state submits notice and information after July
    1, 1997, and the Secretary makes no determination within 90
    days, the mechanism will be considered acceptable after 90
    days.

                           f. construction/preemption

    Current law
          No provision.
    House bill
          The House bill would provide that states are not
    prevented from: (1) implementing guaranteed availability
    mechanisms before the deadline; (2) continuing state mechanisms
    that were in effect before the enactment of this Act; (3)
    offering guaranteed availability of coverage that is not
    qualifying coverage; or (4) offering guaranteed availability of
    coverage to individuals who are not qualifying individuals
    Senate amendment
          The Senate Amendment would provide that states are not
    required to replace or dissolve high risk pools or other
    similar state mechanisms which are designed to provide
    individuals in those states with access to health benefits.
    Conference agreement
          The conference agreement provides that nothing in this
    part would prevent a state from establishing, implementing, or
    continuing in effect standards and requirements unless they
    prevent the application of a requirement in this part. Nothing
    in this part would affect or modify the provisions of section
    514 of ERISA.

         g. federal rules (fallback or in absence of state alternative)

    Current law
          No provision.
    House bill
          The House bill would provide that the Secretary of HHS
    notify a state that federal rules would apply if: (1) the state
    has not elected to use a state mechanism; or (2) if the
    Secretary finds, after consultation with state officials, that
    the state mechanism would not meet the federal availability
    goals, and the state has had reasonable opportunity to change
    or implement a state mechanism to meet the goals.
          Federal rules would provide that each insurer or HMO
    which issues individual health insurance coverage in the state
    would have to offer qualifying coverage to qualifying
    individuals, and credit prior coverage toward any preexisting
    condition exclusion periods. In addition, no individual could
    be refused coverage based on health status. Network plans or
    HMOs could refuse coverage to individuals who did not reside or
    work in the plan's service area, or if network or financial
    capacity limits would be exceeded. Federal rules would cease to
    apply if the state implements a mechanism designed to meet the
    federal goals of availability.
    Senate amendment
          The Senate Amendment would provide that Federal standards
    would apply if the state does not notify the Secretary of HHS
    of its intent to implement state mechanisms, or if the
    Secretary finds that the state mechanism fails to: (1) offer
    coverage to eligible individuals; (2) prohibit preexisting
    condition limitations or exclusions for benefits covered under
    previous health plans; (3) offer eligible individuals a choice
    of individual health plans, including at least one
    comprehensive plan, or a plan comparable to a standard option
    plan available under the group or individual health insurance
    laws of the state; or (4) implement a risk spreading mechanism,
    cross subsidy mechanism, risk adjustment mechanism, rating
    limitation or other mechanism designed to reduce the variation
    in costs of coverage for eligible individuals and other plans
    offered by the carrier or available in the state.
          The bill would waive the requirement for a risk spreading
    mechanism if all individual health plans available in the
    market are also available to eligible individuals.
          It would provide that if the Secretary determines that
    the state alternative mechanism fails to meet the above
    criteria, or if the state mechanism is no longer being
    implemented, the Secretary would have to notify the Governor of
    the failure to meet the goals of portability and renewability,
    and permit the state to come into compliance. Federal
    individual health plan portability rules would apply if the
    state still does not meet these criteria. Under these rules, a
    plan issuer could not, with respect to an eligible individual,
    decline to offer coverage to or deny enrollment of the
    individual or impose a limitation or exclusion of benefits,
    otherwise available under the plan, for which coverage was
    available under the group health plan or employee health
    benefit plan in which the person was previously enrolled. (This
    would not prevent a health plan issuer from establishing
    premium discounts or modifying otherwise applicable copayments
    or deductibles in return for adherence to programs of health
    promotion or disease prevention.)
          Future adoptions of a state mechanism would be subject to
    the same procedures of: (1) notification of the Secretary; and
    (2) determination of satisfaction of criteria for compliance,
    except in the cases of adoption of the NAIC model or high risk
    pool.
    Conference agreement
          The conference agreement provides that if the Secretary
    finds that the state mechanism is not acceptable or is no
    longer being implemented, the Secretary must notify the state
    of the preliminary determination and consequences of failure to
    implement an acceptable mechanism. The state will have a
    reasonable opportunity to modify the mechanism, or adopt a new
    mechanism. If the Secretary finds that the state mechanism is
    not acceptable, or is not being implemented, the Secretary must
    notify the state of the effective date of federal requirements
    for guaranteed availability. Each issuer would then be required
    to guarantee issue health insurance coverage to any individual,
    but could limit coverage to 2 policy forms as outlined in
    section IV(C) above. Secretarial authority would be limited to
    determinations based only on whether a state mechanism is not
    an acceptable alternative mechanism or is not being
    implemented. It is the intent of Congress that the risk
    adjustment, risk spreading, risk spreading mechanism and
    financial subsidization standards provide meaningful financial
    protection and assistance for eligible individuals, both in the
    case of a state alternative system and alternative coverage
    provided under section 2741(c).

     h. construction (premiums, market requirements, association coverage
                                 and marketing)

    Current law
          No provision.
    House bill
          The House bill would provide that insurers or HMOs are
    free to determine the premiums for individual health insurance
    coverage under applicable state law. Insurers or HMOs which
    only insure groups or associations would not be required to
    offer individual health insurance coverage. Insurers or HMOs
    that offer conversion policies in connection with a group
    health plan would not be required to offer individual coverage.
    Insurers or HMOs that offer coverage only in connection with a
    group health plan or in connection with individuals based on
    affiliation with one or more bona fide associations would not
    be considered to be offering individual coverage.
          A state could require that insurers or HMOs offering
    individual coverage actively market this coverage.
    Senate bill
          The Senate Amendment is similar but did not include a
    provision relating to associations.
    Conference agreement
          Premiums that an issuer may charge an individual for
    individual health insurance coverage are not restricted by the
    conference agreement, but must comply with state law. The
    health insurance issuer may establish premium discounts or
    rebates, or modify otherwise applicable copayments or
    deductibles in return for adherence to programs of health
    promotion and disease prevention.
          Under the conference agreement, health insurance issuers
    offering health insurance coverage in connection with group
    health plans, or through one or more bona fide associations, or
    both, are not required to offer health insurance coverage in
    the individual market. A health insurance issuer offering group
    health coverage is not considered to be a health insurance
    issuer offering individual health insurance coverage solely
    because the issuer offers a conversion policy.

       i. enforcement of requirements on individual insurers, hmo's, and
                              health plan issuers

    Current law
          Under section 502 of ERISA, employee benefit plans that
    fail to comply with applicable requirements can be sued for
    relief and be subject to civil money penalties, and can be sued
    to recover any benefits due under the plan. Section 504 of
    ERISA provides the Secretary of Labor with investigative
    authority to determine whether any person is out of compliance
    with the law's requirements. Section 506 provides for
    coordination and responsibility of agencies in enforcement.
    Section 510 prohibits a health plan from discriminating against
    a participant or beneficiary for exercising any right under the
    plan.
    House bill
          Noncomplying insurers and HMOs would be subject to
    enforcement through federal civil money penalties (in the same
    manner as imposed above (see item II(G)) but only in the event
    that the Secretary of HHS has determined that the state in
    which the insurer or HMO is selling coverage is not providing
    for enforcement.
    Senate amendment
          Noncomplying individual health plans offered by a health
    plan issuer would be subject to state enforcement. Each state
    would require each individual health plan issued, sold,
    renewed, or offered for sale or operated in the state by a
    health plan issuer to meet the Act's standards pursuant to an
    enforcement plan filed with the Secretary of Labor. The state
    would be required to submit such information as required by the
    Secretary demonstrating effective implementation of the
    enforcement plan. In the event that the state failed to
    substantially enforce the Act's standards and requirements, the
    Secretary of Labor, in consultation with the Secretary of HHS,
    would implement an enforcement plan. Issuers would then be
    subject to civil enforcement as provided under sections 502,
    504, 506 and 510 of ERISA. The Secretary of Labor could issue
    such regulations as needed to carry out this Act.
    Conference agreement
          Each state may require health insurance issuers that
    issue, sell, renew, or offer health insurance coverage in the
    individual market to meet the requirements under this part with
    respect to such issuers. If a state fails to substantially
    enforce the federal requirements, the Secretary will provide
    enforcement in the same manner as in the small group market
    (see section II(G) above).

                   V. Multiple Employer Pooling Arrangements

    A. Clarification of duty of the Secretary of Labor to implement current
    law providing for exemptions from State regulation of multiple employer
                              health plans (MEHPS)

    Current law
          Section 3(40) of ERISA defines a multiple employer
    welfare benefit plan, or any other arrangement which offers or
    provides health benefits and meets additional criteria, (e.g.,
    it must offer such benefits to the employees of 2 or more
    employers and cannot be a plan established under a collective
    bargaining agreement, a rural electric cooperative, or rural
    telephone cooperative association). Two or more trades or
    businesses, whether or not incorporated, are deemed a single
    employer and thus not a MEWA if such trades or businesses are
    within the same control group.
          Section 514 of ERISA treats fully-insured MEWAs
    differently from those that are not fully-insured (i.e., that
    are partly or fully- self-insured). With respect to a fully-
    insured MEWA, a state may apply and enforce its insurance laws
    (section 514(b)(6)(A)(i)). With respect to a not-fully-insured
    MEWA, a state may apply and enforce its insurance laws so long
    as such laws or regulations are not inconsistent with ERISA
    (section 514(b)(6)(A)(ii). Section 514(b)(6)(B) provides that
    the Department of Labor (DOL) may issue an exemption from state
    law with respect to non-fully-insured MEWAs. (No such
    exemptions have been issued.)
    House bill
          The House bill would add a new Part 7 (Rules Governing
    State Regulation of Multiple Employer Health Plans) to Title I
    of ERISA.
          It would define the following terms: insurer, fully-
    insured, HMO, participating employer, sponsor, and state
    insurance commissioner. The House bill would define a multiple
    employer health plan as a MEWA which provides medical care and
    which is or has been exempt under section 514(b)(6)(B) of
    ERISA.
          The bill clarifies the conditions under which multiple
    employer health plans (MEHPs)--non-fully-insured multiple
    employer arrangements providing medical care--may apply for an
    exemption from certain state laws. It provides that only
    certain legitimate association health plans and other
    arrangements (described below) which are not fully insured are
    eligible for an exemption. This is accomplished by clarifying
    the duty of the Secretary of Labor to implement the provisions
    of current law section 514(b)(6)(B) to provide exemption from
    state law for MEHPS.
          The bill would establish criteria which a not fully-
    insured arrangement must meet to qualify for an exemption and
    thus become a MEHP. The Secretary could grant an exemption to
    an arrangement only if: (1) a complete application has been
    filed, accompanied by the filing fee of $5,000; (2) the
    application demonstrates compliance with requirements
    established in new sections 703 and 704 described below; (3)
    the Secretary finds that the exemption is administratively
    feasible, not adverse to the interests of the individuals
    covered under it, and protective of the rights and benefits of
    the individuals covered under the arrangement, and (4) all
    other terms of the exemption are met (including financial,
    actuarial, reporting, participation, and such other
    requirements as may be specified as a condition of the
    exemption). The application must include: (1) identifying
    information about the arrangement and the states in which it
    will operate; (2) evidence that ERISA's bonding requirements
    will be met; (3) copies of all plan documents and agreements
    with service providers; (4) a funding report indicating that
    the reserve requirements of new section 705 will be met, that
    contribution rates will be adequate to cover obligations, and
    that a qualified actuary (a member in good standing of the
    American Academy of Actuaries or an actuary meeting such other
    standards the Secretary considers adequate) has issued an
    opinion with respect to the arrangement's assets, liabilities,
    and projected costs; and (5) any other information prescribed
    by the Secretary. Exempt arrangements must notify the Secretary
    of any material changes in this information at any time, must
    file annual reports with the Secretary, and must engage a
    qualified actuary.
          In addition, the bill would provide for a class exemption
    from section 514(b)(6)(B)(ii) of ERISA for large MEHPs that
    have been in operation for at least five years on the date of
    enactment. An arrangement would qualify for this class
    exemption if, in addition to all other requirements: (1) at the
    time of application for exemption; the arrangement covers at
    least 1,000 participants and beneficiaries, or has at least
    2,000 employees of eligible participating employers ; (2) a
    complete application has been filed and is pending; and (3) the
    application meets requirements established by the Secretary
    with respect to class exemptions. Class exemptions would be
    treated as having been granted with respect to the arrangement
    unless the Secretary provide appropriate notice that the
    exemption has been denied.

      1. Requirements relating to MEHP sponsors, board of trustees, plan
                        operations, and covered persons

          The House bill would establish eligibility requirements
    for MEHPs. Applications must comply with requirements
    established by the Secretary. They must demonstrate that the
    arrangement's sponsor has been in existence for a continuous
    period of at least 5 years and is organized and maintained in
    good faith, with a constitution and by laws specifically
    starting its purpose and providing for at least annual
    meetings, as a trade association, an industry association, a
    professional association, or a chamber of commerce (or similar
    business group, including a corporation or similar organization
    that operates on a cooperative basis within the meaning of
    section 1381 of the IRC) for purposes other than that of
    obtaining or providing medical care. Also, the applicant must
    demonstrate that the sponsor is established as a permanent
    entity, has the active support of its members, and collects
    dues from its members without conditioning such on the basis of
    the health status or claims experience of plan participants or
    beneficiaries or on the basis of the member's participation in
    the MEHP.
          The bill would require that the arrangement be operated,
    pursuant to a trust agreement, by a ``board of trustees'' which
    has complete fiscal control and which is responsible for all
    operations of the arrangement. The board of trustees must
    develop rules of operation and financial control based on a
    three-year plan of operation which is adequate to carry out the
    terms of the arrangement and to meet all applicable
    requirements of the exemption and Title I of ERISA.
          With respect to covered persons, the bill would require
    that all employers who are association members be eligible for
    participation under the terms of the plan. Eligible individuals
    of such participating employers cannot be excluded from
    enrolling in the plan because of health status (as required
    under section 103 of the Act as described in item I-(B) above).
    The rules also stipulate that premium rates established under
    the plan with respect to any particular participating employer
    cannot be based on the claims experience of the particular
    employer.

                  2. Additional entities eligible to be MEHPs

          In addition to the associations described above, certain
    other entities would be provided eligibility to seek an
    exemption as MEHPs under section 514(b)(6)(B). These include
    (1) franchise networks (section 703(b)), (2) certain existing
    collectively bargained arrangements which fail to meet the
    statutory exemption criteria (section 703(c)), and (3) certain
    arrangements not meeting the statutory exemption criteria for
    single employer plans (section 703(d)). (Section 709 of ERISA,
    added by section 166 of this subtitle, also makes eligible
    certain church plans electing to seek an exemption.)

                      3. Other requirements for exemption

          The House bill would require a MEHP to meet the following
    additional requirements: (1) its governing instruments must
    provide that the board of trustees serves as the named
    fiduciary and plan administrator, that the sponsor serves as
    plan sponsor, and that the reserve requirements of new section
    705 are met; (2) the contribution rates must be adequate, and
    (3) any other requirements set out in regulations by the
    Secretary of Labor must be met.

                           4. Maintenance of reserves

          The House bill would require that MEHPs establish and
    maintain reserves sufficient for unearned contributions,
    benefit liabilities incurred but not yet satisfied, and for
    which risk of loss has not been transferred, expected
    administrative costs, and any other obligations and margin for
    error recommended by the qualified actuary. The minimum
    reserves must be no less than 25% of expected incurred claims
    and expenses for the year or $400,000, whichever is greater.
    The Secretary may provide additional requirements relating to
    reserves and excess/stop loss coverage and may provide
    adjustments to the levels of reserves otherwise required to
    take into account excess/stop loss coverage or other financial
    arrangements. The bill provides for an alternative means of
    compliance in which the Secretary could permit an arrangement
    to substitute, for all or part of the requirements of this
    section, such security, guarantee, hold-harmless arrangement,
    or other financial arrangement as the Secretary of Labor
    determined to be adequate to enable the arrangement to fully
    meet its financial obligations on a timely basis.

                5. Notice requirements for voluntary termination

          The House bill would provide that, except as permitted in
    new section 707 below, a MEHP may terminate only if the board
    of trustees provides 60 days advance written notice to
    participants and beneficiaries and submits to the Secretary a
    plan providing for timely payment of all benefit obligations.

                6. Corrective actions and mandatory termination

          The House bill would require a MEHP to continue to meet
    the reserve requirements even if its exemption is no longer in
    effect. The board of trustees must quarterly determine whether
    the reserve requirements of new section 705 (as described
    above) are being met and, if they are not, must, in
    consultation with the qualified actuary, develop a plan to
    ensure compliance and report such information to the Secretary.
    In any case where a MEHP notifies the Secretary that it has
    failed to meet the reserve requirements and corrective action
    has not restored compliance, and the Secretary of Labor
    determines that the failure will result in a continuing failure
    to pay benefit obligations, the Secretary may direct the board
    to terminate the arrangement and take action needed to ensure
    that the arrangement's affairs are resolved in a manner which
    will result in timely provision of all benefits for which the
    arrangement is obligated.

                     7. Temporary application of state laws

          a. Provides for exclusion of arrangements from the small
    group market in any state upon the state's certification of
    guaranteed access to health insurance coverage in such state
    (i.e, state opt-out). Provides that a state which certifies to
    the Secretary that it provides guaranteed access to health
    coverage may deny a MEHP the right to offer coverage in the
    small group market (or otherwise regulate such MEHP with
    respect to such coverage), except as described below. The
    certification triggering the state opt-out could be in effect
    no longer than 3 years.
          A state is considered to provide such guaranteed access,
    if (1) the state certifies that at least 90% of all state
    residents are covered by a group health plan or otherwise have
    health insurance coverage, or (2) the state has, in the small
    group market, provided for guaranteed issue of at least one
    standard benefits package and for rating reforms designed to
    make health insurance coverage more affordable. In states
    without such guaranteed access, MEHPs could offer coverage in
    the small group market in the state as long as they met the
    standards set forth in Part 7 (as established by this
    subtitle).
          b. Provides for exceptions to the exclusion of MEHPs from
    state small group markets. Provides a limited exception to the
    state opt out for certain large, multi-state arrangements. The
    State opt out would not apply to new and existing MEHPs that
    meet the following criteria: (1) the sponsor operates in a
    majority of the 50 states and in at least 2 of the regions of
    the country; (2) the arrangement covers or will cover at least
    7,500 participants and beneficiaries; and (30 at the time the
    application to become a MEHP is filed, the arrangement does not
    have pending against it any enforcement action by the state. In
    addition, the state opt out would not apply in a state in which
    an arrangement meeting the MEHP standards operates on March 6,
    1996, to the extent a state enforcement action is not pending
    against such an entity at the time an application for an
    exemption is made.
          The above two exceptions do not apply to any state which,
    as of January 1, 1996, either (1) has enacted a law providing
    for guaranteed issue of fully community rated individual health
    insurance coverage offered by insurers and HMOs, or (2)
    requires insurers offering group health coverage to reimburse
    insurers offering individual coverage for losses resulting from
    their offering individual coverage on an open enrollment basis.
    Regulations may also provide for an exemption to the
    application of state law for certain single industry plans.
          c. Premium tax assessment authority with respect to new
    arrangements. Provides that a state could assess new
    association-based MEHPs (formed after March 6, 1996)
    nondiscriminatory state premium taxes set at a rate no greater
    than that applicable to any insurer or health maintenance
    organization offering health insurance coverage in the state.
    MEHPs existing as of March 6, 1996 would remain exempt from
    state premium taxes. However, if they expanded into a new
    state, the state could apply the above rule.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                   VI. State Authority Over Non-Exempt MEWAs

    Current law
          Under section 514(6)(A) of ERISA, a state may apply and
    enforce state insurance laws with respect to a MEWA so long as
    the law or regulation is not inconsistent with ERISA.
    House bill
          The House bill would provide that states have the
    authority under ERISA to regulate without limitation non-fully-
    insured MEWAs which are not provided an exemption under new
    Part 7 of ERISA (see item V above). In other words, states can
    continue to regulate MEWAs that are not MEHPs.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                  VII. Additional MEWA and Related Provisions

         A. Clarification of treatment of single-employer arrangements

    Current law
          Section 3(40) of ERISA defines a MEWA and specifies the
    conditions under which two or more trades or businesses shall
    be deemed a single employer, if such trades or businesses are
    within the same control group. Common control could not be
    based on an interest of less than 25%.
    House bill
          The House bill would modify the treatment of certain
    single employer arrangements under section 3(40) of ERISA. The
    treatment of a single employer plan as being excluded from the
    definition of a MEWA (and thus from state law) is clarified by
    defining the minimum interest required for two or more entities
    to be in ``common control'' as a percentage which cannot be
    required to be greater than 25%. Also a plan would be
    considered a single employer plan if less than 25% of the
    covered employees are employed by other participating
    employers.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

        b. clarification of treatment of certain collectively-bargained
                                  arrangements

    Current law
          Under section 3(40) of ERISA, a MEWA is defined not to
    include any plan or arrangement which is established or
    maintained under or pursuant to one or more agreements which
    the Secretary finds to be collective bargaining agreements, or
    by a rural electric cooperative. (No such Secretarial finding
    has ever been issued).
    House bill
          The House bill would establish the conditions under which
    multiemployer and other collectively-bargained arrangements are
    exempted from the MEWA definition, and thus exempt from state
    law. Amends the definition of a MEWA to exclude a plan or
    arrangement which is established or maintained under or
    pursuant to a collective bargaining arrangement (as described
    in the National Labor Relations Act, the Railway Labor Act, and
    similar state public employee relations laws). It then
    specifies additional conditions which must be met for such a
    plan to be a statutorily excluded collectively bargained
    arrangement and thus not a MEWA.
          These conditions include: (1) The plan cannot utilize the
    services of any licensed insurance agent or broker to solicit
    or enroll employers or pay a commission or other form of
    compensation to certain persons that is related to the volume
    or number of employers or individuals solicited or enrolled in
    the plan; (2) a maximum 15 percent rule applies to the number
    of covered individuals in the plan who are not employees (or
    their beneficiaries) within a bargaining unit covered by any of
    the collective bargaining agreements with a participating
    employer or who are not present or former employees (or their
    beneficiaries) of sponsoring employee organizations or
    employers who are or were a party to any of the collective
    bargaining agreements (provides for a higher maximum in the
    case of certain plans or arrangements in existence as of the
    date of enactment); and (3) the employee organization or other
    entity sponsoring the plan or arrangement must certify annually
    to the Secretary the plan has met the previous requirements.
          If the plan or arrangement is not fully insured, it must
    be a multiemployer plan meeting specific requirements of the
    Labor Management Relations Act (i.e., the requirement for joint
    labor-management trusteeship under section 302(c)(5)(B)).
          If the plan or arrangement is not in effect as of the
    date of enactment, the employee organization or other entity
    sponsoring the plan or arrangement must have existed for at
    least 3 years or have been affiliated with another employee
    organization in existence for at least 3 years, or demonstrates
    to the Secretary that certain of the above requirements have
    been met.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                          c. treatment of church plans

    Current law
          Section 4(b)(2) of ERISA exempts from its requirements
    church plans that do not elect to participate in qualified
    pension plans under the IRC.
    House bill
          The House bill would add a new section 709 to ERISA
    treating certain church plans (including a church, convention
    or association of churches or similar organization) as a MEWA
    and permitting such plans to voluntarily elect to apply to the
    Department of Labor for an exemption from state laws that would
    otherwise apply to a MEWA under section 514(b)(6)(B) and in
    accordance with new ERISA Part 7. An exempted church plan
    would, with certain exceptions, have to comply with the
    provisions of ERISA Title I in order to receive an exception
    from state law. The election to be covered by ERISA would be
    irrevocable. A church plan is covered under this section if the
    plan provides benefits which include medical care and some or
    all of the benefits are not fully insured. (Certain provisions
    of ERISA, such as its COBRA continuation coverage requirements,
    would not apply to the church plans described herein.)
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                  d. enforcement provisions relating to mewas

    Current law
          MEWAs are subject to ERISA's enforcement and other
    provisions of title I.
    House bill
          The House bill would amend ERISA to establish enforcement
    provisions relating to the multiple employer elements of the
    bill: (1) a civil penalty would apply for failure of MEWAs to
    file registration statements; (2) state enforcement would be
    authorized through Federal courts with respect to violations by
    multiple employer health plans, subject to the existence of
    enforcement agreements between the states and the federal
    government; (3) willful misrepresentation that an entity is an
    exempted MEWA or collectively-bargained arrangement could
    result in criminal penalties; (4) cease activity orders could
    be issued for arrangements found to be neither licensed,
    registered, or otherwise approved under State insurance law, or
    operating in accordance with the terms of an exemption granted
    by the Secretary under new part 7; and (5) provides that each
    MEHP require its fiduciary or board of trustees to comply with
    the required claims procedure under ERISA.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

              e. cooperation between federal and state authorities

    Current law
          Section 506 of ERISA provides for coordination between
    the Department of Labor and other federal agencies in the
    enforcement of ERISA. The Secretary is authorized to use the
    facilities or services of the states, with the consent of the
    affected departments, agencies, or establishments in enforcing
    ERISA.
    House bill
          The House bill would amend section 506 of ERISA to
    specify State responsibility with respect to self-insured MEHPs
    and voluntary health insurance associations (VHIAs). A State
    could enter into an agreement with the Secretary for delegation
    to the State of some or all of the Secretary's authority to
    enforce provisions of ERISA applicable to exempted MEHPs or to
    VHIAs. The Secretary would be required to enter into the
    agreement if the Secretary determined that delegation to the
    State would not result in a lower level or quality of
    enforcement. However, if the Secretary delegated authority to a
    State, the Secretary could continue to exercise such authority
    concurrently with the State. The Secretary would be required to
    provide enforcement assistance to the States with respect to
    MEWAs.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

        f. filing and disclosure requirements for mewas offering health
                                    benefits

    Current law
          ERISA provides for certain reporting and disclosure
    requirements.
    House bill
          The reporting and disclosure requirements of ERISA would
    be amended to require MEWAs offering health benefits to file
    with the Secretary a registration statement within 60 days
    before beginning operations (for those starting on or after
    January 1, 1997) and no later than February 15 of each year. In
    addition, MEWAs providing medical care would be required to
    issue to participating employers certain information including
    summary plan descriptions, contribution rates, and the status
    of the arrangement (whether fully-insured or an exempted self-
    insured plan).
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

            g. single annual filing for all participating employers

    Current law
          Section 110 of ERISA provides for alternative methods of
    compliance with reporting and disclosure requirements to those
    specified in previous sections of the law.
    House bill
          This section would amend ERISA's section 110 to provide
    for a single annual filing for all participating employers of
    fully insured MEWAs.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                      h. effective dates/transition rules

    Current law
          No provision.
    House bill
          The House bill would provide that in general, the
    amendments made by this title would be effective January 1,
    1998. In addition, the Secretary would be required to issue all
    regulations needed to carry out the amendments before January
    1, 1998.
          The bill would provide for transition rules for self-
    insured MEWAs which meet the requirements of Part 7 and which
    are in operation as of the effective date so that those
    applying to the Secretary for an exemption from State
    regulation are deemed to be excluded for a period not to exceed
    18 months unless the Secretary denies the exemption or finds
    the MEWAs application deficient, provided that the arrangement
    does not have pending against it an enforcement action by a
    state. The Secretary could revoke the exemption at any time if
    it would be detrimental to the interests of individuals covered
    under the Act.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

     VIII. Voluntary Health Insurance Associations/Health Plan Purchasing
                              Cooperatives (HPPCs)

    Current law
          While the states regulate insurance sold to purchasing
    cooperatives, a purchasing cooperative that is also a MEWA is
    also regulated under ERISA. Under ERISA, a state may apply and
    enforce its insurance laws with respect to fully-insured MEWAs.
          As of December 1995, 15 states had enacted laws relating
    to voluntary purchasing alliances/cooperatives.
    House bill
          The House bill would add a new subsection (d) to section
    514 of ERISA defining under ERISA voluntary health insurance
    associations and establishing federal requirements for such
    associations. Associations meeting these requirements would be
    exempt from specific state laws.
    Senate amendment
          The Senate Amendment would provide for limited exemptions
    from state laws for health insurance purchasing cooperatives
    that meet the requirements established by this section.
    Conference agreement
          The conference agreement does not include the House or
    Senate provision.

                     a. definitions/nature of organization

    Current law
          No provision.
    House bill
          The House bill would define a voluntary health insurance
    association as a multiple employer welfare arrangement,
    maintained by a qualified association, under which all medical
    benefits are fully-insured, under which no employer is excluded
    as a participating employer (subject to minimum participation
    requirements of an insurer), under which the enrollment
    requirements of section 103 of the Act apply (see item II
    above), under which all health insurance coverage options are
    aggressively marketed, and under which the health insurance
    coverage is provided by an insurer or HMO to which the laws of
    the state in which it operates apply.
          A qualified association would be an association in which
    the sponsor of the association is, and has been (together with
    its immediate predecessor, if any) for a continuous period of
    not less than 5 years, organized and maintained in good faith,
    with a constitution and bylaws specifically stating its
    purpose, as a trade association, an industry association, a
    professional association, or a chamber of commerce (or similar
    business group), for substantial purposes other than that of
    obtaining or providing medical care, is established as a
    permanent entity which receives the active support of its
    members and meets at least annually, and collects dues without
    conditioning such dues on the basis of the health status or
    claims experience of plan participants or beneficiaries or on
    the basis of participation in a VHIA.
          A ``small employer'' would be defined as one who employs
    at least 2 but fewer than 51 employees on a typical business
    day in the year.
    Senate amendment
          The Senate Amendment would define a ``health plan
    purchasing cooperative'' or HPPC to mean 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 an individual health plan or
    group health plans offered by health plan issuers.
          An HPPC could not: (a) perform any activity relating to
    the licensing of health plan issuers; (b) assume financial risk
    directly or indirectly (that is, it would have to be fully-
    insured); (c) 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; (d)
    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, or (e) perform any
    other activities that conflict or are inconsistent with the
    performance of its duties under this Act. A for-profit
    cooperative could be formed by a nonprofit organization or
    organizations in which: (1) 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 (2)
    that accepts as members all employers or individuals on a
    first-come, first-serve basis, subject to any established limit
    on the maximum size of an employer that may become a member.
    Conference agreement
          The conference agreement does not include the House or
    Senate provision.

                                b. certification

    Current law
          No provision.
    House bill
          No provision.
    Senate agreement
          The Senate Amendment would provide that a state certify a
    group as a HPPC if it appropriately notifies the state and the
    Secretary of Labor that it wants to form a HPPC under the
    requirements of this section. The state would be required to
    determine in a timely fashion whether the group is in
    compliance with the section's requirements and to oversee the
    operations of the HPPC to ensure continued compliance with the
    requirements. Each certified HPPC would have to register with
    the Secretary of Labor.
          If a state failed to implement a HPPC certification
    program in accordance with this Act's standards, the Secretary
    of Labor would certify and oversee the HPPCs in that state.
          However, the Secretary would not certify a HPPC if, upon
    submission of an application of the state to the Secretary, the
    Secretary determined that a state law was in effect on the date
    of enactment of this Act providing that all small employers in
    the state had a means readily available that ensured: (a) that
    individuals and employees had a choice of multiple,
    unaffiliated health plan issuers; (b) that health plan coverage
    was subject to state premium rating requirements that were not
    based on the health and other risk factors described above and
    that contained a mandatory minimum loss ratio; (c) that
    comparative health plan materials were disseminated (including
    information about cost, quality, benefits, and other
    information); and that (d) the state program otherwise met the
    objectives of this Act.
          A HPPC operating in more than one state would be
    certified by the state in which the cooperative was domiciled.
    States could enter into cooperative agreements for the purpose
    of overseeing a HPPC's operation. A HPPC would be considered to
    be domiciled in the state in which most of the members of the
    HPPC reside.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

               c. structure and responsibilities of organization

    Current law
          No provision.
    House bill
          The House bill would provide that VHIAs and qualified
    associations meet certain conditions (described in items
    VIII(A) and VIII(D)) to qualify as a VHIA and therefore for
    exemption from state insurance laws.
    Senate amendment
          The Senate Amendment would provide for the following
    requirements for HPPCs:
          I. Board of Directors.--Requires each HPPC to be governed
    by a board of directors that would be responsible for ensuring
    the performance of the HPPC. The board would have to be
    composed of a cross-section of representatives of employers,
    employees, and individuals participating in the HPPC. The board
    members could not be compensated but could receive
    reimbursement for reasonable and necessary expenses incurred in
    performing their HPPC responsibilities.
          2. Membership and marketing area.--Permits a HPPC to
    establish limits on the maximum size of employers who could
    become members and to determine whether to allow individuals to
    be members. Once membership limits were established, the HPPC
    would be required to accept all employers (or individuals)
    residing within the area served by the HPPC who met the
    membership requirements on a first-come, first-served basis, or
    on another basis established by the state to ensure equitable
    access to the HPPC.
          3. Duties and responsibilities.--Requires a HPPC to: (a)
    objectively evaluate potential health plan issuers and enter
    into agreements with multiple, unaffiliated ones, except that
    this requirement would not apply in regions, such as remote or
    frontier areas, where compliance was not possible; (b) enter
    into agreements with employers and individuals who become
    members; (c) participate in any program of risk-adjustment or
    reinsurance, or any similar program established by the state;
    (d) prepare and disseminate comparative health plan materials
    concerning the plans offered through the HPPC; (e) broadly
    solicit and actively market to all eligible employers and
    individuals residing within the service area; and (f) act as an
    ombudsman for enrollees.
          4. Permissible activities.--Permits a HPPC to perform
    other functions as needed to further the purposes of this Act,
    such as: (a) collecting and distributing premiums and
    performing other administrative functions; (b) collecting and
    analyzing surveys of satisfaction; (c) charging fees for
    membership and participation fees to issuers; (d) cooperating
    with (or accepting as members) employers who provide health
    benefits directly but only for the purpose of negotiating with
    providers; and (5) negotiating with health care providers and
    health plan issuers.
          5. Limitation on cooperative activities.--see item
    VIII(A) above.
          6. Conflict of interest.--Prohibits any individual,
    partnership, or corporation from serving on the HPPC board,
    being employed by or receiving compensation from the HPPC, or
    initiating or financing a HPPC if such individual, partnership,
    or corporation (a) fails to discharge the duties and
    responsibilities in a manner that is solely in the interest of
    the members; or (b) derives personal benefit from the sale of,
    or financial interest in, health plans, services, or products
    sold through the HPPC. However, a HPPC could contract with
    third parties to provide administrative, marketing, consultive,
    or other services.
    Conference agreement
          The conference agreement does not include the House or
    Senate provision.

                          d. preemption of state laws

    Current law
          Section 514(a) of ERISA preempts state laws relating to
    employee benefit plans. Section 514(b)(2) of ERISA provides
    that state laws apply in the case of the regulation of
    insurance.
    House bill
          The House bill would amend section 514 of ERISA to
    preempt the following state laws: (1) laws that preclude an
    insurer or HMO from offering health insurance coverage under
    VHIAs; (2) laws that preclude an insurer or HMO from setting
    premium rates under a VHIA based on the claims experience of
    the VHIA (except the VHIA's premium rates could not vary on the
    basis of any particular employer's claims experience); (3) laws
    that require coverage in connection with a VHIA to include
    specific items or services of medical care or that require an
    insurer or HMO offering coverage in connection with a VHIA to
    include specific item or services consisting of medical care,
    except to the extent that such state laws prohibit an exclusion
    for a specific disease in such coverage. This preemption of
    mandated benefits would apply only with respect to those items
    and services specified in a list which would be prescribed in
    regulations by the Secretary of Labor.
          In general, states would be able to apply their laws if
    they had in place guaranteed access measures meeting certain
    conditions. A state which certified to the Secretary that it
    provided ``guaranteed access'' to health coverage could deny a
    VHIA the right to offer coverage in the small group market (or
    otherwise regulate such VHIA with respect to such coverage),
    except as described below. (The certification could not be in
    effect for more than 3 years.)
          A state would be considered to provide such guaranteed
    access, if (1) it certified that at least 90% of all state
    residents were covered by a group health plan or otherwise had
    health insurance coverage, or (2) that it had, in the small
    group market, provided for guaranteed issue of at least one
    option of coverage and for small group rating reforms designed
    to make health insurance coverage more affordable. However, an
    exception to this provision would apply for certain large,
    multi-state arrangements that demonstrated to the Secretary
    that it met the following criteria. In other words, state laws
    would not apply if: (1) the VHIA sponsor operates in a majority
    of the 50 states and in at least 2 of the regions of the
    country; (2) the arrangement covers or will cover (in the case
    of new VHIAs) at least 7,500 participants and beneficiaries;
    and (3) under the terms of the arrangement, either the
    qualified association does not exclude from membership any
    small employer in the state, or the arrangement accepts every
    small employer in the state that applies for coverage. In
    addition, state laws would not apply in a state in which a VHIA
    operated on March 6, 1996 and under the terms of the
    arrangement, either the qualified association does not exclude
    from membership any small employer in the state, or the
    arrangement accepts every small employer in the state that
    applies for coverage.
          The exemption from state laws for multistate plans and
    existing plans would not apply to any state which, as of
    January 1, 1996, either (1) had enacted a law providing for
    guaranteed issue of fully community rated individual health
    insurance coverage offered by insurers and HMOs, or (2)
    required insurers offering group health coverage to reimburse
    insurers offering individual coverage for losses resulting from
    their offering individual coverage on an open enrollment basis.
    In other words, such states could apply their insurance laws.
    Senate amendment
          The Senate Amendment would provide that HPPCs that meet
    the requirements of this Act would be exempt from state
    fictitious group laws.
          A health plan issuer offering a group or individual
    health plan through a HPPC meeting the requirements of this Act
    would be required to comply with all otherwise applicable state
    rating requirements if the plan were to be offered outside the
    cooperative except a state would be required to permit an
    issuer to reduce its premiums negotiated with a HPPC to reflect
    savings derived from administrative costs, marketing costs,
    profit margins, economies of scale, or other factors. However,
    such premium reductions could not be based on the health
    status, demographic factors, industry type, duration, or other
    indicators of risk of HPPC members.
          Health plan issuers offering coverage through the HPPC
    would be required to comply with state mandated benefit laws.
    However, in states that have enacted laws authorizing
    alternative benefit plans for small employers, such issuers
    could offer such small employer plan through a HPPC.
    Conference agreement
          The conference agreement does not include the House or
    Senate provision.

                            e. rules of construction

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment would provide that nothing in this
    section should be construed to: (1) require that a state
    organize, operate, or create HPPCs; (2) otherwise establish
    HPPCs; (3) require individuals, plan sponsors, or employers to
    purchase coverage through a HPPC; (4) preempt a state from
    requiring licensure for individuals who are involved in
    directly supplying advice or selling health plans on behalf of
    a HPPC; (5) require that a HPPC 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 benefit
    plans; (7) confer authority upon a state (or the federal
    government) that it would not otherwise have to regulate group
    purchasing arrangements, coalitions, association plans, or
    similar entities that do not desire to become a HPPC; or (8)
    except as specifically provided for above, prevent the
    application of state laws and regulations otherwise to health
    plan issuers offering coverage through a HPPC.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

                          f. enforcement through erisa

    Current law
          Part 4 of subtitle B of title I of ERISA provides for
    fiduciary responsibilities, including the fiduciary duties of a
    plan sponsor and prohibited transactions; part 5 provides for
    administration and enforcement, including criminal and civil
    penalties.
    House bill
          The House bill contains no specific provision (but as
    MEWAs, VHIAs would be subject to ERISA requirements including
    those related to fiduciary responsibilities and administration
    and enforcement, including enforcement of the new VHIA rules as
    added by this subtitle.)
    Senate amendment
          The Senate Amendment would provide that for enforcement
    purposes only, that parts 4 and 5 of subtitle B of title I of
    ERISA apply to a HPPC as if such plan were an employee benefit
    plan.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

                  IX. Additional Definitions/Other Provisions

    Current law
          Section 3 of ERISA defines numerous terms relating to
    pension and employee welfare benefit plans.
    House bill
          The House bill:
          A. Defines the following terms: group health plan,
    including treatment of governmental and church plans, and
    defines Medicaid, medicare, and the Indian Health Service
    programs as group health plans.
          B. Incorporates specific ERISA definitions such as
    beneficiary, participant, employee, and employer.
          C. Provides additional definitions including applicable
    state authority, bona fide association, COBRA continuation
    provision, health insurance coverage, health maintenance
    organization, health status, individual health insurance
    coverage, insurer, medical care network plan, and waiting
    period.
          D. Provides for the treatment of partnerships.
          E. Provides definitions related to markets and small
    employers, including individual market, large group market,
    small employer and small group market.
    Senate bill
          The Senate Amendment:
          A. Defines an employee health benefit plan to include a
    governmental or church plan. An employee health benefit plan is
    not a group health plan, individual plan, or a health plan.
    Provides different definition for group health plan.
          B. Similarly incorporates many ERISA definitions such as
    that for beneficiary, participant, employee, and employer.
          C. Defines group purchaser and health plan issuer.
    Conference agreement
          The conference agreement:
          A. Defines under ERISA the following terms relating to
    health insurance: health insurance coverage, health insurance
    issuer, health maintenance organization, group health insurance
    coverage, and excepted benefits. Also defines placed for
    adoption.
          B. Defines under PHS Act the following terms relating to
    health insurance: health insurance coverage, health insurance
    issuer, health maintenance organization, group health insurance
    coverage, and excepted benefits.
          C. Defines under the PHS Act: state, applicable state
    authority, state law, beneficiary, and bona fide association.
    Also, provides definitions under the PHS Act relating to
    markets and small employers for: large group market, small
    employer, and small group market.
          D. Provides definitions under ERISA and the PHS Act
    relating to portability for: preexisting condition exclusion,
    enrollment date, late enrollee, waiting period, creditable
    coverage, and affiliation period.
          E. Defines under ERISA and the PHS Act group health plan,
    medical care, COBRA continuation provision, and health status-
    related factor.
          The definition of medical care is intended to parallel
    that of the IRC using current law, and is intended to be broad
    enough to encompass the services of Christian Science
    practitioners, nurses, and sanatoriums and nursing facilities.
          F. Amends ERISA to provide for the treatment of
    partnerships.
          G. Incorporates in the PHS Act specific ERISA definitions
    such as employee, employer, beneficiary, church plan,
    governmental plan, participant, plan sponsor.
          H. Provides definitions under the PHS Act for federal
    governmental plan, nonfederal governmental plan, and placed for
    adoption.

                               X. Effective Dates

    Current law
          No provision.
    House bill
          The House bill, except as otherwise provided, would apply
    with respect to (a) group health plans, and health insurance
    coverage offered in connection with group health plans, for
    plan years beginning on or after January 1, 1998; (b)
    individual health insurance coverage issued, renewed, in
    effect, or operated on or after July 1, 1998. The bill would
    require the Secretaries of HHS, Treasury, and Labor to jointly
    establish rules regarding the treatment of certain coverage
    periods before the applicable effective dates, and would
    require the 3 Secretaries to issue such regulations on a timely
    basis.
    Senate amendment
          The Senate Amendment, except as otherwise provided, (a)
    with respect to group health plans, would apply to plans
    offered, sold, issued, renewed, in effect, or operated on or
    after January 1, 1997; (b) with respect to individual health
    plans, would apply to plans offered, sold, issued, renewed, in
    effect, or operated on or after the date that is 6 months after
    enactment or January 1, 1997, whichever is later; and (c) with
    respect to employee health benefit plans, would apply on the
    first day of the first plan year beginning on or after January
    1, 1997, whichever is later.
    Conference agreement
          The conference agreement, except as otherwise provided,
    would apply with respect to (a) group health plans, and health
    insurance coverage offered in connection with group health
    plans, for plan years beginning after July 1, 1997; (b)
    individual health insurance coverage offered, sold, issued,
    renewed, in effect, or operated after July 1, 1997. In general,
    group health plans and health plan issuers would be required to
    issue certifications of coverage for periods of coverage after
    July 1, 1996; actual certifications need not be issued before
    October 1, 1996. A special rule directs the Secretaries to
    provide for a process whereby individuals who need to establish
    creditable coverage for periods before July 1, 1996 may be
    given credit through the presentation of documents or other
    means. A special rule would apply to collective bargaining
    agreements.
          A good faith compliance provision is provided with
    respect to a transition period.

                    XI. Health Coverage Availability Studies

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment would require the Secretary of HHS,
    in consultation with the Secretary of Labor, representatives of
    state officials, consumers, and other representatives of
    individuals and entities that have expertise in health
    insurance and employee benefits, to conduct a three-part study
    and prepare and submit reports. (A) By January 1, 1998, the
    Secretary would be required to prepare and submit to Congress
    an evaluation of the various mechanisms used to ensure the
    availability of reasonably priced health coverage and whether
    standards that limit premium variations would further the
    purposes of this Act. (B) No later than January 1, 1999, the
    Secretary would be required to prepare and submit to Congress a
    report concerning the effectiveness of provisions of the Act
    and various state laws in ensuring the availability of
    reasonably priced health coverage. (C) No later than January 1,
    1998, the Secretary would be required to prepare and submit to
    Congress a report (1) evaluating the extent to which patients
    have direct access to, and choice of, health care 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) evaluating the cost to the insurer
    of providing out-of-network access to providers and the
    feasibility of offering out-of-network access under all plans
    offered under this Act; and (3) evaluating the percent of
    premium used for medical care administration of the various
    types of coverage offered.
    Conference agreement
          The conference agreement requires the Secretary of HHS,
    in consultation with the Secretary of Labor, representatives of
    state officials, consumers, and other representatives of
    individuals and entities that have expertise in health
    insurance and employee benefits, to conduct two studies by
    January 1, 2000. The first study, on the effectiveness of
    federal and state reforms, would examine the availability of
    reasonably priced health coverage to employers purchasing group
    coverage and individuals purchasing coverage on a non-group
    basis. The second study, on access and choice, would examine
    the extent to which patients have direct access to, and choice
    of, health care providers, including specialty providers,
    within a network plan, as well as the opportunity to use
    providers outside of the network plan, under the various types
    of coverage offered under the provisions of this title. This
    study will also examine the cost and cost-effectiveness to
    health insurance issuers of providing access to out-of-network
    providers, and the potential impact of providing such access on
    the cost and quality of health insurance coverage offered under
    provisions of this title.

                       XII. Reimbursement of Telemedicine

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate amendment would direct the Health Care
    Financing Administration (HCFA) to complete its 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 would be
    required to use data compiled from the current demonstration
    projects already under review and gather data from other
    ongoing telemedicine networks, and include an analysis of the
    cost of services provided via telemedicine.
    Conference agreement
          The conference agreement directs the HCFA to complete its
    ongoing study of Medicare reimbursement of all telemedicine
    services and submit a report to Congress on reimbursement of
    telemedicine services by March 1, 1997. The report would be
    required to use data compiled from the current demonstration
    projects already under review and gather data from other
    ongoing telemedicine networks, include an analysis of the cost
    of services provided via telemedicine, and include a proposal
    for Medicare reimbursement of telemedicine services.

                 XIII. HMOs and Medical Savings Accounts (MSAs)

    Current law
          Under the Public Health Service Act, federally qualified
    HMOs may require enrollees to pay only nominal copayments and a
    reasonable deductible if services are obtained from an out-of-
    network provider.
    House bill
          No provision, but see Title III, Subtitle A on Medical
    Savings Accounts.
    Senate amendment
          The PHS Act would be amended to allow federally-qualified
    HMOs, at the request of the HMO member, to charge a deductible
    to the HMO member if he or she has an MSA.
          Provides that it is the sense of the Committee on Labor
    and Human Resources that the establishment of MSAs 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.
          Provides that it is the sense of the Senate that Congress
    should take measures to further the purposes of this Act,
    including any necessary changes to the Internal Revenue Code to
    encourage groups and individuals to obtain health coverage, and
    to promote access, equity, portability, affordability, and
    security of health benefits.
    Conference agreement
          The conference agreement amends the PHS Act to allow
    federally qualified HMOs to offer a high-deductible health plan
    as defined in the IRC. All other requirements of the federal
    HMO Act remain in effect.

       XIV. Volunteer Services Provided by Health Professionals at Free
                                    Clinics

          See report language for Title II.

                           XV. Findings; Severability

    Current law
          No provision.
    House bill
          The House bill would provide that Congress finds: (1)
    that group health plans and health insurance coverage that
    impose preexisting conditions impact the ability of employees
    to seek employment in interstate commerce and thereby impedes
    such commerce; (2) that health insurance coverage is commercial
    in nature and is in and affects interstate commerce; (3) that
    it is a necessary and proper exercise of congressional
    authority to impose requirements on group health plans and
    health insurance coverage to promote commerce among states; and
    (4) that Congress intends however to defer to the states to the
    maximum extent practicable in carrying out requirements with
    respect to insurers and HMOs that are subject to state
    regulation, consistent with ERISA.
    Senate amendment
          The Senate Amendment would provide that if any provision
    of the Act or application of a provision of the Act to any
    person or circumstance is held to be unconstitutional, the
    remainder of the Act and the application of the provisions of
    such to any person or circumstances would not be affected.
    Conference agreement
          The conference agreement provides that Congress finds:
    (1) that group health plans and health insurance coverage that
    impose preexisting conditions impact the ability of employees
    to seek employment in interstate commerce and thereby impedes
    such commerce; (2) that health insurance coverage is commercial
    in nature and is in and affects interstate commerce; (3) that
    it is a necessary and proper exercise of congressional
    authority to impose requirements under this title on group
    health plans and health insurance coverage, including coverage
    offered to individuals previously covered under group health
    plans, to promote commerce among states; and (4) that Congress
    intends to defer to the states, to the maximum extent
    practicable, in carrying out such requirements with respect to
    insurers and HMOs that are subject to state regulation,
    consistent with ERISA.
          The conference agreement provides that if any provision
    of this title or application of such provision to any person or
    circumstance is held to be unconstitutional, the remainder of
    this title and the application of the provisions of such to any
    person or circumstances would not be affected.

                           XVI. COBRA Clarifications

    Current law
          Title X of the Consolidated Omnibus Budget Reconciliation
    Act of 1985 (COBRA, P.L. 99-272) amends the Internal Revenue
    Code (IRC), ERISA, and the Public Health Service Act to require
    employers who provide group health plans with 20 or more
    employees to offer continuation coverage to employees and their
    dependents who experience specific qualifying events, including
    changes in job or family status. In general, when a covered
    employee experiences termination or reductions in hours of
    employment, the continued coverage of the employee and any
    qualified beneficiaries is for 18 months. For other qualifying
    events (e.g., death, divorce, legal separation, and child turns
    age of majority under the plan), the duration of coverage is 3
    years. The Omnibus Budget Reconciliation Act of 1989 (P.L. 10-
    239) provides that if a covered employee is determined to be
    disabled under the Social Security Act at the time in which he
    or she terminates or reduces hours of employment, then the
    employee is eligible for 29 months of continued coverage.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment would amend the PHS Act, ERISA, and
    the IRC to provide for clarifications of COBRA continuation
    requirements. Provides that individuals who have disabled
    family members or who become disabled at any time during their
    coverage under an initial COBRA period (the first 18 months) be
    able to extend their coverage for the additional 11 month
    period currently available only to workers who are disabled at
    the time they lose their coverage.
          Provides that newborns and children who are placed for
    adoption may be covered immediately under a parent's COBRA
    policy.
    Conference agreement
          See Title IV, Subtitle B.

                XVII. Sense of the Committee Regarding Medicare

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Committee on Labor and Human Resources notes that the
    Medicare trustees concluded in their 1995 report that: (i) the
    Medicare program is unsustainable in its present form; (ii)
    that the hospital insurance trust fund will only be able to pay
    for benefits for about 7 years and is severely out of financial
    balance in the long run; and (iii) the Public Trustees
    recommended that the problems be urgently addressed on a
    comprehensive basis including a review of the program's
    financing methods, benefit provisions, and delivery mechanisms.
    The provision expresses the sense of the Committee that the
    Senate should take up 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.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

                    XVIII. Parity for Mental Health Services

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment would prohibit an employee health
    benefit plan, or a health plan issuer offering a group health
    plan or individual health plan from imposing treatment
    limitations or financial requirements on the coverage of mental
    health services if similar requirements are not imposed on
    coverage for services for other conditions.
          It would provide for a rule of construction that the
    preceding should not be construed as prohibiting an employee
    health benefit plan or a health plan issuer offering a group or
    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.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

    XIX. Waiver of Foreign Country Residence With Respect to International
                               Medical Graduates

    Current law
          The Immigration and Nationality Technical Corrections Act
    of 1994 provides for a waiver of the requirement that
    nonimmigrant international medical graduates entering as J
    exchange visitors return to their country of nationality for
    two years before being eligible to return to the U.S. The
    provision applies to aliens admitted to the U.S. before June 1,
    1996.
    House bill
          No provision.
    Senate bill
          The Senate Amendment would extend waivers for the
    requirement that nonimmigrant international medical graduates
    entering as J exchange visitors return to their country of
    nationality for two years before being eligible to return to
    the U.S. through June 1, 2002.
          It would amend provisions related to federally requested
    waivers requested by an interested U.S. agency on behalf of
    certain aliens.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

      XX. Organ and Tissue Donation Information Included With Income Tax
                                Refund Payments

    Current law
          No provision.
    House bill
          No provision.
    Senate bill
          The Senate Amendment would require the Secretary of
    Treasury to include with any payment of a refund of individual
    income tax made during the period beginning on February 1, 1997
    through June 30, 1997, a copy of the document developed in
    consultation with the Secretary of HHS and organizations
    promoting organ and tissue donation which encourages organ and
    tissue donation. The document would also include a detachable
    organ and tissue donor card, and would urge recipients to sign
    the card, discuss organ and tissue donations with family
    members, and encourage family members to request or authorize
    organ and tissue donation if the occasion arises.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

     XXI. Sense of the Senate Regarding Adequate Health Care Coverage for
                        all Children and Pregnant Women

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment provides that the Senate finds that
    the health care coverage of mothers and children in the United
    States is unacceptable, with more than 9.3 million children and
    500,000 expectant mothers having no health insurance, in
    addition to there being high levels of infant and maternal
    mortality and other enumerated indicators of inadequate access
    to care.
          The Senate Amendment provides that 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' pregnant
    women and children.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

            XXII. Sense of the Senate Regarding Available Treatments

    Current law
          No provision.
    House bill
          No provision.
    Senate amendment
          The Senate Amendment provides that it is the sense of the
    Senate 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.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

                          XXIII. Rule of Construction

    Current law
          No provision.
    House bill
          The House bill would provide that nothing in this title
    or any amendment made by it may be construed to require (or to
    authorize any regulation that requires) the coverage of any
    specific procedure, treatment, or service under a group health
    plan or health insurance coverage.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision, but see section III(E).

       TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE: ADMINISTRATIVE
                    SIMPLIFICATION; MEDICAL LIABILITY REFORM

                       1. Fraud and abuse control program

          (Subtitle A of title II of the House bill; title V of the
    Senate amendment.)

                                 I. In general

                       A. Fraud and Abuse Control Program

          (Section 201 of the House bill; section 501 of the Senate
    amendment.)
    Current law
          Currently, the investigation and prosecution of fraud
    related to Federal health programs is the responsibility of the
    Department of Health and Human Services (DHHS), the FBI and the
    Department of Justice. The DHHS Office of Inspector General
    investigates Federal cases of fraud regarding Medicare,
    Medicaid, and the Maternal and Child Health Block Grant
    programs and is authorized by the Secretary to impose civil
    monetary penalties and program exclusions on fraudulent
    providers. The FBI can investigate both Federal and private
    payer cases of fraud but cannot impose sanctions. Both the
    Office of Inspector General and the FBI refer investigative
    findings to the Department of Justice which may prosecute
    persons for violations of federal criminal laws. State Medicaid
    fraud control units are responsible for the investigation,
    prosecution, or referral for prosecution, of fraudulent
    activities associated with State Medicaid programs.
    House bill
          The Secretary of the Department of Health and Human
    Services (acting through the Office of the Inspector General)
    and the Attorney General would be required to jointly establish
    a national health care fraud and abuse control program to
    coordinate Federal, State and local law enforcement to combat
    fraud with respect to health plans. To facilitate the
    enforcement of this fraud and abuse control program the
    Secretary and Attorney General would be authorized to conduct
    investigations, audits, evaluations and inspections relating to
    the delivery of and payment for health care, and would be
    required to arrange for the sharing of data with
    representatives of public and private third party payers. This
    program, implemented by guidelines issued by the Secretary and
    the Attorney General, would also facilitate the enforcement of
    applicable Federal statutes relating to health care fraud and
    abuse, and would provide for the provision of guidance to
    health care providers through the issuance of safe harbors,
    advisory opinions and special fraud alerts.
          The Secretary and Attorney General would consult with and
    share data with representatives of health plans. Guidelines
    issued by the Secretary and Attorney General would ensure the
    confidentiality of information furnished by health plans,
    providers and others, as well as the privacy of individuals
    receiving health care services. The Inspector General would
    retain all current authorities.
          For purposes of this section the term ``health plan''
    means a plan or program that provides health benefits through
    insurance or otherwise. Such plans include health insurance
    policies, contracts of service benefit organizations, and
    membership agreements with health maintenance organizations or
    other prepaid health plans.
          The Health Care Fraud and Abuse Control Account would be
    established as an expenditure account within the Federal
    Hospital Insurance (HI) Trust Fund. Amounts equal to monies
    derived from the coordinated health care anti-fraud and abuse
    programs from the imposition of civil money penalties, fines,
    forfeitures and damages assessed in criminal, civil or
    administrative health care cases, along with any gifts or
    bequests would be transferred into the Medicare HI trust fund
    from the U.S. Treasury. There are appropriated from the HI
    trust fund to the Account such sums as the Secretary and the
    Attorney General certify are necessary to carry out certain
    functions, subject to specified limits for each fiscal year
    beginning with 1997.
          There would be appropriated from the general fund of the
    U.S. Treasury to the Fraud and Abuse Account for transfer to
    the FBI certain funds, subject to fiscal year limitations, for
    specified functions. These functions include prosecuting health
    care matters, investigations, audits of health care programs
    and operations, inspections and other evaluations, and provider
    and consumer education regarding compliance with fraud and
    abuse provisions. Specified amounts in the Account would also
    be available to carry out the Medicare Integrity Program. The
    Secretary and the Attorney General would be required to submit
    a joint annual report to Congress on the revenues and
    expenditures, and the justification for such disbursements from
    the Health Care Fraud and Abuse Control Account.
    Senate amendment
          Similar.
    Conference agreement
          The conference agreement includes the House provision
    with an amendment adding a requirement that the Comptroller
    General submit to Congress a report for certain fiscal years
    regarding amounts deposited in the Hospital Insurance Trust
    Fund under this section. The conference agreement also includes
    a provision regarding the availability of recoveries and
    forfeitures for purposes of certain provisions of the Employee
    Retirement Income Security Act of 1974.

                         B. Medicare Integrity Program

          (Section 202 of the House bill; section 502 of the Senate
    amendment.)
    Current law
          Currently Medicare's program integrity functions are
    subsumed under Medicare's general administrative budget. These
    functions are performed, along with general claims processing
    functions, by insurance companies under contract with the
    Health Care Financing Administration.
    House bill
          Establishes a Medicare Integrity Program under which the
    Secretary would promote the integrity of the Medicare program
    by entering into contracts with eligible private entities to
    carry out certain activities. These activities would include
    the following: (1) review of activities of providers of
    services or other individuals and entities furnishing items and
    services for which payment may be made under the Medicare
    program, including medical and utilization review and fraud
    review, (2) audit of cost reports, (3) determinations as to
    whether payment should not be, or should not have been, made by
    reason of Medicare as secondary payor provisions 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, and (5) developing and updating a list of durable
    medical equipment pursuant to section 1834(a)(15) of the Social
    Security Act. An entity is eligible to enter into a contract
    under this program if it meets certain requirements, including
    demonstrating to the Secretary that the entity's financial
    holdings, interests, or relationships will not interfere with
    its ability to perform the required functions.
    Senate amendment
          Similar except for differences in applicable conflict of
    interest requirements with regard to entities eligible to enter
    into contracts under this program.
    Conference agreement
          The conference agreement includes the House provision
    with a modification of the applicable conflict of interest
    requirements for eligible entities and assurance that current
    contractors meeting applicable requirements may compete for
    contracts on new program integrity activities.

                       c. beneficiary incentive programs

          (Section 203 of the House bill; section 503 of the Senate
    amendment.)
    Current law
          No provision.
    House bill
          The Secretary would be required to provide an explanation
    of Medicare benefits with respect to each item or service for
    which payment may be made, without regard to whether a
    deductible or coinsurance may be imposed with respect to the
    item or service.
          This provision would require the Secretary, within three
    months after enactment of this bill, to establish a program to
    encourage individuals to report to the Secretary information on
    individuals and entities who are engaging or who have engaged
    in acts or omissions that constitute grounds for sanctions
    under sections 1128, 1128A, or 1128B of the Social Security
    Act, or who have otherwise engaged in fraud and abuse against
    the Medicare program. If an individual reports information to
    the Secretary under this program that serves as a basis for the
    collection by the Secretary or the Attorney General of any
    amount of at least $100 (other than amounts paid as a penalty
    under section 1128B), 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.
          The Secretary would be required, within three months
    after enactment of this bill, to establish a program to
    encourage individuals to submit to the Secretary suggestions on
    methods to improve the efficiency of the Medicare program. If
    the Secretary adopts a suggestion and savings to the program
    result, the Secretary would make a payment to the individual of
    an amount the Secretary considers appropriate.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

      d. application of certain health anti-fraud and abuse sanctions to
              fraud and abuse against federal health care programs

          (Section 204 of the House bill; section 504 of the Senate
    amendment.)
    Current law
          Section 1128B provides for certain criminal penalties for
    convictions of Medicare and Medicaid (and certain other state
    health care programs) program-related fraud.
    House bill
          This provision would extend certain criminal penalties
    for fraud and abuse violations under the Medicare and Medicaid
    programs to similar violations in Federal health care programs
    generally. The term ``Federal health care program'' would mean
    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 Federal Employee Health Benefit Program,
    Chapter 89 of Title 5 of the United States Code). The term also
    would include any state health care program, which under
    section 1128(h), includes Medicaid, the Maternal and Child
    Health Services Block Grant Program and the Social Services
    Block Grant Program.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

       e. guidance regarding application of health care fraud and abuse
                                   sanctions

          (Section 205 of House bill, section 505 of Senate
    amendment.)
    Current law
          The 1987 Medicare and Medicaid Patient and Program
    Protection Act specified various payment practices which,
    although potentially capable of including referrals of business
    under Medicare or State health care programs, are protected
    from criminal prosecution or civil sanction under the anti-
    kickback provisions of the law. The 1987 law also established
    authority for the Secretary to promulgate regulations
    specifying additional payment practices, known as ``safe
    harbors,'' which will not be subject to sanctions under the
    fraud and abuse provisions.
    House bill
          The Secretary would publish an annual notice in the
    Federal Register soliciting proposals for modifications to
    existing safe harbors and new safe harbors. After considering
    such proposals the Secretary, in consultation with the Attorney
    General, would issue final rules modifying existing safe
    harbors and establishing new safe harbors, as appropriate. The
    Inspector General would submit an annual report to Congress
    describing the proposals received, as well as the action taken
    regarding the proposals. The Secretary, in considering
    proposals, may consider a number of factors including the
    extent to which the proposals would affect access to health
    care services, quality of care services, patient freedom of
    choice among health care providers, competition among health
    care providers, ability of health care facilities to provide
    services in medically underserved areas or to medically
    underserved populations, and the like.
          The Secretary of Health and Human Services would publish
    the first notice in the Federal Register soliciting proposals
    for new or modified safe harbors no later than January 1, 1997.
          The Secretary would issue written advisory opinions
    regarding what constitutes prohibited remuneration under
    section 1128B(b), whether an arrangement or proposed
    arrangement satisfies the criteria for activities which do not
    result in prohibited remuneration, what constitutes an
    inducement to reduce or limit services to individuals entitled
    to benefits, and, whether an activity constitutes grounds for
    the imposition of civil or criminal sanctions under sections
    1128, 1128A or 1128B. Advisory opinions would be binding as to
    the Secretary and the party requesting the opinion.
          Any person would be able to request the Inspector General
    to issue a special fraud alert informing 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) of the
    Social Security Act. After investigation of the subject matter
    of the request, and, if appropriate, the Inspector General
    would issue a special fraud alert in response to the request,
    published in the Federal Register.
    Senate amendment
          Identical to the House bill provisions regarding the
    issuance of safe harbors and special fraud alerts. However,
    provides for the issuance of ``interpretative rulings'' instead
    of ``advisory opinions'' by the Secretary.
    Conference agreement
          The conference agreement includes the House provision
    with modifications to the advisory opinion provisions. The
    Secretary will be required to issue to a party requesting an
    advisory opinion within 60 days and the advisory opinion
    provisions will apply to requests made for opinions on or after
    the date which is 6 months after the date of enactment of this
    section and before the date which is 4 years after such date of
    enactment.

             II. Revision to Current Sanctions for Fraud and Abuse

          (Subtitle B of the House bill; subtitle B of the Senate
    amendment.)

    A. Mandatory Exclusion from Participation in Medicare and State Health
                                 Care Programs

          (Section 211 of the House bill; section 511 of the Senate
    amendment.)
    Current law
          Section 1128 of the Social Security Act authorizes the
    Secretary to impose mandatory and permissive exclusions of
    individuals and entities from participation in the Medicare
    program, Medicaid program and programs receiving funds under
    the Maternal and Child Health Service Block Grant, or the
    Social Services Block Grant. Mandatory exclusions are
    authorized for convictions of criminal offenses related to the
    delivery of health care services under Medicare and State
    health care programs, as well as for convictions relating to
    patient abuse in connection with the delivery of a health care
    item or service. In the case of an exclusion under the
    mandatory exclusion authority the minimum period of exclusion
    could be no less than 5 years, with certain exceptions.
    Permissive exclusions are authorized for a number of offenses
    relating to fraud, kickbacks, obstruction of an investigation,
    and controlled substances, and activities relating to license
    revocations or suspensions, claims for excessive charges or
    unnecessary services, and the like. There are no specified
    minimum periods of exclusion under the permissive exclusion
    authority.
          Under Section 1128A of the Social Security Act civil
    monetary penalties may be imposed for false and fraudulent
    claims for reimbursement under the Medicare and State health
    care programs.
          Under section 1128B, upon conviction of a program-related
    felony, an individual may be fined not more than $25,000 or
    imprisoned for not more than five years, or both.
    House bill
          The provision would require the Secretary to exclude
    individuals and entities from Medicare and State health care
    programs who have been convicted of felony offenses relating to
    health care fraud for a minimum five year period. The Secretary
    would also retain the discretionary authority to exclude
    individuals from Medicare and State health care programs who
    have been convicted of misdemeanor criminal health care fraud
    offenses, or who have been convicted of a criminal offense
    relating to fraud, theft, embezzlement, breach of fiduciary
    responsibility, or other financial misconduct in programs
    (other than health care programs) funded in whole or part by
    any Federal, State or local agency.
          The Secretary would also be required to exclude
    individuals and entities from Medicare and State health care
    programs who have been convicted of felony offenses relating to
    controlled substances for a minimum five year period. The
    Secretary would retain the discretionary authority to exclude
    individuals from Medicare and State health care programs who
    have been convicted of misdemeanor offenses relating to
    controlled substances.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

    B. Establishment of Minimum Period of Exclusion for Certain Individuals
           and Entities Subject to Permissive Exclusion from Medicare

          (Section 212 of the House bill; section 512 of the Senate
    amendment.)
    Current law
          See above.
    House bill
          This section would establish a minimum period of
    exclusion for certain permissive exclusions from participation
    in Medicare and State health care programs.
          For convictions of misdemeanor criminal health care fraud
    offenses, criminal offenses relating to fraud in non-health
    care Federal or State programs, convictions relating to
    obstruction of an investigation of health care fraud offenses,
    and convictions of misdemeanor offenses relating to controlled
    substances, the minimum period of exclusion would be three
    years, unless the Secretary determines that a longer or shorter
    period is appropriate, due to aggravating or mitigating
    circumstances.
          For permissive exclusions from Medicare or State health
    care programs due to the revocation or suspension of a health
    care license of an individual or entity, the minimum period of
    exclusion would not be less than the period during which the
    individual's or entity's license was revoked or suspended.
          For permissive exclusions from Medicare or State health
    care programs due to exclusion from any Federal health care
    program or State health care program for reasons bearing on an
    individual's or entity's professional competence of financial
    integrity, the minimum period of exclusion would not be less
    than the period the individual or entity is excluded or
    suspended from a Federal or State health care program.
          For permissive exclusions from Medicare or State health
    care programs due to a determination by the Secretary that an
    individual or entity has furnished items or services to
    patients substantially in excess of the needs of such patients
    or of a quality which fails to meet professionally recognized
    standards of health care, the period of exclusion would be not
    less than one year.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

       c. permissive exclusion of Individuals with ownership or control
                        interest in sanctioned entities

          (Section 213 of the House bill; section 513 of the Senate
    amendment.)
    Current law
          See above.
    House bill
          Under this provision an individual who has a direct or
    indirect ownership or control interest in a sanctioned entity
    and who knows or should know of the action constituting the
    basis for the conviction or exclusion, or who is an officer or
    managing employee of such an entity, may also be excluded from
    participation in Medicare and State health care programs by the
    Secretary if the entity has been convicted of an offense listed
    in section 1129(a) or (b)(1), (2) or (3) or otherwise excluded
    from program participation. Under this provision, the culpable
    individual would also be subject to program exclusion, even if
    not initially convicted or excluded.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

     d. sanctions against practitioners and persons for failure to comply
                           with statutory obligations

          (Section 214 of the House bill; section 514 of the Senate
    amendment.)
    Current law
          See above.
    House bill
          Under this provision the Secretary may exclude a
    practitioner or person who has failed to comply with certain
    statutory obligations relating to quality of health care for
    such period as the Secretary may prescribe, except that such
    period shall be not less than one year.
          The Secretary, in making his determination that a
    practitioner or person should be sanctioned for failure to
    comply with certain statutory obligations relating to quality
    of health care, will no longer be required to prove that the
    individual was either unwilling or unable to comply with such
    obligations.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

    e. intermediate sanctions for medicare health maintenance organizations

          (Section 215 of the House bill; section 515 of the Senate
    amendment.)
    Current law
          A contract between the Secretary and a Medicare Health
    Maintenance Organization (HMO) is generally for a 1 year term,
    with an option for automatic renewal. However, the Secretary
    may terminate any such contract at any time, after reasonable
    notice and an opportunity for a hearing, if the Medicare HMO
    has failed substantially to carry out the contract, or is
    carrying out the contract in a manner inconsistent with the
    efficient and effective administration of the requirements of
    section 1876 of the Social Security Act, or if the Medicare HMO
    no longer substantially meets the statutory requirements
    contained in Section 1876(b), (c), (e) and (f).
    House bill
          Under this section the Secretary may terminate a contract
    with a Medicare Health Maintenance Organization (HMO) or may
    impose certain intermediate sanctions on the organization if
    the Secretary determines that the Medicare HMO has failed
    substantially to carry out the contract; is carrying out the
    contract in a manner substantially inconsistent with the
    efficient and effective administration of this section; or, if
    the Medicare HMO no longer substantially meets the statutory
    requirements contained in Section 1876(b), (c), (e) and (f) of
    the Social Security Act.
          If the basis for the determination by the Secretary that
    intermediate sanctions should be imposed on an eligible
    organization is other than that the organization has failed
    substantially to carry out its contract with the Secretary,
    then the Secretary may apply intermediate sanctions as follows:
    civil money penalties of not more than $25,000 for each
    determination 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; civil money
    penalties or not more than $10,000 for each week of a
    continuing violation; and suspension of enrollment of
    individuals until the Secretary is satisfied that the
    deficiency has been corrected and is not likely to recur.
          Whenever the Secretary seeks to either terminate a
    Medicare HMO contract or impose intermediate sanctions on such
    an organization, the Secretary must do so pursuant to a formal
    investigation and under compliance procedures which provide the
    organization with a reasonable opportunity to develop and
    implement a corrective action plan to correct the deficiencies
    that were the basis of the Secretary's adverse determination.
    In making a decision whether to impose sanctions the Secretary
    is required to consider aggravating factors such as whether an
    entity has a history of deficiencies or has not taken action to
    correct deficiencies the Secretary has brought to their
    attention. The Secretary's compliance procedures must also
    include notice and opportunity for a hearing (including the
    right to appeal an initial decision) before the Secretary
    imposes any sanction or terminates the contract of a Medicare
    HMO, and there must not be any unreasonable or unnecessary
    delay between the finding of a deficiency and the imposition of
    sanctions.
          Under this section each risk-sharing contract with a
    Medicare HMO must provide that the organization will maintain a
    written agreement with a utilization and quality control peer
    review organization or similar organization for quality review
    functions.
          The amendments made by this section would apply to
    contract years beginning on or after January 1, 1996.
    Senate amendment
          Same as the House bill provision except specifies a
    different effective date, i.e., January 1, 1997.
    Conference agreement
          The conference agreement includes the House provision,
    but with an effective date of January 1, 1997.

      F. Additional Exception to Anti-Kickback Penalties for Risk-sharing
                                  Arrangements

          (Section 216 of the House bill; section 516 of the Senate
    amendment)
    Current law
          The anti-kickback provision in section 1128B(b) contains
    several exceptions. These exceptions include discounts or other
    reductions in price obtained by a provider of services or other
    entity under Medicare or a State health care program if the
    reduction in price is properly disclosed and appropriately
    reflected in the costs claimed or charges made by the provider
    or entity under Medicare or a State health care program; any
    amount paid by an employer to an employee for employment in the
    provision of covered items or services; any amount paid by a
    vendor of goods or services to a person authorized to act as a
    purchasing agent for a group of individuals or entities under
    specified conditions; a waiver of any co-insurance under Part B
    of Medicare by a Federally qualified health care center with
    respect to an individual who qualifies for subsidized services
    under a provision of the Public Health Service Act; and any
    payment practice specified by the Secretary as a safe harbor
    exception.
    House bill
          This section would add a new exception to the anti-
    kickback provisions allowing remuneration between an eligible
    organization under section 1876 and an individual or entity
    providing items or services pursuant to a written agreement
    between an eligible organization under section 1876 and the
    individual or entity. Remuneration would also be allowed
    between an organization and an individual or entity if a
    written agreement places the individual or entity at
    substantial financial risk for the cost or utilization of the
    items or services which the individual or entity is obligated
    to provide. The risk arrangement may be provided through a
    withhold, capitation, incentive pool, per diem payment or other
    similar risk arrangement. This amendment would apply to acts of
    omissions occurring after January 1, 1997.
    Senate amendment
          Similar. However, the House provision specifically lists
    two permissible risk arrangements, i.e., incentive pools, and
    per diem payments, which are not listed in the Senate
    provision, and the Senate provision provides for the issuance
    of regulations by the Secretary, in consultation with the
    Attorney General, to define substantial financial risk as
    necessary to protect program or patient abuse.
    Conference agreement
          The conference agreement includes the House provision
    with modifications to the definition of allowable remuneration.
    In addition, the conference agreement adds a provision setting
    forth a negotiated rulemaking process for standards relating to
    the new exception to the anti-kickback penalties added by this
    section.

     G. Criminal Penalty for Fraudulent Disposition of Assets in Order to
                            Obtain Medicaid Benefits

          (Section 217 of the House bill.)
    Current law
          Under section 1128B, upon conviction of a program-related
    felony, an individual may be fined not more than $25,000 or
    imprisoned for not more than five years or both.
    House bill
          This provision would add a new crime to the list of
    prohibited activities under section 1128B of the Social
    Security Act for cases where a person knowingly and willfully
    disposes of assets by transferring assets in order to become
    eligible for benefits under the Medicaid program, if disposing
    of the assets results in the imposition of a period of
    ineligibility.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

                              III. Data Collection

          (Subtitle C of the House bill; subtitle C of the Senate
    amendment.)

      A. Establishment of the Health Care Fraud and Abuse Data Collection
                                    program

          (Section 221 of the House bill; section 521 of the Senate
    amendment.)
    Current law
          No provision.
    House bill
          The Secretary of Health and Human Services would be
    required to establish a national health care fraud and abuse
    data collection program for reporting final adverse actions
    (not including settlements in which no findings of liability
    have been made) against health care providers, suppliers, or
    practitioners.
          Each government agency and health plan would, on a
    monthly basis, report any final adverse action taken against a
    health care provider, supplier, or practitioner. Certain
    information would be included in the report, including a
    description of the acts or omissions and injuries upon which
    the final adverse action was taken. The Secretary would,
    however, protect the privacy of individuals receiving health
    care services.
          The Secretary would, by regulation, provide for
    disclosure of the information about adverse actions, upon
    request, to the health care provider, supplier, or licensed
    practitioner and provide procedures in the case of disputed
    accuracy of the information. Each government agency and health
    plan is required to 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.
          The information in the database would be available to
    Federal and State government agencies and health plans. The
    Secretary may approve reasonable fees for the disclosure of
    information in the data base (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 data
    base.
          No person or entity would be held liable in any civil
    action with respect to any report made as required by this
    section, unless the person or entity knows the information is
    false.
          The Secretary may impose appropriate fees on physicians
    to cover the costs of investigation and recertification
    activities with respect to the issuance of identifiers for
    physicians who furnish services for which Medicare payments are
    made.
    Senate amendment
          Similar with one additional provision requiring that the
    Secretary implement this section in such a manner as to avoid
    duplication with the reporting requirements established for the
    National Practitioner Data Bank.
    Conference agreement
          The conference agreement includes the House provision
    with a modification directing the Secretary to implement this
    section so as to avoid duplication with the reporting
    requirements of the National Practitioner Data Bank under the
    Health Care Quality Improvement Act of 1986.

                          IV. Civil Monetary Penalties

          (Subtitle D of the House bill; subtitle D of the Senate
    amendment.)

                a. social security act civil monetary penalties

          (Section 231 of the House bill; section 531 of the Senate
    amendment.)
    Current law
          Under Section 1128A of the Social Security Act civil
    monetary penalties may be imposed for false and fraudulent
    claims for reimbursement under the Medicare and State health
    care programs.
    House bill
          The Medicare and Medicaid program provisions providing
    for civil monetary penalties for specified fraud and abuse
    violations would apply to similar violations involving other
    Federal health care programs. Federal health care programs
    would include any health insurance plans or programs funded, in
    whole or part, by the Federal government, such as CHAMPUS.
    Civil monetary penalties and assessments received by the
    Secretary would be deposited into the Health Care Fraud and
    Abuse Control Account established under this Act.
          Any person who has been excluded from participating in
    Medicare or a State health care program and who retains a
    direct or indirect ownership or control interest in an entity
    that is participating in a program under Medicare or a State
    health care program, and who knows or should know of the action
    constituting the basis for the exclusion, or who is an officer
    or managing employee of such an entity, would be subject to a
    civil monetary penalty of not more than $10,000 for each day
    the prohibited relationship occurs.
          Amends the civil monetary penalty provisions of Section
    1128A(a) by increasing the amount of a civil money penalty from
    $2,000 to $10,000 for each item or service involved. Also
    increases the assessment which a person may be subject to from
    ``not more than twice the amount'' to ``not more than three
    times the amount'' claimed for each such item or service in
    lieu of damages sustained by the United States or a State
    agency because of such claim.
          Adds two practices to the list of prohibited practices
    for which civil money penalties may be assessed. The first
    occurs when a person engages in a pattern or practice of
    presenting a claim for an item or service based on a code that
    the person knows or should know will result in greater payments
    than appropriate. The second is the practice whereby a person
    submits a claim or claims that the person knows or should know
    is for a medical item or service which is not medically
    necessary.
          The sanction against practitioners and persons who fail
    to comply with certain statutory obligations is changed from an
    amount equal to ``the actual or estimated cost'' of the
    medically improper or unnecessary services provided, to ``up to
    $10,000 for each instance of medically improper or unnecessary
    services provided.
          The procedural provisions outlined in Section 1128A, such
    as notice, hearings, and judicial review rights, would apply to
    civil monetary penalties assessed against Medicare Health
    Maintenance Organizations in the same manner as they apply to
    civil monetary penalties assessed against health care providers
    generally.
          This provision also adds a new practice to the list of
    prohibited practices for which civil monetary penalties could
    be assessed. Any person who offers remuneration to an
    individual eligible for benefits under Medicare or a State
    health care program that such individual knows or should know
    is likely to influence such individual to order or received
    from a particular provider, practitioner or supplier any item
    or service reimbursable under Medicare or a State health care
    program would be subject to the various civil monetary
    penalties, assessments and exclusion provisions of section
    1128A of the Social Security Act.
          The term ``remuneration'' is defined to include the
    waiver of part or all of coinsurance and deductible amounts, as
    well as transfers of items or services for free, or for other
    than fair market value. There would be exceptions to this
    definition. The waiver of part or all of coinsurance and
    deductible amounts would not be considered remuneration under
    this section if the waiver is not offered as part of any
    advertisement or solicitation, the person does not routinely
    waive coinsurence or deductible amounts, and the person either
    waives the coinsurance and deductible amounts because the
    individual is in financial need, or fails to collect the
    amounts after reasonable collection efforts, or provides for a
    permissible waiver under regulations issued by the Secretary.
    In addition, the term remuneration would not include
    differentials in coinsurance and deductible amounts as part of
    a benefit plan design if the differentials have been disclosed
    in writing to all beneficiaries, third party payors, and
    providers, and if the differentials meeting the standards
    defined in the Secretary's regulations. Remuneration would also
    not include incentives given to individuals to promote the
    delivery of preventive care under the Secretary's regulations.
          The effective date of these provisions is January 1,
    1997.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.
    The conferees do not intend that the language of section 231(d)
    create any new standard for coverage of a claim. The intent is
    to assure that a proper evaluation by a practitioner is
    completed and evidence of treatment need is established before
    services are delivered for which claims are submitted. The
    conferees recognize that under current law the reasonableness
    of a service provided by a non-medical practitioner, including
    a practitioner of alternative medicine, is judged by the
    application of principles particular to such non-medical health
    care professions. For example, the provision and reasonableness
    of chiropractic services under Medicare is judged by the
    application of chiropractic principles.
          There is significant concern regarding the impact of the
    anti-fraud provisions on the practice of complementary or
    alternative medicine and health care. The practice of
    complementary or alternative medical or health care practice
    itself would not constitute fraud.
          The conferees do not intend to penalize the exercise of
    medical judgment of health care treatment choices made in good
    faith and which are supported by significant evidence or held
    by a respectable minority of those providers who customarily
    provide similar methods of treatment. The Act is not intended
    to penalize providers simply because of a professional
    difference of opinion regarding diagnosis or treatment.
          A sanction is not intended for providers who submit
    claims they know will not be considered reimbursable as
    medically necessary services, but who are required to submit
    the claims because their patients need to document that
    Medicare will not reimburse the service. In submitting such
    claims, providers shall notify carriers that a claim is being
    submitted solely for purpose of seeking reimbursement from
    secondary payers.
          Moreover, the conferees intend that a penalty will be
    imposed on presentation of a claim that is false or fraudulent.
    No sanction is intended for providers who simply inform
    beneficiaries that a particular service is not covered by
    Medicare. Moreover, nothing in this section is intended to
    supersede the limitation on liability provisions established
    under Section 1879 of the Social Security Act.
          In addition, the conferees intend, with respect to
    allowable remuneration, that this provision not preclude the
    provision of items and services of nominal value, including,
    for example, refreshments, medical literature, complimentary
    local transportation services, or participation in free health
    fairs.

        B. Clarification of Level of Intent Required for Imposition of
                                   Sanctions

          (Section 232 of the House bill.)
    Current law
          Civil monetary penalties may be imposed for seeking
    reimbursement under the Medicare and Medicaid programs for
    items of services not provided or for services provided by
    someone who is not a licensed physician, whose license was
    obtained through misrepresentation, or who misrepresented his
    or her qualification as a specialist, or where the claim is
    otherwise fraudulent. Civil penalties may also be sought for
    presenting a claim due for payments which are in violation of
    (1) contracts limiting payment due to assignment of a patient,
    (2) agreements with state agencies limiting permitted charges,
    (3) agreements with participating physicians or suppliers, and
    (4) agreements with providers of services. Civil monetary
    penalties may also be sought against persons who provide false
    or misleading information that could reasonably be expected to
    influence a decision to discharge a person from a hospital. A
    person is subject to these provisions if he or she presented a
    claim and he or she ``knows or should have known'' that the
    claim fell into one of the categories listed above.
    House bill
          This provision adds a requirement, similar to the False
    Claims Act, that a person is subject to this provision when the
    person ``knowingly'' presents a claim that the person ``knows
    or should know'' falls into one of the prohibited categories.
    Thus, an assessment under this provision would only be made
    where a person had actual knowledge that he or she had
    submitted a claim or had provided false or misleading
    information, and where the person had actual knowledge of the
    fraudulent nature of the claim, acted in deliberate ignorance,
    or acted in reckless disregard of the truth or falsity of the
    information. The requirement that a person ``knowingly''
    present a claim or ``knowingly'' make a false or misleading
    statement which influences discharge would prevent charging
    persons who inadvertently perform these acts.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision,
    but this provision has been added to the section of this bill
    entitled ``Social Security Act Civil Monetary Penalties'',
    above.

          c. penalty for false certification for home health services

          (Section 233 of the House bill.)
    Current law
          No provision.
    House bill
          This provision would add an additional civil monetary
    penalty of not more than three times the amount of the
    payments, or $5,000, whichever is greater, for a physician who
    certifies that an individual meets all of Medicare's
    requirements to receive home health care while knowing that the
    individual does not meet all such requirements. This provision
    would apply to certifications made on or after the date of
    enactment of this Act.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

                          V. Revisions to Criminal Law

          (Subtitle E of the House bill; subtitle E of the Senate
    amendment.)

             a. definitions relating to federal health care offense

          (Section 241 of the House bill; section 542 of the Senate
    amendment.)
    Current law
          No provision.
    House bill
          This provision defines the term ``Federal health care
    offense'' to include violations of, or criminal conspiracies to
    violate, section 669, 1035, 1347 or 1518 of Title 18 of the
    United States Code, or section 287, 371, 664, 666, 1001, 1027,
    1341, 1343, or 1954 of this title, if the violation or
    conspiracy relates to a health care benefit program. A ``health
    care benefit program'' is any public or private plan affecting
    commerce under which any medical benefit, item or service is
    provided to any individual, and includes any individual or
    entity providing such a medical benefit, item or service for
    which payment may be made under the plan.
    Senate amendment
          The Senate amendment defines ``Federal health care
    offense'' as a violation of, or a criminal conspiracy to
    violate section 1128B of the Social Security Act, section 1347
    of this title, and sections 287, 371, 664, 666, 669, 1001,
    1027, 1341, 1343, or 1954 of this title if the violation or
    conspiracy relates to health care fraud.
    Conference agreement
          The conference agreement includes the House provision.

                              b. health care fraud

          (Section 242 of the House bill; section 541 of the Senate
    amendment.)
    Current law
          Depending on the facts of a particular case, criminal
    penalties may be imposed on persons engaged in health care
    fraud under federal mail and wire fraud statutes, the False
    Claims Act, false statement statues, money laundering statutes,
    racketeering, and other related laws.
    House bill
          Under this provision criminal penalties would be imposed
    for knowingly executing or attempting to execute a scheme or
    artifice (1) to defraud any health care benefit program; or (2)
    to obtain, by means of false or fraudulent pretenses, money or
    property owned by, or under the custody or control of, any
    health care benefit program. Penalties include fines and up to
    10 years imprisonment. If the violation results in serious
    bodily injury, the person may be imprisoned up to 20 years. If
    the violation results in death, the person may be imprisoned
    for life.
    Senate amendment
          Similar. However, the Senate provision provides that the
    crime be committed ``willfully'' as well as knowingly, and the
    penalties are listed as ``any term of years'' if the violation
    results in serious bodily injury. The Senate provision also
    provides that criminal fines imposed under this section be
    deposited into the Federal Hospital Insurance Trust Fund.
    Conference agreement
          The conference agreement includes the House provision
    with a modification specifying that the standard of intent will
    be ``knowingly and willfully''.
          There has been significant concern regarding the impact
    of the anti-fraud provisions on the practice of complementary
    and alternative medicine and health care. The practice of
    complementary, alternative, innovative, experimental or
    investigational medical or health care itself would not
    constitute fraud. The conferees intend that this proposal not
    be interpreted as a prohibition of the practice of these types
    of medical or health care. The Act is not intended to penalize
    a person who exercises a health care treatment choice or makes
    a medical or health care judgment in good faith simply because
    there is a difference of opinion regarding the form of
    diagnosis or treatment. Nor does this provision in general
    prohibit plans from covering specific types of treatment.
    Whether certain complementary and alternative practices will be
    covered is and should be a decision left to health care plan
    administrators.

                            c. theft or embezzlement

          Section 243 of the House bill; section 546 of the Senate
    amendment)
    Current law
          No provision.
    House bill
          Criminal penalties would be imposed for embezzling,
    stealing, or otherwise without authority knowingly converting
    or intentionally misapplying any of the moneys, funds,
    securities, premiums, credits, property, or other assets of a
    health care benefit program. A person convicted under this
    provision would be subject to a fine under Title 18 of the
    United States Code, or imprisoned not more than 10 years, or
    both. If the value of property does not exceed $100, the
    defendant would be fined or imprisoned not more than one year,
    or both.
    Senate amendment
          Requires that this crime be committed ``willfully'', and
    the person convicted is subject to a fine under this title or
    imprisonment of not more than 10 years, or both.
    Conference agreement
          The conference agreement includes the House provision
    with a modification specifying that the standard of intent will
    be ``knowingly and willfully''.

                              d. false statements

          (Section 244 of the House bill; section 544 of the Senate
    amendment.)
    Current law
          The Federal false statements provision at 18 U.S.C.
    Sec. 1001 generally prohibits false statements with regard to
    any matter within the jurisdiction of a Federal department or
    agency.
    House bill
          Criminal penalties would be imposed for knowingly
    falsifying, concealing, or covering up by any trick, scheme, or
    device a material fact, or making false, fictitious, or
    fraudulent statements or representations, or making or using
    any falsewriting or document knowing the same to contain any
    false, fictitious, or fraudulent statement or entry in any
    matter involving a health care benefit program. A person
    convicted under this provision may be punished by the
    imposition of fines under title 18 of the United States Code,
    or by imprisonment of not more than 5 years, or both.
    Senate amendment
          Contains additional elements of the crime of false
    statements, including the words ``willfully'' and
    ``materially''. The House bill language specifying that the
    false statements be ``in connection with the delivery of or
    payment for health care benefits, items, or services'' does not
    appear in the Senate amendment provision.
    Conference agreement
          The conference agreement includes the House provision
    with a modification specifying that the standard of intent will
    be ``knowingly and willfully''.

       e. obstruction of criminal investigations of health care offenses

          (Section 245 of the House bill; section 545 of the Senate
    amendment.)
    Current law
          Under current law, criminal penalties are imposed for
    obstructing, delaying or preventing the communication of
    information to law enforcement officials regarding the
    violation of criminal statues by using bribery, intimidation,
    threats, corrupt persuasion, or harassment.
    House bill
          Criminal penalties would be imposed for willfully
    preventing, obstructing, misleading, delaying or attempting to
    prevent, obstruct, mislead or delay the communication of
    information or records relating to a Federal health care
    offense to a criminal investigator. A person convicted under
    this provision could be punished by the imposition of fines
    under title 18 of the United States Code or by imprisonment of
    not more than 5 years, or both. Criminal investigator would
    mean any individual duly authorized by a department, agency, or
    armed force of the United States to conduct or engage
    investigations for prosecution for violations of health care
    offenses.
    Senate amendment
          Similar, with only minor drafting differences.
    Conference agreement
          The conference agreement includes the House provision.

                     f. laundering of monetary instruments

          (Section 246 of the House bill; section 547 of the Senate
    amendment.)
    Current law
          The current Federal money laundering provision is found
    at 18 U.S.C. Sec. 1956(c)(7), but does not include money
    laundering as related to health care fraud.
    House bill
          An act or activity constituting a Federal health care
    offense would be considered a ``specified unlawful activity''
    for purposes of the prohibition on money laundering, so that
    any person who engages in money laundering in connection with a
    Federal health care offense would be subject to existing
    criminal penalties.
    Senate amendment
          Similar, with only minor drafting differences.
    Conference agreement
          The conference agreement includes the House provision.

             g. injunctive relief relating to health care offenses

          (Section 247 of the House bill; section 543 of the Senate
    amendment.)
    Current law
          Depending on the facts of a particular case, injunctive
    relief may be imposed on persons who are committing or about to
    commit health care fraud under federal racketeering statutes
    and other related laws.
    House bill
          If a person is violating or about to commit a Federal
    health care offense, the Attorney General of the United States
    could commence a civil action in any Federal court to enjoin
    such a violation. If a person is alienating or disposing of
    property or intends to alienate or dispose of property obtained
    as a result of a Federal health care offense, the Attorney
    General could seek to enjoin such alienation or disposition, or
    could seek a restraining order to prohibit the person from
    withdrawing, transferring, removing, dissipating or disposing
    of any such property or property of equivalent value and
    appoint a temporary receiver to administer such restraining
    order.
    Senate amendment
          Similar.
    Conference agreement
          The conference agreement includes the House provision.

                 h. authorized investigative demand procedures

          (Section 248 of the House bill; section 548 of the Senate
    amendment.)
    Current law
          No provision.
    House bill
          This provision would establish procedures for the
    Attorney General to make investigative demands in cases
    regarding health care fraud. Under this section, the Attorney
    General could issue a summons for records and/or a witness to
    authenticate the records.
          Administrative summons would be authorized for
    investigations of any scheme to defraud an health care benefit
    program in connection with the delivery of or payment for
    health care. This section would provide for service of a
    subpoena and enforcement of a subpoena in all United States
    courts, as well as a grant of immunity to persons responding to
    a subpoena from civil liability for disclosure of such
    information.
          The provision would also provide that 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 of payment
    for health care or action involving a fraudulent claim related
    to health, or if good cause is shown.
    Senate amendment
          Contains additional language relating to testimony by a
    custodian of records, the production of records, witness fees,
    and administrative summons.
    Conference agreement
          The conference agreement includes the House provision
    with an amendment to include Senate bill language relating to
    testimony by a custodian of records.

                I. Forfeitures for Federal Health Care Offenses

          (Section 249 of the House bill; section 542 of the Senate
    amendment.)
    Current law
          Depending on the facts of a particular case, criminal
    forfeiture may be imposed on persons convicted under federal
    money laundering statutes, racketeering statutes, and other
    related laws.
    House bill
          A court imposing a sentence on a person convicted of a
    Federal health care offense could order the person to forfeit
    all real or personal property that is derived, directly or
    indirectly, from proceeds traceable to the commission of the
    offense. After payment of the costs of asset forfeiture have
    been made, the Secretary of the Treasury would deposit into the
    Federal Hospital Insurance Trust Fund an amount equal to the
    net amount realized from the forfeiture of property by reason
    of a federal health care offense.
    Senate amendment
          Identical.
    Conference agreement
          The conference agreement includes the House provision.

                         J. Relation to ERISA Authority

          (Section 250 of the House bill.)
    Current law
          The Employee Retirement Income Security Act of 1974 sets
    forth comprehensive requirements for employee pension and
    welfare benefit plans, including reporting and disclosure
    requirements and fiduciary standards for trustees and
    fiduciaries; pension plans are also subject to funding,
    participation, and vesting requirements.
    House bill
          The provision states that nothing in this subtitle
    (Revisions to Criminal law), shall affect the authority of the
    Secretary of Labor under section 506(b) of ERISA to detect and
    investigate civil and criminal violations related to ERISA.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

                        2. Administrative simplification

          (Sections 251 and 252 of subtitle F of title II of the
    House bill.)
    Current law
          No provision.
    House bill
          The bill would provide that the purpose of the subtitle
    was to improve the Medicare and Medicaid programs, and the
    efficiency and effectiveness of the health care system, by
    encouraging the development of health information network
    through the establishment of standards and requirements for the
    electronic transmission of certain health information. Amends
    title XI of the Social Security Act by adding Part C--
    Administrative Simplification.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

                                 A. Definitions

          (New section 1171 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would provide definitions for this part of the
    Act including the following: clearinghouse, code set,
    coordination of benefits, health care provider, health
    information, health plan, individually identifiable health
    information, standard, and standard setting organization.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision
    with an amendment to exclude a definition for coordination of
    benefits and clarifies the definition of health plan.

               B. General requirements for adoption of standards

          (New section 1172 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would require that any standard or modification
    of a standard adopted would apply to the following: (1) a
    health plan, (2) a clearinghouse, or (3) a health care
    provider, but only to the extent that the provider was
    conducting electronic transactions referred to in the bill. The
    bill would require that any standard or modification of a
    standard adopted must reduce the administrative cost of
    providing and paying for health care. The standard setting
    organization would be required to develop or modify any
    standard or modification adopted. The Secretary could adopt a
    standard or modification of a standard that was different from
    any standard developed by such organization if the different
    standard or modification was promulgated in accordance with
    rulemaking procedures and would substantially reduce
    administrative costs to providers and plans. The Secretary
    would be required to establish specifications for implementing
    each of the standards and modifications adopted. The standards
    adopted would be prohibited from requiring disclosure of trade
    secrets or confidential commercial information by a participant
    in the health information network. In complying with the
    requirements of this part, the Secretary would be required to
    rely on the recommendations of the Health Information Advisory
    Committee established by the bill, and consult with appropriate
    Federal and State agencies and private organizations.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision
    with a modification that requires the Secretary to rely on the
    recommendations of the National Committee on Vital and Health
    Statistics. The standard-setting organization should consult
    with the National Uniform Billing Committee, the National
    Uniform Claim Committee, the Working Group for Electronic Data
    Interchange, and the American Dental Association.

          C. Standards for information transactions and data elements

          (New section 1173 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would require the Secretary to adopt appropriate
    standards for financial and administrative transactions and
    data elements exchanged electronically that are consistent with
    the goals of improving the operation of the health care system
    and reducing administrative costs. Financial and administrative
    transactions would include claims, claims attachments,
    enrollment and disenrollment, eligibility, health care payment
    and remittance advice, premium payments, first report of
    injury, claims status, and referral certification and
    authorization. Standards adopted by the Secretary would be
    required to accommodate the needs of different types of health
    care providers.
          The Secretary would be required to adopt standards
    providing for a standard unique health identifier for each
    individual, employer, health plan, and health care provider for
    use in the health care system. The Secretary would be required
    to establish security standards that (1) take into account the
    technical capabilities of record systems to maintain health
    information, the costs of security measures, the need for
    training persons with access to health information, the value
    of audit trails in computerized record systems used, and the
    needs and capabilities of small health care providers and rural
    health care providers; and (2) ensure that a clearinghouse, if
    it is part of a larger organization, has policies and security
    procedures which isolate the activities of such service to
    prevent unauthorized access to such information by such larger
    organization. The Secretary would be required to establish
    standards and modifications to such standards regarding the
    privacy of individually identifiable health information that is
    in the health information network. The Secretary, in
    coordination with the Secretary of Commerce, would be required
    to adopt standards specifying procedures for the electronic
    transmission and authentication of signatures, compliance with
    which would be deemed to satisfy Federal and State statutory
    requirements for written signatures with respect to the
    transactions specified by the bill. This part would not be
    construed to prohibit the payment of health care services or
    health plan premiums by debit, credit, payment card or numbers,
    or other electronic means. The Secretary would be required to
    adopt standards for determining the financial liability of
    health plans when health benefits are payable under two or more
    health plans, the sequential processing of claims, and other
    data elements for individuals who have more than one health
    plan.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.
        The conferees recognize that certain uses of individually
    identifiable information are appropriate, and do not compromise
    the privacy of an individual. Examples of such use of
    information include the transfer of information when making
    referrals from primary care to specialty care, and the transfer
    of information from a health plan to an organization for the
    sole purpose of conducting health care-related research. As
    health plans and providers continue to focus on outcomes
    research and innovation, it is important that the exchange and
    aggregated use of health care data be allowed.
        The conference agreement includes a modification that this
    part would not be construed to regulate the payment of health
    care services or health care premiums by debit, credit, payment
    card or other electronic means.

                    D. Timetables for adoption of standards

          (New section 1174 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would require the Secretary to adopt standards
    relating to the transactions, data elements of health
    information, security and privacy by not later than 18 months
    after the date of enactment of the part, except that standards
    relating to claims attachments would be required to be adopted
    not later than 30 months after enactment. The Secretary would
    be required to review the adopted standards and adopt
    additional or modified standards as appropriate, but not more
    frequently than once every 6 months, except during the first
    12-month period after the standards are adopted unless the
    Secretary determines that a modification is necessary in order
    to permit compliance with the standards. The Secretary would
    also be required to ensure that procedures exist for the
    routine maintenance, testing, enhancement, and expansion of
    code sets.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision
    with a modification that the Secretary would be required to
    adopt additional or modified standards not more frequently than
    12 months.

                                e. requirements

          (New section 1175 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would establish that if a person desires to
    conduct a financial or administrative transaction with a health
    plan as a standard transaction, (1) the health plan may not
    refuse to conduct such transaction as a standard transaction,
    (2) the health plan may not delay such transaction, or
    otherwise adversely affect, or attempt to adversely affect, the
    person or the transaction on the grounds that the transaction
    is a standard transaction, and (3) the information transmitted
    and received in connection with the transaction would be
    required to be in a form of standard data elements for health
    information. Health plans could satisfy the transmission of
    information by directly transmitting standard data elements of
    health information, or submitting nonstandard data elements to
    a clearinghouse for processing in to standard data elements and
    transmission. Not later than 24 months after the date on which
    standard or implementation specification was adopted or
    established under this part, each person to which the standard
    applied would be required to comply with the standard or
    specification. Small health plans, determined by the Secretary,
    would be required to comply not later than 36 months after
    standards were adopted.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

        f. general penalty for failure to comply with requirements and
                                   standards

          (Section 1176 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would require the Secretary to impose on any
    person who violates a provision under the bill a penalty of not
    more than $100 for each such violation of a specific standard
    or requirement, except that the total amount imposed on the
    person for all such violations during a calendar year would not
    exceed $25,000. A penalty would not be imposed if it was
    established that the person liable for the penalty did not
    know, and by exercising reasonable diligence would not have
    known, that such person violated the provision. A penalty would
    not be imposed if (1) the failure to comply was due to
    reasonable cause and not willful neglect, and (2) the failure
    to comply as corrected during the 30-day period beginning on
    the first date the person liable for the penalty knows, or
    would have known, that the failure to comply occurred.
    Senate amendment
          No provision.
    Conference agreement.
          The conference agreement includes the House provision.

     g. wrongful disclosure of individually identifiable health information

          (New section 1177 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would define the offense of wrongful disclosure
    of individually identifiable health information as instances
    when a person who knowingly (1) uses or causes to be used a
    unique health identifier violation of a provision in this part,
    (2) obtains individually identifiable health information
    relating to an individual in violation of a provision in this
    part, or (3) discloses individually identifiable health
    information to another person in violation of this part. A
    person committing such an offense would be required to (1) be
    fined not more than $50,000, imprisoned not more than 1 year,
    or both; (2) if the offense was committed under false
    pretenses, be fined not more than $100,000, imprisoned not more
    than 5 years, or both; and (3) if the offense was committed
    with intent to sell, transfer, or use individually identifiable
    health information for commercial advantage, personal gain, or
    malicious harm, fined not more than $250,000, imprisoned not
    more than 10 years, or both.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.

                             h. effect on state law

          (New section 1178 of the Social Security Act.)
    Current law
          No provision.
    House bill
          The bill would require that a provision, requirement, or
    standard provided by the bill supersede any contrary provision
    of state law, including a provision of state law that required
    medical or health plan records (including billing information)
    to be maintained or transmitted in written rather that
    electronic form. A provision under the bill would not supersede
    a contrary provision of state law if the provision of state law
    (1) was more stringent than the requirements of the bill with
    respect to privacy or individually identifiable health
    information, or (2) was a provision the Secretary determined
    was necessary to prevent fraud and abuse with respect to
    controlled substances or for other purposes.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision
    with a modification, that the provision would not supersede a
    contrary State law only if the Secretary determines that the
    State law (1) is necessary to prevent fraud and abuse; (2) to
    ensure appropriation State regulation of insurance and health
    plans; (3) for state reporting on health care delivery or
    costs, or for other purposes; or (4) addresses controlled
    substances.
          The conference agreement also includes the requirement
    that any standard adopted under this part would not apply to
    the following: (1) the use or disclosure of information for
    authorizing, processing, clearing, settling, billing,
    transferring, collecting, or reconciling a payment for, health
    plan premiums or health care, where such payment is made by
    means of a credit, debit, or other payment card, or by an
    account, check, electronic funds transfer or other such means;
    (2) the use or disclosure of information relating to a payment
    described above for transferring receivables, resolving
    customer disputes or inquiries, auditing, supplying a statement
    to a consumer of a financial institution regarding the
    customer's account with such an institution, reporting to
    customer reporting agencies, or complying with a civil or
    criminal subpoena or a Federal or State law regulating
    financial institutions.
          The conferees do not intend to exclude the activities of
    financial institutions or their contractors from compliance
    with the standards adopted under this part if such activities
    would be subject to this part. However, conferees intend that
    this part does not apply to use or disclosure of information
    when an individual utilizes a payment system to make a payment
    for, or related to, health plan premiums or health care. For
    example, the exchange of information between participants in a
    credit card system in connection with processing a credit card
    payment for health care would not be covered by this part.
    Similarly sending a checking account statement to an
    accountholder who uses a credit or debit card to pay for health
    care services, would not be covered by this part. However, this
    part does apply if a company clears health care claims, the
    health care claims activities remain subject to the
    requirements of this part.

     1. changes in membership and duties of national committee on vital and
                               health statistics

          (Section 253 of the House bill.)
    Current law
          No provision.
    House bill
          The bill would amend the membership and duties of the
    National Committee on Vital and Health Statistics, authorized
    under section 306(k) of the Public Health Service Act, as
    amended, by increasing the number of members to 18. The
    committee would be required to (1) provide assistance and
    advice to the Secretary on issues related to health statistical
    and health information; health with complying with the
    requirements of the bill; (2) study the issues related to the
    adoption of uniform data standards for patient medical record
    information and electronic exchange of such information; (3)
    report to the Secretary not later than 4 years after enactment
    of the Health Coverage Availability and Affordability Act of
    1996, and annually thereafter, recommendations and legislative
    proposals for such standards and electronic exchange; and (4)
    be generally responsible for advising the Secretary and the
    Congress on the status of the future of the health information
    network. The committee would be required, not later than 1 year
    after enactment, to report to Congress, health care providers,
    health plans, and other entities using the health information
    network regarding (1) the extent to which entities using the
    network were meeting the standards adopted and working together
    to form an integrated network that meets the needs of its
    users; (2) the extent to which entities were meeting the
    privacy and security standards, and the types of penalties
    assessed for noncompliance; (3) whether the federal and state
    governments were receiving information of sufficient quality to
    meet their responsibilities; (4) any problems that exist with
    implementation of the network; and (5) the extent to which
    timetables established by under this part of the bill were
    being met.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision.
          The conference agreement also includes a requirement that
    the Secretary submit detailed recommendations on standards with
    respect to the privacy of individually identifiable health
    information not later than 12 months after enactment. The
    recommendations would be required to address at least: (1) the
    rights an individual should have relating to individually
    identifiable health information; (2) the procedures that should
    be established for the exercise of such rights; and (3) the
    uses and disclosures of such information that should be
    authorized or required. The Secretary would be required to
    consult with the Attorney General, and the National Committee
    on Vital and Health Statistics for carrying out this
    requirement. If Congress fails to enact privacy legislation,
    the Secretary is required to develop standards with respect to
    privacy of individually identifiable health information not
    later than 42 months from the date of enactment.
          The conferees recognize that industry experts are
    essential to the membership of the National Committee on Vital
    and Health Statistics. It is the conferees' intent that the
    Committee select representatives from the insurer, HMO,
    provider, employer, accreditation communities, and a
    representative from the Workgroup for Electronic Data
    Interchange (WEDI).
          The conferees recognize that technological innovation
    with respect to electronic transmission of health-care related
    transactions is progressing rapidly in the marketplace. The
    conferees do not intend to stifle innovation in this area.
    Therefore, the conferees intend that the Committee take into
    account private sector initiatives.

           3. Duplication and coordination of Medicare-related plans

          (Subtitle G of title II of the House bill.)

           a. duplication and coordination of medicare-related plans

          (Section 281 of House bill.)
    Current law
          Many Medicare beneficiaries purchase private health
    insurance to supplement their Medicare coverage. These
    individually purchased policies are known as Medigap policies.
    The Omnibus Budget Reconciliation Act of 1990 (OBRA 1990, P.L.
    101-508) provided for a standardization of Medigap policies.
    OBRA also substantially modified the antiduplication provision
    contained in law. The intent of the OBRA 1990 anti-duplication
    provision was to prohibit sales of duplicative Medigap
    policies. However, the statutory language applied, with very
    limited exceptions, to all ``health insurance policies'' sold
    to Medicare beneficiaries. Observers noted that this provision
    could thus apply to a broad range of policies including
    hospital indemnity plans, dread disease policies, and long-term
    care insurance policies.
          The Social Security Amendments of 1994 (P.L. 103-432)
    included a number of technical modifications to the Medigap
    statute, including modifications to the anti-duplication
    provisions contained in section 1882(d)(3) of the Act. Under
    the revised language, it is illegal to sell or issue the
    following policies to Medicare beneficiaries: (i) a health
    insurance policy with knowledge that it duplicates Medicare or
    Medicaid benefits to which a beneficiary is otherwise entitled;
    (ii) a Medigap policy, with knowledge that the beneficiary
    already has a Medigap policy; or (iii) a health insurance
    policy (other than Medigap) with knowledge that it duplicates
    private health benefits to which the beneficiary is already
    entitled.
          A number of exceptions to these prohibitions are
    established. The sale of a medigap policy is not in violation
    of the provisions relating to duplication of Medicaid coverage
    if: (i) the State Medicaid program pays the premiums for the
    policy; (ii) in the case of qualified Medicare beneficiaries
    (QMBs), the policy includes prescription drug coverage; or
    (iii) the only Medicaid assistance the individual is entitled
    to is payment of Medicare Part B premiums.
          The sale of a health insurance policy (other than a
    Medigap policy) that duplicates private coverage is not
    prohibited if the policy pays benefits directly to the
    individual without regard to other coverage. Further, the sale
    of a health insurance policy (other than a Medigap policy to an
    individual entitled to Medicaid) is not in violation of the
    prohibition relating to selling of a policy duplicating
    Medicare or Medicaid, if the benefits are paid without regard
    to the duplication in coverage. This exception is conditional
    on the prominent disclosure of the extent of the duplication,
    as part of or together with, the application statement.
          P.L. 103-432 provided for the development by the National
    Association of Insurance Commissioners (NAIC) of disclosure
    statements describing the extent of duplication for each of the
    types of private health insurance policies. Statements were to
    be developed, at a minimum, for policies paying fixed cash
    benefits directly to the beneficiary and policies limiting
    benefits to specific diseases. The NAIC identified 10 types of
    health insurance policies requiring disclosure statements and
    developed statements for them. These were approved by the
    Secretary and published in the Federal Register on June 12,
    1995.
    House bill
          The provision would modify the anti-duplication
    provisions. The requirement for obtaining a written application
    statement would be limited to the sale of Medigap policies to
    persons already having Medigap policies.
          Anti-duplicative provisions would specifically state that
    a policy which pays benefits to or on behalf of an individual
    without regard to other health benefit coverage would not be
    considered to duplicate any health benefits under Medicare,
    Medicaid, or a health insurance policy. Further, such policies
    would be excluded from the sales prohibitions.
          The provision would specifically state that a health
    insurance policy (or a rider to an insurance contract which is
    not a health policy) which provides benefits for long term
    care, nursing home care, home health care or community-based
    care and that coordinates or excludes against services covered
    under Medicare would not be considered duplicative, provided
    such coordination or exclusion was disclosed in the policy's
    outline of coverage.
          The provision would specify that a health insurance
    policy (which may be a contract with a health maintenance
    organization), provided to a disabled beneficiary, that is a
    replacement product for another policy that is being terminated
    by the insurer would not be considered duplicative if it
    coordinates with Medicare.
          The provision would prohibit the imposition of criminal
    or civil penalties, or taking of legal action, with respect to
    any actions which occurred between enactment of P.L. 103-432
    and enactment of this measure, provided the policies met the
    new requirements.
          The provision would prohibit States from imposing
    duplication requirements with respect to a policy (other than
    Medigap policy) or rider to an insurance contract which is not
    a health policy if the policy or rider pays benefits without
    regard to other benefits coverage or if it is a long-term care
    policy or policy sold to the disabled (as such policies are
    described above).
          The provision would also delete current language relating
    to required disclosure statements.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement includes the House provision
    with modifications. The agreement would clarify that policies
    offering only long-term care nursing home care, home health
    care, or community based care, or any combination thereof would
    be allowed to coordinate benefits with Medicare and not be
    considered duplicative, provided such coordination was
    disclosed. The conference agreement does not include the
    provision relating to replacement policies sold to disabled
    persons.
          The conference agreement would modify, rather than
    repeal, the current law requirement for disclosure statements
    for policies that pay regardless of other coverage. Disclosure
    statements, for the type of policy being applied for, would be
    furnished to a Medicare beneficiary applying for a health
    insurance policy. The statement would be furnished as a part of
    (or together with) the policy application.
          The conference agreement would specify that whoever
    issues or sells a health insurance policy to a Medicare
    beneficiary and fails to furnish the required disclosure
    statement would be fined under title 18 of the United States
    Code, or imprisoned not more than five years or both. In
    addition, or in lieu of the criminal penalty, a civil money
    penalty of $25,000 (or $15,000 in the case of someone who is
    not an issuer) could be imposed for each violation.
          The disclosure requirements would not apply to Medigap
    policies or health insurance policies identified in the July
    12, 1995 Federal Register notice (i.e. policies that do not
    duplicate Medicare (even incidentally), life insurance policies
    that contain long-term care riders or accelerated death
    benefits, disability insurance policies, property and casualty
    policies, employer and union group health plans, managed care
    organizations with Medicare contracts, and health care
    prepayment plans (HCPPs) that provide some or all of Part B
    benefits under an agreement with HCFA.)
          The conference agreement would modify existing disclosure
    statements to remove the wording that implies the policies
    duplicate Medicare coverage. New language would be substituted
    which states that: ``Some health care services paid for by
    Medicare may also trigger the payment of benefits under this
    policy''.
          The agreement would further modify the required statement
    for policies providing both nursing home and non-institutional
    coverage, nursing home benefits only, or home health care
    benefits only. The reference to Federal law would be modified
    to read: ``Federal law requires us to inform you that in
    certain situations this insurance may pay for some care also
    covered by Medicare''. All other policies would be required to
    include the following statement: ``This policy must pay
    benefits without regard to other health benefit coverage to
    which you may be entitled under Medicare or other insurance.''
          The conference agreement would further modify the
    language relating to State actions. The law would specifically
    state that nothing in the provision restricts or precludes a
    State's ability to regulate health insurance, including the
    policies subject to disclosure requirements. However, a State
    may not declare or specify, in statute, regulation, or
    otherwise, that a health insurance policy (other than a Medigap
    policy) or rider to an insurance contract which is not a health
    insurance policy that pays regardless of other coverage
    duplicates Medicare or Medigap benefits.
          The conference agreement further narrows the language
    relating to application of penalties and legal action with
    respect to non-duplication requirements during a transition
    period, defined as beginning on November 5, 1991 and ending on
    the date of enactment. No criminal or civil monetary penalty
    could be imposed for an act or omission that occurred during
    the transition period relating to policies that pay benefits
    without regard to other coverage or long-term care policies. No
    legal action could be brought or continued in any Federal or
    State court with respect to the sale of such policies insofar
    as such action includes a cause of action which arose or is
    based on action occurring during the transition period and
    relating to non-duplication requirements. This limitation on
    legal actions would be conditional on the existing disclosure
    requirements being met with respect to any policy sold during
    the period beginning on the effective date of the disclosure
    requirements required by the 1994 Act (i.e. August 11, 1995)
    and ending 30 days after enactment.
          The conference agreement further provides that the new
    disclosure rules only apply after enactment to health insurance
    policies that pay regardless of other coverage and 30-days
    after enactment to another health insurance policy.
          The conference agreement would further permit a seller or
    issuer of a health insurance policy to use current disclosure
    statements rather than the new disclosure statements.

                          4. Medical liability reform

          (Subtitle H of title II of the House bill; section 310 of
    title I of the Senate amendment.)

                             I. General Provisions

               A. Federal reform of health care liability actions

          (Section 271 of House bill.)
    Current law
          There are no uniform Federal standards governing health
    care liability actions.
    House bill
          (1) Applicability. The provision would provide for
    Federal reform of health care liability actions. It would apply
    to any health care liability action brought in any State or
    Federal court. The provisions would not apply to any action for
    damages arising from a vaccine-related injury or death or to
    the extent that the provisions of the National Vaccine Injury
    Compensation Program apply. The provisions would also not apply
    to actions under the Employment Retirement Income Security Act.
          (2) Preemption; Effect on Sovereign Immunity. The
    provisions would preempt State law to the extent State law
    provisions were inconsistent with the new requirements.
    However, it would not preempt State law to the extent State law
    provisions were more stringent. The provision specifies that
    nothing in the preemption provision could be construed to: (i)
    waive or affect any defense of sovereign immunity asserted by
    any State under any provision of law; (ii) waive or affect any
    defense of sovereign immunity asserted by the U.S.: (iii)
    affect any provision of the Foreign Services Immunity Act of
    1976; (iv) preempt State choice-of-law rules with respect to
    claims brought by a Foreign nation or a citizen of a foreign
    nation; or (v) affect the right of any court to transfer venue
    or to apply the law of a foreign nation or to dismiss a claim
    of a foreign nation or of a citizen of a foreign nation on the
    ground of inconvenient forum.
          (3) Amount in Controversy; Federal Court Jurisdiction.
    The provision would specify that in the case of a health care
    liability action brought under section 1332 of Title 28 of the
    U.S. Code, the amount of noneconomic and punitive damages and
    attorneys fees would not be included in establishing the amount
    in controversy for purposes of establishing original
    jurisdiction. Further, the provision would specify that nothing
    in this subtitle would be construed to establish any
    jurisdiction in the U.S. district courts over health care
    liability action on the basis of Federal question grounds
    specified in section 1331 or 1337 of title 28 of the U.S. Code.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                                 b. definitions

          (Section 272 of House bill.)
    Current law
          No provision.
    House bill
          The provision would define the following terms for
    purposes of the Federal reforms: actual damages; alternative
    dispute resolution system; claimant; clear and convincing
    evidence; collateral source payments; drug; economic loss;
    harm; health benefit plan; health care liability action; health
    care liability claim; health care provider; health care
    service; medical device; noneconomic damages; person; product
    seller; punitive damages; and State.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                               c. effective date

          (Section 273 of House bill.)
    Current law
          No provision.
    House bill
          The provision would specify that Federal reforms apply to
    any health care liability action brought in any State or
    Federal court that is initiated after the date of enactment.
    The provision would also apply to any health care liability
    claim subject to an alternative dispute resolution system, Any
    health care liability claim or action arising from an injury
    occurring prior to enactment would be governed by the statute
    of limitations in effect at the time the injury occurred.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

            II. Uniform Standards for Health Care Liability Actions

                           a. statute of limitations

          (Section 281 of House bill.)
    Current law
          To date reforms of the malpractice system have occurred
    primarily at the State level and have generally involved
    changes in the rules governing tort cases. (A tort case is a
    civil action to recover damages, other than for a breach of
    contract.)
    House bill
          The provision would establish a uniform statute of
    limitations. Actions could not be brought more than two years
    after the injury was discovered or reasonably should have been
    discovered. In no event could the action be brought more than
    five years after the date of the alleged injury.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                     B. Calculation and payment of damages

          (Section 282 of House bill.)
    Current bill
          No provision.
    House bill
          1. Noneconomic Damages. The provision would limit
    noneconomic damages to $250,000 in a particular case. The limit
    would apply regardless of the number of persons against whom
    the action was brought or the number of actions brought.
          The provision would specify that a defendant would only
    be liable for the amount of noneconomic damages attributable to
    that defendant's proportionate share of the fault or
    responsibility for that claimant's injury.
          2. Punitive Damages. The provision would permit the award
    of punitive damages (to the extent allowed under State law)
    only if the claimant established by clear and convincing
    evidence either that the harm was the result of conduct that
    specifically intended to cause harm or the conduct manifested a
    conscious flagrant indifference to the rights or safety of
    others. The amount of punitive damages awarded could not exceed
    $250,000 or three times the amount of economic damages,
    whichever was greater. The determination of punitive damages
    would be determined by the court and not be disclosed to the
    jury. The provision would not create a cause of action for
    punitive damages. Further, it would not preempt or supersede
    any State or Federal law to the extent that such law would
    further limit punitive damage awards.
          The provision would permit either party to request a
    separate proceeding (bifurcation) on the issue of whether
    punitive damages should be awarded and in what amount. If a
    separate proceeding was requested, evidence related only to the
    claim of punitive damages would be inadmissible in any
    proceeding to determine whether actual damages should be
    awarded.
          The provision would prohibit the award of punitive
    damages in a case where the drug or device was subject to
    premarket approval by the Food and Drug Administration, unless
    there was misrepresentation or fraud. A manufacturer or product
    seller would not be held liable for punitive damages related to
    adequacy of required tamper resistant packaging unless the
    packaging or labeling was found by clear and convincing
    evidence to be substantially out of compliance with the
    regulations.
          3. Periodic Payments for Future Losses. The provision
    would permit the periodic (rather than lump sum) payment of
    future losses in excess of $50,000. The judgment of a court
    awarding periodic payments could not, in the absence of fraud,
    be reopened at any time to contest, amended, or modify the
    schedule or amount of payments. The provision would not
    preclude a lump sum settlement.
          4. Treatment of Collateral Source Payments. The provision
    would permit a defendant to introduce evidence of collateral
    source payments. Such payments are those which are any amounts
    paid or reasonably likely to be paid by health or accident
    insurance, disability coverage, workers compensation, or other
    third party sources. If such evidence was introduced, the
    claimant could introduce evidence of any amount paid or
    reasonably likely to be paid to secure the right to such
    collateral source payments. No provider of collateral source
    payments would be permitted to recover any amount against the
    claimant or against the claimant's recovery. The provision
    would apply to settlements as well as actions resolved by the
    courts.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                       C. Alternative dispute resolution

          (Section 283 of House bill.)
    Current law
          No provision.
    House bill
          The provision would require that any alternative dispute
    resolution system used to resolve health care liability actions
    or claims must include provisions identical to those specified
    in the bill.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House
    provision.

                            III. Medical Volunteers

          (Section 310 of Senate bill.)
    Current law
          The Federally Supported Health Centers Assistance Act of
    1992 (P.L. 102-501) provides protection from legal liability
    for certain health professionals providing services under the
    Public Health Service Act P.L. 104-73 made the provision
    permanent.
    House bill
          No provision.
    Senate amendment
          Section 310 of the bill would be known as the Medical
    Volunteer Act. It would provide that under certain
    circumstances a health care professional would be regarded for
    purposes of a malpractice claim to be a Federal employee for
    purposes of the Federal tort claims provisions of title 28 of
    the U.S. Code. Specifically this would occur when such
    professional provided services to a medically underserved
    person without receiving compensation for such services. The
    professional would be deemed to have provided services without
    providing compensation only if prior to furnishing services the
    professional: (i) agreed to furnish services without charge to
    any person, including any health insurance plan or program
    under which the recipient is covered; and (ii) provided the
    recipient with adequate notice (as determined by the Secretary)
    of the limited liability of the professional. These provisions
    would preempt any State law to the extent such law was
    inconsistent; they would not preempt any State law that
    provided greater incentives or protections.
          A medically underserved person would be defined as a
    person residing in either: (I) a medically underserved area as
    defined for purposes of determining a medically underserved
    population under section 330 of the Public Health Service Act;
    or (ii) a health professional shortage area as defined in
    section 332 of that Act. Further the individual would have to
    receive care in a facility substantially comparable to any of
    those designated in the Federally-Supported Health Centers Act,
    as determined in regulations of the Secretary.
    Conference agreement
          The conference agreement includes the Senate provision.
    This provision extends Federal Tort Claims Act coverage to
    certain medical volunteers in free clinics in order to expand
    access to health care services to low-income individuals in
    medically underserved areas. Such coverage is currently
    provided in the Public Health Service Act to certain community
    and other health centers under the Federally Supported Health
    Centers Assistance Act. The provision tracks to the extent
    possible the provisions of that Act with respect to the
    coverage provided, quality assurance, and the process by which
    a free clinic applies to have a free clinic health professional
    deemed an employee of the Public Health Service.
          Health professionals must meet certain conditions before
    they are deemed employees of the Public Health Service Act.
    They must be licensed or certified in accordance with
    applicable law and they must be volunteers; they may not
    receive compensation for the services in the form of salary,
    fees, or third-party payments. However, they may receive
    reimbursement from the clinic for reasonable expenses, such as
    costs of transportation and the cost of supplies they provide.
    Further, the free clinic may receive a voluntary donation from
    the individual served.
          Eligible health professionals must provide qualifying
    services (i.e., otherwise available for Medicaid reimbursement)
    at a free clinic or through programs or events conducted by the
    clinic. These programs or events may include the provision of
    health services in a clinic-owned or clinic-operated mobile van
    or at a booth in a health fair. They may not include the
    provision of health services in a private physician's office
    following a referral from the free clinic. The health care
    professional or the free clinic must provide prior written
    notice of the extent of the limited liability to the
    individual. This notice should include written disclosure,
    understandable to a reasonable person, given a reasonable
    amount of time prior to the provision of services. Separate
    notice need not be provided by each professional nor prior to
    each discrete service but adequate written notice must be
    received by each individual.
          The free clinic must be licensed or certified under
    applicable law and may not impose a charge on or accept
    reimbursement from any private or public third-party payor. The
    free clinic may, however, receive voluntary donations from
    individuals receiving health care services and is not precluded
    from receiving donations, grants, contracts, or awards from
    private or public sources for the general support of the
    clinic, or for specific purposes other than for payment or
    reimbursement for a health care service.
          A free clinic must apply, consistent with the provisions
    applicable to community health centers, to have each health
    care professional ``deemed'' an employee of the Public Health
    Service Act, and therefore eligible for coverage under the
    Federal Tort Claims Act. A free clinic may not be deemed such
    an employee under this provision.
          The Committee is aware that each of the 50 states have
    passed laws to limit the liability of volunteers in a variety
    of circumstances. This provision does not preempt those laws
    beyond the preemption provided in the Federal Tort Claims Act.
    Instead, the United States shall be liable in the same manner
    and to the same extent as a private individual in the same
    circumstances under State law.
          The provision applies only to causes of action filed
    against a health professional for acts or omissions occurring
    on or after the date on which the health professional is
    determined by the Secretary to be a ``free clinic health
    professional.''
          The provision establishes for free clinics funding and
    estimating mechanisms that match to the extent possible those
    for community health centers. No funds appropriated for
    purposes of community health centers will be available to free
    clinics.

                              4. Other provisions

              I. Extension of Medicare Secondary Payer Provisions

          (Sec. 621 of Senate Amendment.)
    Current law
          Generally Medicare is the ``primary payer,'' that is, it
    pays health claims first, with an individual's private or other
    public insurance filling in some or all of Medicare's coverage
    gaps. However, in certain instances, the individual's other
    coverage pays first, while Medicare is the secondary payer.
    This phenomenon is referred to as the MSP program. A group
    health plan offered by an employer (with 20 or more employees
    is required to offer workers age 65 or over (and workers
    spouses age 65 or over) the same group health insurance
    coverage as is offered to younger workers. If the worker
    accepts the coverage, the employer is the primary payer, with
    Medicare becoming the secondary payer.
          Similarly, a group health plan offered by a large
    employer (100 or more employees) is the primary payer for
    employees or their dependents who are on the Medicare
    disability program. The provision applies only to persons
    covered under the group plan because the employee is in
    ``current employment status'' (i.e. is an employee or is
    treated as an employee by the employer). The MSP provision for
    the disabled population expires October 1, 1998.
          The MSP provisions apply to end-stage renal (ESRD)
    beneficiaries with employer group health plans, regardless of
    employer size. The group health plan is the primary payer for
    18 months for persons who become eligible for Medicare ESRD
    benefits. The employer's role as primary payer is limited to a
    maximum of 21 months (18 months plus the usual 3-month waiting
    period for Medicare ESRD coverage). The 18-month MSP provisions
    for the ESRD population expire October 1, 1998; at that time
    the period would revert to 12 months.
          The law authorizes a data match program which is intended
    to identify potential secondary payer situations. Medicare
    beneficiaries are matched against data contained in Social
    Security Administration (SSA) and Internal Revenue Service
    (IRS) files to identify cases in which a working beneficiary
    (or working spouse) may have employer-based health insurance
    coverage. Cases of previous incorrect Medicare payments are
    identified and recoveries are attempted. The authority for the
    program extends through Sept. 30, 1998.
    House bill
          No provision.
    Senate Amendment
          The provision would make permanent the MSP provisions for
    the disabled and the 18-month period for the ESRD population.
    It would also make permanent the data match requirement.
    Conference agreement
          The conference agreement does not include the Senate
    provision.

                    Title III. Tax-Related Health Provisions

                          a. medical savings accounts

          (Sec. 301 of the House bill.)
    Present law
          The tax treatment of health expenses depends on whether
    the individual is an employee or self employed, and whether the
    individual is covered under an employer-sponsored health plan.
    Employer contributions to a health plan for coverage for the
    employee and the employee's spouse and dependents is excludable
    from the employee's income and wages for social security tax
    purposes. Self-employed individuals are entitled to deduct 30
    percent of the amount paid for health insurance for a self-
    employed individual and his or her spouse or dependents. Any
    individual who itemizes tax deductions may deduct unreimbursed
    medical expenses (including expenses for medical insurance)
    paid during the year to the extent that the total of such
    expenses exceeds 7.5 percent of the individual's adjusted gross
    income (``AGI''). Present law does not contain any special
    rules for medical savings accounts.
    House bill
                In general
          Within limits, contributions to a medical savings account
    (``MSA'') are deductible if made by an eligible individual and
    are excludable from income (and wages for social security
    purposes) if made by the employer of an eligible individual.
    Earnings on amounts in an MSA are not currently taxable.
    Distributions from an MSA for medical expenses are not taxable.
                Eligible individuals
          An individual is eligible to make a deductible
    contribution to an MSA (or to have employer contributions made
    on his or her behalf) if the individual is covered under a high
    deductible health plan and is not covered under another health
    plan (other than a plan that provides certain permitted
    coverage). An individual with other coverage in addition to a
    high deductible plan is still eligible for an MSA if such other
    coverage is certain permitted insurance or is coverage (whether
    provided through insurance to otherwise) for accidents,
    disability, dental care, vision care, or long-term care.
    Permitted insurance is (1) Medicare supplemental insurance; (2)
    insurance if substantially all of the coverage provided under
    such insurance relates to (a) liabilities incurred under
    worker's compensation law, (b) tort liabilities, (c)
    liabilities relating to ownership or use of property (e.g.,
    auto insurance), or (d) such other similar liabilities as the
    Secretary may prescribe by regulations, (3) insurance for a
    specified disease or illness, and (4) insurance that provides a
    fixed payment for hospitalization. An individual is not
    eligible to make deductible contributions to an MSA for a year
    if any employer contributions are made to an MSA on behalf of
    the individual for the year.
                Tax treatment of and limits on contributions
          Individuals contributions to an MSA are deductible
    (within limits) in determining AGI. Employer contributions are
    excludable (within the same limits) from gross income and wages
    for employment tax purposes, except that this exclusion does
    not apply to contributions made through a cafeteria plan. The
    maximum amount of contributions that can be deducted or
    excluded for a year is equal to the lesser of (1) the
    deductible under the high deductible health plan or (2) $2,000
    in the case of single coverage and $4,000 if the high
    deductible plan covers the individual and a spouse or
    dependent. The annual limit is the sum of the limits determined
    separately for each month, based on the individual's status as
    of the first day of the month. The maximum contribution limit
    to an MSA is determined separately for each spouse in a married
    couple. In no event can the maximum contribution limit exceed
    $4,000 for a family. The dollar limits are indexed for medical
    inflation and rounded to the nearest multiple of $50.
                Definition of high deductible health plan
          A high deductible health plan is a health plan with a
    deductible of at least $1,500 in the case of single coverage
    and $3,000 in the case of coverage of more than one individual.
    These dollar limits are indexed for medical inflation, rounded
    to the nearest multiple of $50.
                Tax treatment of MSAs
          Earnings on amounts in an MSA are not currently
    includible in income.
                Taxation of distributions
          Distributions from an MSA for the medical expenses of the
    individual and his or her spouse or dependents are excludable
    from income. For this purpose, medical expenses do not include
    expenses for insurance other than long-term care insurance,
    premiums for health care continuation coverage, and premiums
    for health care coverage while an individual is receiving
    unemployment compensation under Federal or State law.
          Distributions that are not for medical expenses are
    includible in income. Such distributions are also subject to an
    additional 10-percent tax unless made after age 59\1/2\, death
    or disability.
          Upon death, if the beneficiary is the individual's
    surviving spouse, the spouse may continue the MSA as his or her
    own. Otherwise, the beneficiary must include the MSA balance in
    income in the year of death. If there is no beneficiary, the
    MSA balance is includible on the final return of the decedent.
    In any case, no estate tax applies.
                Definition of MSA
          In general, an MSA is a trust or custodial account
    created exclusively for the benefit of the account holder and
    is subject to rules similar to those applicable to individual
    retirement arrangements.
                Effective date
          Taxable years beginning after December 31, 1996.
    Senate amendment
          The Senate amendment does not contain provisions
    providing favorable tax treatment for MSAs. However, the Senate
    amendment amends the Public Health Services Act to permit
    health maintenance organizations to charge deductibles to
    individuals with an MSA. In addition, the Senate amendment
    provides that it is the sense of the Committee on Labor and
    Human Resources that the establishment of MSAs should be
    encouraged as part of any health insurance legislation passed
    by the Senate through the use of tax incentives relating to
    contributions to, the income growth of, and the qualified use
    of, MSAs. The Senate amendment also provides that it is the
    sense of the Senate that the Congress should take measures to
    further the purposes of the Senate amendment, including any
    necessary changes to the Internal Revenue Code to encourage
    groups and individuals to obtain health coverage, and to
    promote access, equity, portability, affordability, and
    security of health benefits.
    Conference agreement
          The conference agreement follows the House bill, with
    modifications.
                In general
          Within limits, contributions to a medical savings account
    (``MSA'') are deductible if made by an eligible individual and
    are excludable if made by the employer of an eligible
    individual. Earnings on amounts in an MSA are not currently
    taxable. Distributions from an MSA for medical expenses are not
    taxable.
                Eligible individuals
          Beginning in 1997, MSAs are available to employees
    covered under an employer-sponsored high deductible plan of a
    small employer and self-employed individuals. An employer is a
    small employer if it employed, on average, no more than 50
    employees during either the preceding or the second preceding
    year.
          In determining whether an employer is a small employer, a
    preceding year is not taken into account unless the employer
    was in existence throughout such year. In the case of an
    employer that was not in existence through the first preceding
    year, the determination of whether the employer has no more
    than 50 employees is based on the average number of employees
    that the employer reasonably expects to employ in the current
    year. In determining the number of employees of an employer,
    employers under common control are treated as a single
    employer.
          In order for an employee of an eligible employer to be
    eligible to make MSA contributions (or to have employer
    contributions made on his or her behalf), the employee must be
    covered under an employer-sponsored high deductible health plan
    and must not be covered under any other health plan (other than
    a plan that provides certain permitted coverage). In the case
    of an employee, contributions can be made to an MSA either by
    the individual or by the individual's employer. However, an
    individual is not eligible to make contributions to an MSA for
    a year if any employer contributions are made to an MSA on
    behalf of the individual for the year.
          Similarly, in order to be eligible to make contributions
    to an MSA, a self-employed individual must be covered under a
    high deductible health plan and no other health plan (other
    than a plan that provides certain permitted coverage).
          An individual with other coverage in addition to a high
    deductible plan is still eligible for an MSA if such other
    coverage is certain permitted insurance or is coverage (whether
    provided through insurance to otherwise) for accidents,
    disability, dental care, vision care, or long-term care.
    Permitted insurance is: (1) Medicare supplemental insurance;
    (2) insurance if substantially all of the coverage provided
    under such insurance relates to (a) liabilities incurred under
    worker's compensation law, (b) tort liabilities, (c)
    liabilities relating to ownership or use of property (e.g.,
    auto insurance), or (d) such other similar liabilities as the
    Secretary may prescribe by regulations, (3) insurance for a
    specified disease or illness, and (4) insurance that provides a
    fixed payment for hospitalization.
          If a small employer with an MSA plan (i.e., the employer
    or its employees made contributions to an MSA) ceases to become
    a small employer (i.e., exceeds the 50-employee limit), then
    the employer (and its employees) can continue to establish and
    make contributions to MSAs (including contributions for new
    employees and employees that did not previously have an MSA)
    until the year following the first year in which the employer
    has more than 200 employees. After that, those employees who
    had an MSA (to which individual or employer contributions were
    made in any year) can continue to make contributions (or have
    contributions made on their behalf) even if the employer has
    more than 200 employees. For example, suppose Employer A has 48
    employees in 1995 and 1996, and 205 employees in 1997 and 1998.
    A would be a small employer in 1997 and 1998 because it has 50
    or fewer employees in the preceding or the second preceding
    year. Employer A would still be considered a small employer in
    1999. However, in years after 1999, Employer A would not be
    considered a small employer (even if the number of employees
    fell to 50 or below), and in years after 1999, only employees
    who previously had MSA contributions could make new MSA
    contributions (or have employer contributions made on their
    behalf).
                Tax treatment of and limits on contributions
          Individual contributions to an MSA are deductible (within
    limits) in determining AGI (i.e., ``above the line''). In
    addition, employer contributions are excludable (within the
    same limits), except that this exclusion does not apply to
    contributions made through a cafeteria plan.
          In the case of a self-employed individual, the deduction
    cannot exceed the individual's earned income from the trade or
    business with respect to which the high deductible plan is
    established. In the case of an employee, the deduction cannot
    exceed the individual's compensation attributable to the
    employer sponsoring the high deductible plan in which the
    individual is enrolled.
          The maximum annual contribution that can be made to an
    MSA for a year is 65 percent of the deductible under the high
    deductible plan in the case of individual coverage and 75
    percent of the deductible in the case of family coverage. No
    other dollar limits on the maximum contribution apply. The
    annual contribution limit is the sum of the limits determined
    separately for each month, based on the individual's status and
    health plan coverage as of the first day of the month.
          Contributions for a year can be made until the due date
    for the individual's tax return for the year (determined
    without regard to extensions).
          In order to facilitate application of the cap on the
    number of MSA participants, described below, the employer is
    required to report employer MSA contributions, and the
    individual is required to report such employer MSA
    contributions on the individual's tax return.
                Comparability rule for employer contributions
          If an employer provides high deductible health plan
    coverage coupled with an MSA to employees and makes employer
    contributions to the MSAs, the employer must make available a
    comparable contribution on behalf of all employees with
    comparable coverage during the same period. Contributions are
    considered comparable if they are either of the same amount or
    the same percentage of the deductible under the high deductible
    plan. The comparability rule is applied separately to part-time
    employees (i.e., employees who are customarily employed for
    fewer than 30 hours per week). No restrictions are placed on
    the ability of the employer to offer different plans to
    different groups of employees.
          For example, suppose an employer maintains two high
    deductible plans, Plan A, with a deductible of $1,500 for
    individual coverage and $3,000 for family coverage, and Plan B,
    with a deductible of $2,000 for individual coverage and $4,000
    for family coverage. The employer offers an MSA contribution to
    full-time employees in Plan A of $500 for individual coverage
    and $750 for family coverage. In order to satisfy the
    comparability rule, the employer would have to offer full-time
    employees covered under Plan B one of the following MSA
    contributions: (1) $500 for employees with individual coverage
    and $750 for employees with family coverage or (2) $667 for
    employees with individual coverage and $1,000 for employees
    with family coverage. Different contributions (or no
    contributions) could be made for part-time employees covered
    under either high deductible plan.
          If employer contributions do not comply with the
    comparability rule during a period, then the employer is
    subject to an excise tax equal to 35 percent of the aggregate
    amount contributed by the employer to MSAs of the employer for
    that period. The excise tax is designed as a proxy for the
    denial of employer contributions. In the case of a failure to
    comply with the comparability rule which is due to reasonable
    cause and not to willful neglect, the Secretary may waive part
    of all of the tax imposed to the extent that the payment of the
    tax would be excessive relative to the failure involved.
          For purposes of the comparability rule, employers under
    common control are aggregated in the same manner as in
    determining whether the employer is a small employer. The
    comparability rule does not fail to be satisfied in a year if
    the employer is precluded from making contributions for all
    employees with high deductible plan coverage because the
    employer has more than 200 employees or due to operation of the
    cap during the initial 4-year period.
                Definition of high deductible plan
          A high deductible plan is a health plan with an annual
    deductible of at least $1,500 and no more than $2,250 in the
    case of individual coverage and at least $3,000 and no more
    than $4,500 in the case of family coverage. In addition, the
    maximum out-of-pocket expenses with respect to allowed costs
    (including the deductible) must be no more than $3,000 in the
    case of individual coverage and no more than $5,500 in the case
    of family coverage. Beginning after 1998, these dollar amounts
    are indexed for inflation in $50 dollar increments based on the
    consumer price index. A plan does not fail to qualify as a high
    deductible plan merely because it does not have a deductible
    for preventive care as required by State law.
          As under present law, State insurance commissions would
    have oversight over the issuance of high deductible plans
    issued in conjunction with MSAs and could impose additional
    consumer protections. It is intended that the National
    Association of Insurance Commissioners (``NAIC'') will develop
    model standards for high deductible plans that individual
    States could adopt.
                Tax treatment of MSAs
          Earnings on amounts in an MSA are not currently
    includible in income.
                Taxation of distributions
          Distributions from an MSA for the medical expenses of the
    individual and his or her spouse or dependents generally are
    excludable from income. However, in any year for which a
    contribution is made to an MSA, withdrawals from an MSA
    maintained by that individual are excludable from income only
    if the individual for whom the expenses were incurred was
    eligible to make an MSA contribution at the time the expenses
    were incurred. This rule is designed to ensure that MSAs are in
    fact used in conjunction with a high deductible plan, and that
    they are not primarily used by other individuals who have
    health plans that are not high deductible plans. For example,
    suppose that, in 1997, individual A is covered by a high
    deductible plan, and A's spouse (``B'') is covered by a health
    plan that is not a high deductible plan. A makes contributions
    to an MSA for 1997. Withdrawals from the MSA to pay B's medical
    expenses incurred in 1997 would be includible in income (and
    subject to the additional tax on nonmedical withdrawals)
    because B is not covered by a high deductible plan.
          For this purpose, medical expenses are defined as under
    the itemized deduction for medical expenses, except that
    medical expenses do not include expenses for insurance other
    than long-term care insurance, premiums for health care
    continuation coverage, and premiums for health care coverage
    while an individual is receiving unemployment compensation
    under Federal or State law.
          Distributions that are not for medical expenses are
    includible in income. Such distributions are also subject to an
    additional 15-percent tax unless made after age 65, death, or
    disability.
                Estate tax treatment
          Upon death, any balance remaining in the decedent's MSA
    is includible in his or her gross estate.
          If the account holder's surviving spouse is the named
    beneficiary of the MSA, then, after the death of the account
    holder, the MSA becomes the MSA of the surviving spouse and the
    amount of the MSA balance may be deducted in computing the
    decedent's taxable estate, pursuant to the estate tax marital
    deduction provided in Code section 2056. The MSA qualifies for
    the marital deduction because the account holder has sole
    control over disposition of the assets in the MSA. The
    surviving spouse is not required to include any amount in
    income as a result of the death; the general rules applicable
    to MSAs apply to the surviving spouse's MSA (e.g., the
    surviving spouse is subject to income tax only on distributions
    from the MSA for nonmedical purposes). The surviving spouse can
    exclude from income amounts withdrawn from the MSA for expenses
    incurred by the decedent prior to death, to the extent they
    otherwise are qualified medical expenses.
          If, upon death, the MSA passes to a named beneficiary
    other than the decedent's surviving spouse, the MSA ceases to
    be an MSA as of the date of the decedent's death, and the
    beneficiary is required to include the fair market value of MSA
    assets as of the date of death in gross income for the taxable
    year that includes the date of death. The amount includable in
    income is reduced by the amount in the MSA used, within one
    year of the death, to pay qualified medical expenses incurred
    prior to the death. As is the case with other MSA
    distributions, whether the expenses are qualified medical
    expenses is determined as of the time the expenses were
    incurred. In computing taxable income, the beneficiary may
    claim a deduction for that portion of the Federal estate tax on
    the decendent's estate that was attributable to the amount of
    the MSA balance (calculated in accordance with the present-law
    rules relating to income in respect of a decedent set forth in
    sec. 691(c)).
          If there is no named beneficiary for the decedent's MSA,
    the MSA ceases to be an MSA as of the date of death, and the
    fair market value of the assets in the MSA as of such date are
    includible in the decedent's gross income for the year of the
    death. This rule applies in all cases in which there is no
    named beneficiary, even if the surviving spouse ultimately
    obtains the right to MSA assets (e.g., if the surviving spouse
    is the sole beneficiary of the decedent's estate). Because of
    the significant tax consequences if a married individual fails
    to name his or her spouse as the MSA beneficiary, even if the
    rights to MSA assets are otherwise acquired by the surviving
    spouse, it is anticipated that the marketing materials
    describing other tax aspects of MSAs will explain the
    consequences of failure to name the spouse as the beneficiary.
                Cap on taxpayers utilizing MSAs
          In general.--The number of taxpayers benefiting annually
    from an MSA contribution is limited to a threshold level
    (generally 750,000 taxpayers). If it is determined in a year
    that the threshold level has been exceeded (called a ``cut-
    off'' year) then, in general, for succeeding years during the
    4-year pilot period 1997-2000, only those individuals who (1)
    made an MSA contribution or had an employer MSA contribution
    for the year or a preceding year (i.e. are active MSA
    participants) or (2) are employed by a participating employer,
    would be eligible for an MSA contribution. In determining
    whether the threshold for any year has been exceeded, MSAs of
    individuals who were not covered under a health insurance plan
    for the six month period ending on the date on which coverage
    under a high deductible plan commences would not be taken into
    account.\1\ However, if the threshold level is exceeded in a
    year, previously uninsured individuals would be subject to the
    same restriction on contributions in succeeding years as other
    individuals. That is, they would not be eligible for an MSA
    contribution for a year following a cut-off-year unless they
    are an active MSA participant (i.e. had an MSA contribution for
    the year or a preceding year) or are employed by a
    participating employer.
    ---------------------------------------------------------------------------
        \1\ Permitted coverage, as described above, does not constitute
    coverage under a health insurance plan for this purpose.
    ---------------------------------------------------------------------------
          In a year after a cut-off year, employees of a
    participating employer can establish new MSAs and make new
    contributions (even if the employee is a new employee or did
    not previously have an MSA). An employer is a participating
    employer if (1) the employer made any MSA contributions on
    behalf of employees in any preceding year or (2) at least 20
    percent of the employees covered under a high deductible plan
    made an MSA contribution of at least $100 in the preceding
    year.
          In the case of a cut-off year before 2000, an individual
    is not an eligible individual or an active MSA participant
    unless the individual was first covered under a high deductible
    plan on or before the cut-off date. The cut-off date is
    generally October 1 of the cut-off year. However, if the
    individual was enrolled in a plan pursuant to a regularly
    scheduled enrollment period, then the cut-off date is December
    31. Similarly, an employer is not considered a participating
    employer if it first offered coverage after October 1 of a cut-
    off year unless the high deductible plan is offered pursuant to
    a regularly scheduled enrollment period. In addition, a self-
    employed individual is not considered an eligible individual or
    an active MSA participant unless the individual was covered
    under a high deductible plan on or before November 1 of a cut-
    off year.
          These rules are designed to prevent high deductible plans
    from being first offered just before the limitation on MSAs is
    effective in order to avoid application of the cap. They are
    not, however, intended to preclude individuals who first enroll
    in an employer-sponsored high deductible health plan or
    employees of employers that adopt a high deductible plan in a
    cut-off year due to normal health plan operation from having
    MSAs. For example, suppose a small employer offers a high
    deductible plan that provides that new employees may be covered
    under the plan beginning the first day of the month after the
    month in which they are hired. New employee A (whose previous
    coverage was not high deductible coverage) is hired on October
    15, and is enrolled in the high deductible plan November 1 of
    that year. If the year is a cut-off year, Employee A is an
    eligible individual and, if he has an MSA contribution for the
    year, an active participant for the year because he was
    enrolled pursuant to a regularly scheduled enrollment period.
    Similarly, suppose that employer A is a small employer and does
    not currently offer health care coverage. In 1997, A decides to
    offer health plan coverage to its employees, including a high
    deductible plan coupled with an MSA. A takes steps to provide
    such coverage on or before October 1 of the year (e.g., making
    arrangements with insurance companies or distributing plan
    material to employees). The first enrollment period for the
    health plans begins September 1, and coverage under the plan
    will begin November 1. If the year is a cut-off year, the
    employer is a participating employer because the plan was
    established pursuant to a regularly scheduled enrollment
    period.
          Under certain circumstances, MSA participation may be
    reopened after a cut-off year so that MSAs are again available
    to all individuals in the qualifying group of self-employed
    individuals and employees of small employers.
          For the 1997 tax year, taxpayers are permitted to
    establish MSAs provided that they are in the qualifying group
    of self-employed individuals or employees working for small
    employers.
                Rules for 1997
          On or before June 1, 1997, each trustee or custodian of
    an MSA (e.g., insurance company or financial institution) is
    required to report to the Internal Revenue Service (``IRS'')
    the total number of MSAs established as of April 30, 1997, for
    which it acts as trustee or custodian, including the number of
    MSAs established for previously uninsured individuals.\2\ If,
    based on this reporting, the number of MSAs established (but
    excluding those established for previously uninsured
    individuals) as of April 30, 1997, exceeds 375,000 (50 percent
    of 750,000), on or before September 1, 1997, the IRS would
    publish guidance providing that only active MSA participants or
    employees of participating employers would be eligible for an
    MSA contribution for the 1998 tax year and thereafter. If this
    threshold is exceeded, an individual who is first covered by an
    employer-sponsored high deductible health plan after September
    1, 1997, is not an eligible individual or an active MSA
    participant (and therefore cannot have an MSA for 1997 or a
    subsequent year) unless the high deductible coverage is elected
    pursuant to a regularly scheduled enrollment period. Similarly,
    an employer is not considered a participating employer if it
    first offered a high deductible plan after September 1, 1997,
    unless the plan was offered pursuant to a regularly scheduled
    enrollment period. Also, a self-employed individual would not
    be an eligible individual or an active MSA participant unless
    the individual was first covered under a high deductible plan
    on or before October 1, 1997.
    ---------------------------------------------------------------------------
        \2\ This report would include the name and social security number
    of taxpayers establishing an MSA. Failures to report are subject to a
    penalty of $25 for each MSA up to a maximum of $5,000. A trustee or
    custodian required to report could elect to do so on a company-wide or
    branch-by-branch basis.
    ---------------------------------------------------------------------------
          If the 375,000 cap is not exceeded, then another
    determination of MSA participation will be made, as follows. On
    or before August 1, 1997, each trustee or custodian of an MSA
    (e.g., insurance company or financial institution) is required
    to report to the Internal Revenue Service (``IRS'') the total
    number of MSAs established as of June 30, 1997, for which it
    acts as trustee or custodian, including the number of MSAs
    established for previously uninsured individuals. If, based on
    this reporting, the number of MSAs established (but excluding
    those established for previously uninsured individuals) exceeds
    the 1997 threshold level of 525,000 (70 percent of 750,000), on
    or before October 1, 1997, the IRS would publish guidance
    providing that only active MSA participants or employees of
    participating employers would be eligible for an MSA
    contribution for the 1998 tax year and thereafter. If the 1997
    threshold is exceeded, an individual who is first covered by an
    employer-sponsored high deductible health plan after October 1,
    1997, is not an eligible individual or an active MSA
    participant (and therefore cannot have an MSA for 1997 or a
    subsequent year) unless the high deductible coverage is elected
    pursuant to a regularly scheduled enrollment period. Similarly,
    an employer is not considered a participating employer if it
    first offered a high deductible plan after October 1, 1997,
    unless the plan was offered pursuant to a regularly scheduled
    enrollment period. Also, a self-employed individual would not
    be an eligible individual or an active MSA participant unless
    the individual was first covered under a high deductible plan
    on or before November 1, 1997.
          If the 1997 threshold level is not exceeded, all
    taxpayers in the qualifying eligible group (i.e., self-employed
    individuals and employees working for employers with 50 or
    fewer employees) would be permitted to have MSA contributions
    for the 1998 tax year.
                Rules for 1998 and succeeding years
          In general.--In 1998 and succeeding years, on or before
    August 1 of the year, each trustee or custodian of an MSA is
    required to report to the IRS the total number of MSAs
    established as of June 30 for the current year,\3\ including
    the number of such MSAs established for previously uninsured
    individuals. In addition, the IRS is directed to collect data
    with respect to the number of taxpayers showing an MSA
    contribution on their individual income tax returns for the
    prior year and the extent to which such taxpayers were
    previously uninsured.\4\ If, based on this information, the IRS
    determines as described below that the number of taxpayers
    anticipated to have MSA contributions (disregarding previously
    uninsured individuals) exceeds the applicable threshold level,
    the IRS is required to issue guidance to the public by no later
    than October 1. If this guidance is issued, then only taxpayers
    who are active MSA participants or who are employed by a
    participating employer would be entitled to MSA contributions
    in tax years following the year the guidance is issued.
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        \3\ That is, the report would not include MSAs to which
    contributions are made for the prior year.
        \4\ Each income tax return on which an MSA contribution is shown is
    treated as one taxpayer for purposes of the cap. It is anticipated that
    the IRS would adjust the actual return information to take into account
    MSAs that may have been established by late filers.
    ---------------------------------------------------------------------------
          For 1998 and succeeding years, the threshold is exceeded
    if either of the following limits are exceeded. The numerical
    limit is exceeded if: (1) the number of MSA returns filed on or
    before April 1 of the year, plus the estimate of the number of
    MSA returns for such year that will be filed after such date
    exceeds the threshold, or (2) 90 percent of the amount
    determined under (1), plus 15/6ths of the MSAs established for
    the year before July 1 exceeds $750,000.
          1998.--In 1998, the IRS would analyze the return data
    from the filing of 1997 tax year returns and would determine,
    based on this data, the number of taxpayers with MSA
    contributions for 1997 and who were not previously uninsured.
    If the IRS determines that (1) MSA returns filed on or before
    April 15, 1998, plus the estimated number of MSA returns for
    1997 filed after such date exceeds 600,000, or (2) that 90
    percent of the MSA returns in (1), plus 15/6ths of the number
    of MSAs established for 1998 between January 1 and July 1,
    1998, the IRS would publish guidance on or before October 1,
    1998, advising taxpayers that only taxpayers who had previously
    had MSA contributions (i.e., for either the 1997 or 1998 tax
    year) or who are employed by a participating employer would be
    eligible for MSA contributions in succeeding tax years. If the
    1998 threshold is exceeded, an individual who is first covered
    by an employer-sponsored high deductible health plan after
    October 1, 1998, is not an eligible individual or an active MSA
    participant (and therefore cannot have an MSA for 1998 or a
    subsequent year) unless the high deductible coverage is elected
    pursuant to a regularly scheduled enrollment period. Similarly,
    an employer is not considered a participating employer if it
    first offered a high deductible plan after October 1, 1998,
    unless the plan was offered pursuant to a regularly scheduled
    enrollment period. Also, a self-employed individual would not
    be an eligible individual or an active MSA participant unless
    the individual was first covered under a high deductible plan
    on or before November 1, 1998.
          In the event that the threshold level had not been
    exceeded, all taxpayers in the qualifying eligible group would
    be permitted to establish MSAs during the 1999 tax year.
          1999.--In 1999, the IRS would analyze the return data
    from the filing of 1998 tax year returns and would determine,
    based on this data, the number of taxpayers with MSA
    contributions for 1998 and who were not previously uninsured.
    If the IRS determines that (1) MSA returns filed on or before
    April 15, 1999, plus the estimated number of MSA returns for
    1998 filed after such date exceeds 600,000, or (2) that 90
    percent of the MSA returns in (1), plus 1\5/6\ths of the number
    of MSAs established for 1998 between January 1 and July 1,
    1999, the IRS would publish guidance on or before October 1,
    1999, advising taxpayers that only taxpayers who had previously
    had MSA contributions (i.e., for the 1997, 1998, or 1999 tax
    year) or who are employed by a participating employer would be
    eligible for MSA contributions in succeeding tax years. If the
    1999 threshold is exceeded, an individual who is first covered
    by an employer-sponsored high deductible health plan after
    October 1, 1999, is not an eligible individual or an active MSA
    participant (and therefore cannot have an MSA for 1999 or a
    subsequent year) unless the high deductible coverage is elected
    pursuant to a regularly scheduled enrollment period. Similarly,
    an employer is not considered a participating employer if it
    first offered a high deductible plan after October 1, 1999,
    unless the plan was offered pursuant to a regularly scheduled
    enrollment period. Also, a self-employed individual would not
    be an eligible individual or an active MSA participant unless
    the individual was first covered under a high deductible plan
    on or before November 1, 1999.
          In the event that the threshold level had not been
    exceeded, all taxpayers in the qualifying eligible group would
    be permitted to establish MSAs during the 2000 tax year.
          Reopening of MSA participation.--If 1997 is a cut-off
    year, then in 1998, the IRS would (as described above) analyze
    the return data from the filing of 1997 tax year returns and
    would determine, based on this data, the number of taxpayers
    with MSA contributions for 1997 and who were not previously
    uninsured. If the IRS determines that MSA returns filed on or
    before April 15, 1998, plus the estimated number of MSA returns
    for 1997 filed after such date (disregarding MSAs of previously
    uninsured individuals) exceeds 750,000, then the IRS will
    announce by October 1, 1998, that MSAs will be available to all
    eligible individuals in the qualifying eligible group of self-
    employed individuals and employees of small employers covered
    under a high deductible health plan during the first 6 months
    of 1999. Similarly, if 1998 is a cut-off year, then in 1999,
    MSA returns filed on or before April 15, 1999, plus the
    estimated number of MSA returns for 1998 filed after such date
    (disregarding MSAs of previously uninsured individuals) exceeds
    750,000, then IRS will announce by October 1, 1998, that MSAs
    will be available to all eligible individuals in the qualifying
    eligible group of self-employed individuals and employees of
    small employers with high deductible plan coverage during the
    first 6 months of 2000.
                End of pilot project
          After December 31, 2000, no new contributions may be made
    to MSAs except by or on behalf of individuals who previously
    had MSA contributions and employees who are employed by a
    participating employer. An employer is a participating employer
    if (1) the employer made any MSA contributions for any year to
    an MSA on behalf of employees or (2) at least 20 percent of the
    employees covered under a high deductible plan made MSA
    contributions of at least $100 in the year 2000.
          Self-employed individuals who made contributions to an
    MSA during the period 1997-2000 also may continue to make
    contributions after 2000.
                Measuring the effects of MSAs
          During 1997-2000, the Department of the Treasury will
    evaluate MSA participation and the reduction in Federal
    revenues due to such participation and make such reports of
    such evaluations to the Congress as the Secretary determines
    appropriate.
          The General Accounting Office is directed to contract
    with an organization with expertise in health economics, health
    insurance markets and actuarial science to conduct a study
    regarding the effects of MSAs in the small group market on (1)
    selection (including adverse selection), (2) health costs,
    including the impact on premiums of individuals with
    comprehensive coverage, (3) use of preventive care, (4)
    consumer choice, (5) the scope of coverage of high deductible
    plans purchased in conjunction with an MSA and (6) other
    relevant issues, to be submitted to the Congress by January 1,
    1999.
          The conferees intend that the study be broad in scope,
    gather sufficient data to fully evaluate the relevant issues,
    and be adequately funded. The conferees expect the study to
    utilize appropriate techniques to measure the impact of MSAs on
    the broader health care market, including in-depth analysis of
    local markets with high penetration. The conferees expect the
    study to evaluate the impact of MSAs on individuals and
    families experiencing high health care costs, especially low-
    and middle-income families.
                Definiton of MSA
          In general, an MSA is a trust or custodial account
    created exclusively for the benefit of the account holder and
    subject to rules similar to those applicable to individual
    retirement arrangements.
                Effective date
          The provisions are effective for taxable years beginning
    after December 31, 1996.

    b. increase in deduction for health insurance expenses of Self-employed
                                  individuals

          (Sec. 311 of the House bill and sec. 401 of the Senate
    amendment.)
    Present law
          Under present law, self-employed individuals are entitled
    to deduct 30 percent of the amount paid for health insurance
    for the self-employed individual and the individual's spouse
    and dependents. The deduction is not available for any month in
    which the taxpayer is eligible to participate in a subsidized
    health plan maintained by the employer of the taxpayer or the
    taxpayer's spouse. The 30-percent deduction is available in the
    case of self insurance as well as commercial insurance. The
    self-insured plan must in fact be insurance (e.g., there must
    be appropriate risk shifting) and not merely a reimbursement
    arrangement.
    House bill
          Under the House bill, the deduction for health insurance
    for self-employed individuals is phased up to 50 percent as
    follows: for taxable years beginning in 1998, the amount of the
    deduction would be 35 percent of health insurance expenses; for
    taxable years beginning in 1999, 2000, and 2001, 40 percent;
    for taxable years beginning in 2002, 45 percent; and for
    taxable years beginning in 2003 and thereafter, 50 percent.
          Effective date.--The provision is effective for taxable
    years beginning after December 31, 1997.
    Senate amendment
          Beginning in 1997, the Senate amendment phases up the
    deduction in 5 percent increments until it is 80 percent in
    2006 and thereafter.
          Effective date.--The provision is effective for taxable
    years beginning after December 31, 1996.
    Conference agreement
          The conference agreement increases the deduction for
    health insurance of self-employed individuals as follows: the
    deduction would be 40 percent in 1997; 45 percent in 1998
    through 2002; 50 percent in 2003; 60 percent in 2004; 70
    percent in 2005; and 80 percent in 2006 and thereafter.
          The conference agreement also provides that payments for
    personal injury or sickness through an arrangements having the
    effect of accident or health insurance (and that are not merely
    reimbursement arrangements) are excludable from income. In
    order for the exclusion to apply, the arrangement must be
    insurance (e.g., there must be adequate risk shifting). This
    provision equalizes the treatment of payments under commercial
    insurance and arrangements other than commercial insurance that
    have the effect of insurance. Under this provision, a self-
    employed individual who receives payments from such an
    arrangement could exclude the payments from income.
          Effective date.--The provision is effective for taxable
    years beginning after December 31, 1996. No inference is
    intended with respect to the excludability of payments under
    arrangements having the effect of accident or health insurance
    under present law.

             c. treatment of long-term care insurance and services

          (Secs. 321-323 and 325-328 of the House bill and secs.
    411-415 and 421-424 of the Senate amendment.)
    Present law
                In general
          Present law generally does not provide explicit rules
    relating to the tax treatment of long-term care insurance
    contracts or long-term care services. Thus, the treatment of
    long-term care contracts and services is unclear. Present law
    does provide rules relating to medical expenses and accident or
    health insurance.
                Itemized deduction for medical expenses
          In determining taxable income for Federal income tax
    purposes, a taxpayer is allowed an itemized deduction for
    unreimbursed expenses that are paid by the taxpayer during the
    taxable year for medical care of the taxpayer, the taxpayer's
    spouse, or a dependent of the taxpayer, to the extent that such
    expenses exceed 7.5 percent of the adjusted gross income of the
    taxpayer for such year (sec. 213). For this purpose, expenses
    paid for medical care generally are defined as amounts paid:
    (1) for the diagnosis, cure, mitigation, treatment, or
    prevention of disease (including prescription medicines or
    drugs and insulin), or for the purpose of affecting any
    structure or function of the body (other than cosmetic surgery
    not related to disease, deformity, or accident); (2) for
    transportation primarily for, and essential to, medical care
    referred to in (1); or (3) for insurance (including Part B
    Medicare premiums) covering medical care referred to in (1) and
    (2).
                Exclusion for amounts received under accident or health
                        insurance
          Amounts received by a taxpayer under accident or health
    insurance for personal injuries or sickness generally are
    excluded from gross income to the extent that the amounts
    received are not attributable to medical expenses that were
    allowed as a deduction for a prior taxable year (sec. 104).
                Treatment of accident or health plans maintained by
                        employers
          Contributions of an employer to an accident or health
    plan that provides compensation (through insurance or
    otherwise) to an employee for personal injuries or sickness of
    the employee, the employee's spouse, or a dependent of the
    employee, are excluded from the gross income of the employee
    (sec. 106). In addition, amounts received by an employee under
    such a plan generally are excluded from gross income to the
    extent that the amounts received are paid, directly or
    indirectly, to reimburse the employee for expenses for the
    medical care of the employee, the employee's spouse, or a
    dependent of the employee (sec. 105). for this purpose,
    expenses incurred for medical care are defined in the same
    manner as under the rules regarding the deduction for medical
    expenses.
          A cafeteria plan is an employer-sponsored arrangement
    under which employees can elect among cash and certain
    employer-provided qualified benefits. No amount is included in
    the gross income of a participant in a cafeteria plan merely
    because the participant has the opportunity to make such an
    election (sec. 125). Employer-provided accident or health
    coverage is one of the benefits that may be offered under a
    cafeteria plan.
          A flexible spending arrangement (``FSA'') is an
    arrangement under which an employee is reimbursed for medical
    expenses or other nontaxable employer-provided benefits, such
    as dependent care, and under which the maximum amount of
    reimbursement that is reasonably available to a participant for
    a period of coverage is not substantially in excess of the
    total premium (including both employee-paid and employer-paid
    portions of the premium) for such participant's coverage. Under
    proposed Treasury regulations, a maximum amount of
    reimbursement is not substantially in excess of the total
    premium if such maximum amount is less than 500 percent of the
    premium. An FSA may be part of a cafeteria plan or provided by
    an employer outside a cafeteria plan. FSAs are commonly used to
    reimburse employees for medical expenses not covered by
    insurance. If certain requirements are satisfied,\5\ amounts
    reimbursed for nontaxable benefits from an FSA are excludable
    from income.
    ---------------------------------------------------------------------------
        \5\ These requirements include a requirement that a health FSA can
    only provide reimbursement for medical expenses (as defined in sec.
    213) and cannot provide reimbursement for premium payments for other
    health coverage and that the maximum amount of reimbursement under a
    health FSA must be available at all times during the period of
    coverage.
    ---------------------------------------------------------------------------
                Health care continuation rules
          The health care continuation rules require that an
    employer must provide qualified beneficiaries the opportunity
    to continue to participate for a specified period in the
    employer's health plan after the occurrence of certain events
    (such as termination of employment) that would have terminated
    such participation (sec. 4980B). Individuals electing
    continuation coverage can be required to pay for such coverage.
    House bill
                Tax treatment and definition of long-term care insurance
                        contracts and qualified long-term care services
          Exclusion of long-term care proceeds.--A long-term care
    insurance contract generally is treated as an accident and
    health insurance contract. Amounts (other than policyholder
    dividends or premium refunds) received under a long-term care
    insurance contract generally are excludable as amounts received
    for personal injuries and sickness, subject to a cap of $175
    per day, or $63,875 annually, on per diem contracts only. If
    the aggregate amount of periodic payments under all qualified
    long-term care contracts exceeds the dollar cap for the period,
    then the amount of such excess payments is excludable only to
    the extent of the individual's costs (that are not otherwise
    compensated for by insurance or otherwise) for long-term care
    services during the period. The dollar cap is indexed by the
    medical care cost component of the consumer price index.
          Exclusion for employer-provided long-term care
    coverage.--A plan of an employer providing coverage under a
    long-term care insurance contract generally is treated as an
    accident and health plan. Employer-provided coverage under a
    long-term care insurance contract is not, however, excludable
    by an employee if provided through a cafeteria plan; similarly,
    expenses for long-term care services cannot be reimbursed under
    an FSA.\6\
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        \6\ The bill does not otherwise modify the requirements relating to
    FSAs. An FSA is defined as a benefit program providing employees with
    coverage under which specified incurred expenses may be reimbursed
    (subject to maximums and other reasonable conditions), and the maximum
    amount of reimbursement that is reasonably available to a participant
    is less than 500 percent of the value of the coverage.
    ---------------------------------------------------------------------------
          Definition of long-term care insurance contract.--A long-
    term care insurance contract is defined as any insurance
    contract that provides only coverage of qualified long-term
    care services and that meets other requirements. The other
    requirements are that (1) the contract is guaranteed renewable,
    (2) the contract does not provide for a cash surrender value or
    other money that can be paid, assigned, pledged or borrowed,
    (3) refunds (other than refunds on the death of the insured or
    complete surrender or cancellation of the contract) and
    dividends under the contract may be used only to reduce future
    premiums or increase future benefits, and (4) the contract
    generally does not pay or reimburse expenses reimbursable under
    Medicare (except where Medicare is a secondary payor, or the
    contract makes per diem or other periodic payments without
    regard to expenses).
          A contract does not fail to be treated as a long-term
    care insurance contract solely because it provides for payments
    on a per diem or other periodic basis without regard to
    expenses incurred during the period.
          Medicare duplication rules.--The bill provides that no
    provision of law shall be construed or applied so as to
    prohibit the offering of a long-term care insurance contract on
    the basis that the contract coordinates its benefits with those
    provided under Medicare. Thus, long-term care insurance
    contracts are not subject to the rules requiring duplication of
    Medicare benefits.
          Definition of qualified long-term care services.--
    Qualified long-term care services means necessary diagnostic,
    preventive, therapeutic, curing, treating, mitigating and
    rehabilitative services, and maintenance or personal care
    services that are required by a chronically ill individual and
    that are provided pursuant to a plan of care prescribed by a
    licensed health care practitioner.
          Chronically ill individual.--A chronically ill individual
    is one who has been certified within the previous 12 months by
    a licensed health care practitioner as (1) being unable to
    perform (without substantial assistance) at least 2 activities
    of daily living for at least 90 days \7\ due to a loss of
    functional capacity, (2) having a similar level of disability
    as determined by the Secretary of the Treasury in consultation
    with the Secretary of Health and Human Services, or (3)
    requiring substantial supervision to protect such individual
    from threats to health and safety due to severe cognitive
    impairment. Activities of daily living are eating, toileting,
    transferring, bathing, dressing and continence.\8\
    ---------------------------------------------------------------------------
        \7\ The 90-day period is not a waiting period. Thus, for example,
    an individual can be certified was chronically ill if the licensed
    health care practitioner certifies that the individual will be unable
    to perform at least 2 activities of daily living for at least 90 days.
        \8\ Nothing in the bill requires the contract to take into account
    all of the activities of daily living. For example, a contract could
    require that an individual be unable to perform (without substantial
    assistance) 2 out of any 5 such activities, or for another example, 3
    out of the 6 activities.
    ---------------------------------------------------------------------------
          It is intended that an individual who is physically able
    but has a cognitive impairment such as Alzheimer's disease or
    another form of irreversible loss of mental capacity be treated
    similarly to an individual who is unable to perform (without
    substantial assistance) at least 2 activities of daily living.
    Because of the concern that eligibility for the medical expense
    deduction not be diagnosis-driven, the provision requires the
    cognitive impairment to be severe. It is intended that severe
    cognitive impairment mean a deterioration or loss in
    intellectual capacity that is measured by clinical evidence and
    standardized tests which reliably measure impairment in: (1)
    short- or long-term memory; (2) orientation to people, places
    or time; and (3) deductive or abstract reasoning. In addition,
    it is intended that such deterioration or loss place the
    individual in jeopardy of harming self or others and therefore
    require substantial supervision by another individual.
          A licensed health care practitioner is a physician (as
    defined in sec. 1861(r)(1) of the Social Security Act) and any
    registered professional nurse, licensed social worker or other
    individual who meets such requirements as may be prescribed by
    the Secretary of the Treasury.
          Expenses for long-term care services treated as medical
    expenses.--Unreimbursed expenses for qualified long-term care
    services provided to the taxpayer or the taxpayer's spouse or
    dependents are treated as medical expenses for purposes of the
    itemized deduction for medical expenses (subject to the
    present-law floor of 7.5 percent of adjusted gross income). For
    this purpose, amounts received under a long-term care insurance
    contract (regardless of whether the contract reimburses
    expenses or pays benefits on a per diem or other periodic
    basis) are treated as reimbursement for expenses actually
    incurred for medical care.
          For purposes of the deduction for medical expenses,
    qualified long-term care services do not include services
    provided to an individual by a relative or spouse (directly, or
    through a partnership, corporation, or other entity), unless
    the relative is a licensed professional with respect to such
    services, or by a related corporation (within the meaning of
    Code section 267(b) or 707(b)).\9\
    ---------------------------------------------------------------------------
        \9\ The rule limiting such services provided by a relative or a
    related corporation does not apply for purposes of the exclusion for
    amounts received under a long-term care insurance contract, whether the
    contract is employer-provided or purchased by an individual. The
    limitation in unnecessary in such cases because it is anticipated that
    the insurer will monitor reimbursements to limit opportunities for
    fraud in connection with the performance of services by the taxpayer's
    relative or a related corporation.
    ---------------------------------------------------------------------------
          Long-term care insurance premiums treated as medical
    expenses.--Long-term care insurance premiums that do not exceed
    specified dollar limits are treated as medical expenses for
    purposes of the itemized deduction for medical expenses.\10\
    The limits are as follows:

        \10\ Similarly, within certain limits, in the case of a rider to a
    life insurance contract, charges against the life insurance contract's
    cash surrender value that are includible in income are treated as
    medical expenses (provided the rider constitutes a long-term care
    insurance contract).

    In the case of an individual with an attained age before the close of
        the taxable yearThe limitation on premiums paid for such taxable
                        years is:
            Not more than 40..........................................  $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

          For taxable years beginning after 1997, these dollar
    limits are indexed for increases in the medical care component
    of the consumer price index. The Secretary of the Treasury, in
    consultation with the Secretary of Health and Human Services,
    is directed to develop a more appropriate index to be applied
    in lieu of the foregoing. Such an alternative might
    appropriately be based on increases in skilled nursing facility
    and home health care costs. It is intended that the Treasury
    Secretary annually publish the indexed amount of the limits as
    early in the year as they can be calculated.
          Deduction for long-term care insurance of self-employed
    individuals.--The present-law 30 percent deduction for health
    insurance expenses of self-employed individuals is phased up to
    50 percent under the bill. Because the bill treats payments of
    eligible long-term care insurance premiums in the same manner
    as medical insurance premiums, the self-employed health
    insurance deduction applies to eligible long-term care
    insurance premiums under the bill.
          Long-term care riders on life insurance contracts.--In
    the case of long-term care insurance coverage provided by a
    rider on or as part of a life insurance contract, the
    requirements applicable to long-term care insurance contracts
    apply as if the portion of the contract providing such coverage
    were a separate contract. The term ``portion'' means only the
    terms and benefits that are in addition to the terms and
    benefits under the life insurance contract without regard to
    long-term care coverage. As a result, if the applicable
    requirements are met by the long-term care portion of the
    contract, amounts received under the contract as provided by
    the rider are treated in the same manner as long-term care
    insurance benefits, whether or not the payment of such amounts
    causes a reduction in the contract's death benefit or cash
    surrender value. The guideline premium limitation applicable
    under section 7702(c)(2) is increased by the sum of charges
    (but not premium payments) against the life insurance
    contract's cash surrender value, the imposition of which
    reduces premiums paid for the contract (within the meaning of
    sec. 7702(f)(1)). In addition, it is anticipated that Treasury
    regulations will provide for appropriate reduction in premiums
    paid (within the meaning of sec. 7702(f)(1)) to reflect the
    payment of benefits under the rider that reduce the cash
    surrender value of the life insurance contract. A similar rule
    should apply in the case of a contract governed by section
    101(f) and in the case of the payments under a rider that are
    excludable under section 101(g) of the Code (as added by this
    bill).
          Health care continuation rules.--The health care
    continuation rules do not apply to coverage under a long-term
    care insurance contract.
                Inclusion of excess long-term care benefits
          In general, the bill provides that the maximum annual
    amount of long-term care benefits under a per diem type
    contract that is excludable from income with respect to an
    insured who is chronically ill (not including amounts received
    by reason of the individual being terminally ill) \11\ cannot
    exceed the equivalent of $175 per day for each day the
    individual is chronically ill. Thus, for per diem type
    contracts, the maximum annual exclusion for long-term care
    benefits with respect to any chronically ill individual (not
    including amounts received by reason of the individual being
    terminally ill) is $63,875 (for 1997). If payments under such
    contracts exceed the dollar limit, then the excess is
    excludable only to the extent the individual has incurred
    actual costs for long-term care services. If the insured is not
    the same as the holder of the contract, the insured may assign
    some or all of this limit to the contract holder at the time
    and manner prescribed by the Secretary.
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        \11\ Terminally ill is defined as under the provision of the bill
    relating to accelerated death benefits. In general, under that
    provision, an individual is considered to be terminally ill if he or
    she is certified as having an illness or physical condition that
    reasonably can be expected to result in death within 24 months of the
    date of the certification.
    ---------------------------------------------------------------------------
          This $175 per day limit is indexed for inflation after
    1997 for increases in the medical care component of the
    consumer price index. The Treasury Secretary, in consultation
    with the Secretary of Health and Human Services, is directed to
    develop a more appropriate index, to be applied in lieu of the
    foregoing. Such an alternative might appropriately be based on
    increases in skilled nursing facility and home health care
    costs. It is intended that the Treasury Secretary annually
    publish the indexed amount of the limit as early in the year as
    it can be calculated.
          A payor of long-term care benefits (defined for this
    purpose to include any amount paid under a product advertised,
    marketed or offered as long-term care insurance) is required to
    report to the IRS the aggregate amount of such benefits paid to
    any individual during any calendar year, and the name, address
    and taxypayer identification number of such individual. A copy
    of the report must be provided to the payee by January 31
    following the year of payment, showing the name of the payor
    and the aggregate amount of benefits paid to the individual
    during the calendar year. Failure to file the report or provide
    the copy to the payee is subject to the generally applicable
    penalties for failure to file similar information reports.
                Consumer protection provisions
          Under the bill, long-term care insurance contracts, and
    issuers of contracts, are required to satisfy certain
    provisions of the long-term care insurance model Act and model
    regulations promulgated by the National Association of
    Insurance Commissioners (as adopted as of January 1993). The
    policy requirements relate to disclosure, nonforfeitability,
    guaranteed renewal or noncancellability, prohibitions on
    limitations and exclusions, extension of benefits, continuation
    or conversion of coverage, discontinuance and replacement of
    policies, unintentional lapse, post-claims underwriting,
    minimum standards, inflation protection, preexisting
    conditions, and prior hospitalization. The bill also provides
    disclosure and nonforfeiture requirements. The nonforfeiture
    provision gives consumers the option of selecting reduced paid-
    up insurance, extended term insurance, or a shortened benefit
    period in the event a policyholder who elects a nonforfeiture
    provision is unable to continue to pay premiums. The
    requirements for issuers of long-term care insurance contracts
    relate to application forms, reporting requirements, marketing,
    appropriateness of purchase, format, delivering a shopper's
    guide, right to return, outline of coverage, group plans,
    policy summary, monthly reports on accelerated death benefits,
    and incontestability period. A tax is imposed equal to $100 per
    policy per day for failure to satisfy these requirements.
          Nothing in the bill prevents a State from establishing,
    implementing or continuing standards related to the protection
    of policyholders of long-term care insurance policies, if such
    standards are not inconsistent with standards established under
    the bill.
                Effective date
          The provisions defining long-term care insurance
    contracts and qualified long-term care services apply to
    contracts issued after December 31, 1996. Any contract issued
    before January 1, 1997, that met the long-term care insurance
    requirements in the State in which the policy was sitused at
    the time it was issued shall be treated as a long-term care
    insurance contract, and services provided under or reimbursed
    by the contract treated as qualified long-term care services.
          A contract providing for long-term care insurance may be
    exchanged for a long-term care insurance contract (or the
    former cancelled and the proceeds reinvested in the latter
    within 60 days) tax free between the date of enactment and
    January 1, 1998. Taxable gain would be recognized to the extent
    money or other property is received in the exchange.
          The issuance or conformance of a rider to a life
    insurance contract providing long-term care insurance coverage
    is not treated as a modification or a material change for
    purposes of applying sections 101(f), 7702, and 7702A of the
    Code.
          The provision relating to treatment of eligible long-term
    care premiums as a medical expense is effective for taxable
    years beginning after December 31, 1996. The provision treating
    amounts paid for long-term care services as a medical expense
    (for purposes of the medical expense deduction) is effective
    for services furnished in taxable years beginning after
    December 31, 1997.
          The provisions relating to the maximum exclusion for
    certain long-term care benefits and reporting are effective for
    taxable years beginning after December 31, 1996. Thus, the
    initial year in which reports will be filed with the IRS and
    copies provided to the payee will be 1998, with respect to
    long-term care benefits paid in 1997.
    Senate amendment
          The Senate amendment is the same as the House bill,
    except as follows.
                Life insurance company reserves
          In determining reserves for insurance company tax
    purposes, the Senate amendment provides that the Federal income
    tax reserve method applicable for a long-term care insurance
    contract issued after December 31, 1996, is the method
    prescribed by the National Association of Insurance
    Commissioners (``NAIC'') (or, if no reserve method has been so
    prescribed, a method consistent with the tax reserve method for
    life insurance, annuity or noncancellable accident and health
    insurance contracts, whichever is most appropriate). The method
    currently prescribed by the NAIC for long-term care insurance
    contracts is the one-year full preliminary term method. As
    under present law, however, in no event may the tax reserve for
    a contract as of any time exceed the amount which would be
    taken into account with respect to the contract as of such time
    in determining statutory reserves.
                Exchanges of life insurance and other contracts for long-
                        term care insurance contracts
          The exchange of a life insurance contract or an endowment
    or annuity contract for a qualified long-term care insurance
    contract is not taxable under the Senate amendment.
                Distributions from IRAs and retirement plans for long-term
                        care insurance
          The Senate amendment permits certain plans to make
    distributions to pay premiums for long-term care insurance for
    the individual or the individual's spouse and provides that the
    10-percent tax on early withdrawals does not apply to such
    distributions. The provision applies to distributions from
    individual retirement arrangements (``IRAs'') and distributions
    attributable to elective deferrals to qualified cash or
    deferred arrangements (sec. 401(k) plans), tax-sheltered
    annuities (sec. 403(b) plans), nonqualified deferred
    compensation plans of governmental or tax-exempt employers
    (sec. 457 plans), and section 501(c)(18) plans used to pay
    premiums for long-term care insurance for the individual or the
    individual's spouse. Such distributions are includable in
    income (as under present law).
                Effective dates
          The effective dates are the same as the House bill,
    except as follows.
          The provision treating long-term care services as a
    medical expense is effective for taxable years beginning after
    December 31, 1996.
          The change in treatment of reserves for long-term care
    insurance contracts is effective for contracts issued after
    December 31, 1996.
          The provision relating to tax-free exchanges of life
    insurance, endowment and annuity contracts for long-term care
    insurance contracts is effective for taxable years beginning
    after December 31, 1997.
          The provision relating to certain distributions from IRAs
    and elective deferrals used to pay long-term care insurance
    premiums is effective for payments and distributions after
    December 31, 1996.
    Conference agreement
          The conference agreement generally follows the House
    bill, except as follows.
                Tax treatment and definition of long-term care insurance
                        contracts and qualified long-term care services
          Chronically ill individual.--The conference agreement
    provides that, for purposes of determining whether an
    individual is chronically ill, the number of activities of
    daily living that are taken into account under the contract may
    not be less than five. For example, a contract could require
    that an individual be unable to perform (without substantial
    assistance) two out of any five of the activities listed in the
    bill. By contrast, a contract does not meet this requirement if
    it required that an individual be unable to perform two out of
    any four of the activities listed in the bill.
          In addition, the conference agreement modifies the second
    test for whether an individual is chronically ill (i.e., that
    the individual has a level of disability similar to an
    individual who is unable to perform (without substantial
    assistance) at least two activities of daily living). Under the
    conference agreement, this test is met if the individual has
    been certified within the previous 12 months by a licensed
    health care practitioner as having a similar level of
    disability, as determined under regulations prescribed by the
    Secretary in consultation with the Secretary of Health and
    Human Services.
          Health care continuation rules.--The health care
    continuation rules do not apply to coverage under a plan,
    substantially all of the coverage under which is for qualified
    long-term care services.
          State-maintained plans.--The conference agreement
    modifies the definition of a qualified long-term care insurance
    contract. Under the conference agreement, an arrangement is
    treated as a qualified long-term care insurance contract if an
    individual receives coverage for qualified long-term care
    services under a State long-term care plan, and the terms of
    the arrangement would satisfy the requirements for a long-term
    care insurance contract under the provision, were the
    arrangement an insurance contract. For this purpose, a State
    long-term care plan is any plan established and maintained by a
    State (or instrumentality of such State) under which only
    employees (and former employees, including retirees) of a State
    or of a political subdivision or instrumentality of the State,
    and their relatives, and their spouses and spouses' relatives,
    may receive coverage only for qualified long-term care
    services. Relative is defined as under section 152(a)(1)-(8).
    No inference is intended with respect to the tax consequences
    of such arrangements under present law.
                Inclusions of excess long-term care benefits
          The conference agreement modifies the calculation of the
    dollar cap applicable to aggregate payments under per diem type
    long-term care insurance contracts and amounts received with
    respect to a chronically ill individual pursuant to a life
    insurance contract.\12\ The amount of the dollar cap with
    respect to any one chronically ill individual (who is not
    terminally ill) is $175 per day ($63,875 annually, as indexed),
    reduced by the amount of reimbursements and payments received
    by anyone for the cost of qualified long-term care services for
    the chronically ill individual. If more than one payee receives
    payments with respect to any one chronically ill individual,
    then everyone receiving periodic payments with respect to the
    same insured is treated as one person for purposes of the
    dollar cap. The amount of the dollar cap is utilized first by
    the chronically ill person, and any remaining amount is
    allocated in accordance with Treasury regulations. If payments
    under such contracts exceed the dollar cap, then the excess is
    excludable only to the extent of actual costs (in excess of the
    dollar cap) incurred for long-term care services. Amounts in
    excess of the dollar cap, with respect to which no actual costs
    were incurred for long-term care services, are fully includable
    in income without regard to rules relating to return of basis
    under Code section 72.
    ---------------------------------------------------------------------------
        \12\ See item D, below.
    ---------------------------------------------------------------------------
          The managers of the bill wish to clarify that, although
    the legislation imposes a daily (or equivalent) dollar cap on
    the amount of excludable benefits under certain types of long-
    term care insurance in certain circumstances, this limitation
    is not intended to suggest a preference or otherwise convey or
    facilitate a competitive advantage to one type of long-term
    care insurance compared to another type of long-term care
    insurance.
          The Chairmen of the House Committee on Ways and Means and
    the Senate Finance Committee shall jointly request that the
    NAIC, in consultation with representatives of the insurance
    industry and consumer organizations, develop and conduct a
    study to determine the marketing and other effects, if any, of
    the dollar limit on excludable long-term care benefits under
    certain types of long-term care insurance contracts under the
    bill. Such Chairmen are to request that the NAIC, if it agrees
    to such request, shall submit the results of its study to the
    such Committees by no later than two years after agreeing to
    the request.
          The conference agreement modifies the reporting
    requirement for payors of amounts excludable under the
    provision. Thus, in addition to the reporting requirements of
    the House bill, a payor is required to report the name,
    address, and taxpayer identification number of the chronically
    ill individual on account of whose condition such amounts are
    paid, and whether the contract under which the amount is paid
    is a per diem-type contract.
          A grandfather rule is provided under the conference
    agreement in the case of a per diem type contract issued to a
    policyholder on or before July 31, 1996. Under the grandfather
    rule, the amount of the dollar cap with respect to such a per
    diem contract is calculated without any reduction for
    reimbursements for qualified long-term care services under any
    other contract issued with respect to the same insured on or
    before July 31, 1996. The other provisions of the dollar cap
    are not affected by the grandfather rule. The grandfather rule
    ceases to apply as of the time that any of the contracts issued
    on or before July 31, 1996, with respect to the insured are
    exchanged, or benefits are increased.
                Life insurance company reserves
          The conference agreement includes the Senate amendment
    provision with respect to life insurance reserves. Thus, under
    the conference agreement, in determining reserves for insurance
    company tax purposes, the Senate amendment provides that the
    Federal income tax reserve method applicable for a long-term
    care insurance contract is the method prescribed by the NAIC
    (or, if no reserve method has been so prescribed, a method
    consistent with the tax reserve method for life insurance,
    annuity or noncancellable accident and health insurance
    contracts, whichever is most appropriate). As under present
    law, in no event may the tax reserve for a contract as of any
    time exceed the amount which would be taken into account with
    respect to the contract as of such time in determining
    statutory reserves.
                Consumer protection provisions
          The conference agreement clarifies and modifies the
    category of contracts to which the consumer protection
    provisions apply. The conference agreement clarifies that the
    consumer protection provisions that apply with respect to the
    terms of the contract apply only for purposes of determining
    whether a contract is a qualified long-term care insurance
    contract (within the meaning of the bill).
          The conference agreement provides that, for purposes of
    both the requirements as to contract terms and the requirements
    relating to issuers of contracts, the determination of whether
    any requirement of a model regulation or model Act has been met
    is made by the Secretary of the Treasury. It is not intended
    that the Secretary create a Federal standard, but rather, look
    to applicable or appropriate State standards or to those
    provided specifically in the model regulation or model Act.
          The conference agreement modifies the $100-per-day tax on
    failure to satisfy the requirements for issuers of contracts,
    to provide that the amount of the tax imposed is $100 per
    insured per day. The conference agreement provides that the
    consumer protection requirements for issuers of contracts apply
    with respect to contracts that are qualified long-term care
    insurance contracts (within the meaning of the bill).
          The conference agreement modifies the rule relating to
    State establishment of standards relating to contract terms or
    issuers of contracts. The conference agreement provides that an
    otherwise qualified long-term care insurance contract will not
    fail to be a qualified long-term care insurance contract, and
    will not be treated as failing to meet the analogous
    requirement under the conference agreement, solely because it
    satisfies a consumer protection standard imposed under
    applicable State law that is more stringent than the analogous
    standard provided in the bill. The conference agreement does
    not preclude States from enacting more stringent consumer
    protection provisions than the analogous standards under the
    bill.
                Effective date
          The conference agreement follows the Senate amendment
    with respect to the effective date of the provision treating
    long-term care services as a medical expense. Thus, under the
    conference agreement, this provision is effective for taxable
    years beginning after December 31, 1996.
          The conference agreement provides that the provision
    relating to life insurance company reserves is effective for
    contracts issued after December 31, 1997.

        d. treatment of accelerated death benefits under life insurance
                                   contracts

          (Secs. 331-332 of the House bill and secs. 431-432 of the
    Senate amendment).
    Present law
                Treatment of amounts received under a life insurance
                        contract
          If a contract meets the definition of a life insurance
    contract, gross income does not include insurance proceeds that
    are paid pursuant to the contract by reason of the death of the
    insured (sec. 101(a)). In addition, the undistributed
    investment income (``inside buildup'') earned on premiums
    credited under the contract is not subject to current taxation
    to the owner of the contract. The exclusion under section 101
    applies regardless of whether the death benefits are paid as a
    lump sum or otherwise.
          Amounts received under a life insurance contract (other
    than a modified endowment contract) prior to the death of the
    insured are includible in the gross income of the recipient to
    the extent that the amount received constitutes cash value in
    excess of the taxpayer's investment in the contract (generally,
    the investment in the contract is the aggregate amount of
    premiums paid less amounts previously received that were
    excluded from gross income).
          If a contract fails to be treated as a life insurance
    contract under section 7702(a), inside buildup on the contract
    is generally subject to tax (sec. 7702(g)).
                Requirements for a life insurance contract
          To qualify as a life insurance contract for Federal
    income tax purposes, a contract must be a life insurance
    contract under the applicable State or foreign law and must
    satisfy either of two alternative tests: (1) cash value
    accumulation test or (2) a test consisting of a guideline
    premium requirement and a cash value corridor requirement (sec.
    7702(a)). A contract satisfies the cash value accumulation test
    if the cash surrender value of the contract may not at any time
    exceed the net single premium that would have to be paid at
    such time to fund future benefits under the contract. A
    contract satisfies the guideline premium and cash value
    corridor tests if the premiums paid under the contract do not
    at any time exceed the greater of the guideline single premium
    or the sum of the guideline level premiums, and if the death
    benefit under the contract is not less than a varying statutory
    percentage of the cash surrender value of the contract.
                Proposed regulations on accelerated death benefits
          The Treasury Department has issued proposed regulations
    \13\ under which certain ``qualified accelerated death
    benefits'' paid by reason of the terminal illness of an insured
    would be treated as paid by reason of the death of the insured
    and therefore qualify for exclusion under section 101. In
    addition, the proposed regulations would permit an insurance
    contract that includes a qualified accelerated death benefit
    rider to qualify as a life insurance contract under section
    7702. Thus, the proposed regulations provide that including
    this benefit would not cause an insurance contract to fail to
    meet the definition of a life insurance contract.
    ---------------------------------------------------------------------------
        \13\ Prop. Treas. Reg. Secs. 1.101-8, 1.7702-0, 1.7702-2, and
    1.7702A-1 (December 15, 1992).
    ---------------------------------------------------------------------------
          Under the proposed regulations, a benefit would qualify
    as a qualified accelerated death benefit only if it meets three
    requirements. First, the accelerated death benefit can be
    payable only if the insured becomes terminally ill. Second, the
    amount of the benefit must equal or exceed the present value of
    the reduction in the death benefit otherwise payable.\14\
    Third, the cash surrender value and the death benefit payable
    under the policy must be reduced proportionately as a result of
    the accelerated death benefit.
    ---------------------------------------------------------------------------
        \14\ For purposes of determining the present value under the
    proposed regulations, the maximum permissible discount rate would be
    the greater of (1) the applicable Federal rate that applies under the
    discounting rules for property and casualty insurance loss reserves,
    and (2) the interest rate applicable to policy loans under the
    contract. Also, the present value would be determined assuming that the
    death benefit would have been paid twelve months after payment of the
    accelerated death benefit.
    ---------------------------------------------------------------------------
          For purposes of the proposed regulations, an insured
    would be treated as terminally ill if he or she has an illness
    that, despite appropriate medical care, the insurer reasonably
    expects to result in death within twelve months from the
    payment of the accelerated death benefit. The proposed
    regulations would not apply to viatical settlements.
    House bill
          The House bill provides an exclusion from gross income as
    an amount paid by reason of the death of an insured for (1)
    amounts received under a life insurance contract and (2) amount
    received for the sale or assignment of a life insurance
    contract to a qualified viatical settlement provider, provided
    that the insured under the life insurance contract is either
    terminally ill or chronically ill. The exclusion for amounts
    received under a life insurance contract on the life of an
    insured who is chronically ill applies if the amount is
    received under a rider or other provision of the contract that
    is treated as a long-term care insurance contract under section
    7702B (as added by the bill), and the amount is excludable as a
    payment for long-term care services under section 7702B
    (including under the dollar cap on per diem type payments ($175
    per day, or $63,875 annually, in 1997).
          The provision does not apply in the case of an amount
    paid to any taxpayer other than the insured, if such taxpayer
    has an insurable interest by reason of the insured being a
    director, officer or employee of the taxpayer, or by reason of
    the insured being financial interested in any trade or business
    carried on by the taxpayer.
          A terminally ill individual is defined as one who has
    been certified by a physician as having an illness or physical
    condition that reasonably can be expected to result in death
    within 24 months of the date of certification. A physician is
    defined for this purpose in the same manner as under the long-
    term care insurance rules of the bill.\15\
    ---------------------------------------------------------------------------
        \15\ A physician is defined for these purposes as in section
    1861(r)(1) of the Social Security Act, which provides that a physician
    means a doctor of medicine or osteopathy legally authorized to practice
    medicine and surgery by the State in which he performs such function or
    action (including a physician within the meaning of section 1101(a)(7)
    of that Act). Section 1101(a)(7) of that Act provides that the term
    physician includes osteopathic practitioners within the scope of their
    practice as defined by State law.
    ---------------------------------------------------------------------------
          A chronically ill individual is defined under the long-
    term care provisions of the bill.\16\ In the case of amounts
    received with respect to a chronically ill individual (but not
    amounts received by reason of the individual being terminally
    ill), the $175 per day ($63,875 annual) limitation on
    excludable benefits that applies for per diem type long-term
    care insurance contracts also limits amounts that are
    excludable with respect to such contracts under this provision.
    ---------------------------------------------------------------------------
        \16\ Thus, a chronically ill individual is one who has been
    certified within the previous 12 months by a licensed health care
    practitioner as (1) being unable to perform (without substantial
    assistance) at least 2 activities of daily living for at least 90 days
    due to a loss of functional capacity, (2) having a similar level of
    disability as determined by the Secretary of the Treasury in
    consultation with the Secretary of Health and Human Services, or (3)
    requiring substantial supervision to protect such individual from
    threats to health and safety due to severe cognitive impairment.
    Activities of daily living are eating, toileting, transferring,
    bathing, dressing and continence. Nothing in the bill requires the
    contract to take into account all of the activities of daily living.
    ---------------------------------------------------------------------------
          The payor of a payment to which this provision applies is
    required to report to the IRS the aggregate amount of such
    benefits paid to any individual during any calendar year, and
    the name, address and taxpayer identification number of such
    individual. A copy of the report must be provided to the payee
    by January 31 following the year of payment, showing the name
    of the payer and the aggregate amount of such benefits paid to
    the individual during the calendar year. Failure to file the
    report or provide the copy to the payee is subject to the
    generally applicable penalties for failure to file similar
    information reports.
          A qualified viatical settlement provider is any person
    that regularly purchases or takes assignments of life insurance
    contracts on the lives of the terminally ill individuals and
    either (1) is licensed for such purposes in the State in which
    the insured resides; or (2) if the person is not required to be
    licensed by that State, menets the requirements of sections 8
    and 9 of the Viatical Settlements Model Act (issued by the
    National Association of Insurance Commissioners (NAIC)), and
    also meets the section of the NAIC Viatical Settlements Model
    Regulation relating to standards for evaluation of reasonable
    payments, including discount rates, in determining amounts paid
    by the viatical settlement provider.
          For life insurance company tax purposes, the bill
    provides that a life insurance contract is treated as including
    a reference to a qualified accelerated death benefit rider to a
    life insurance contract (except in the case of any rider that
    is treated as a long-term care insurance contract under section
    7702B, as added by the bill). A qualified accelerated death
    benefit rider is any rider on a life insurance contract that
    provides only for payments of a type that are excludable under
    this provision.
                Effective date
          The provision applies to amounts received after December
    31, 1996. The provision treating a qualified accelerated death
    benefit rider as life insurance for life insurance company tax
    purposes takes effect on January 1, 1997. The issuance of a
    qualified accelerated death benefit rider to a life insurance
    contract, or the addition of any provision required to conform
    an accelerated death benefit rider to these provisions, is not
    treated as a modification or material change to the contract
    (and is not intended to affect the issue date of any contract
    under section 101(f)).
    Senate amendment
          The Senate amendment is the same as the House bill,
    except that, in the case of a chronically ill insured, while
    the Senate amendment does provide that the exclusion for
    amounts received under a life insurance contract applies if the
    amount is received under a rider or other provision of the
    contract that is treated as a long-term care insurance contract
    under section 7702B (as added by the bill), the Senate
    amendment does not include the explicit language of the House
    bill requiring that the amount be treated as a payment for
    long-term care services under section 7702B.
    Conference agreement
          The conference agreement follows the House bill and the
    Senate amendment, with technical modifications and
    clarifications.
          The conference agreement provides that the amount paid
    for the sale or assignment of any portion of the death benefit
    under a life insurance contract on the life of a terminally or
    chronically ill individual to a viatical settlement provider is
    excludable by the recipient as an amount paid under the
    contract by reason of the death of the insured. For example,
    the sale or assignment of a life insurance contract that has a
    rider providing for long-term care insurance, payments under
    which rider are funded by and reduce the death benefit, is
    considered the sale or assignment of the death benefit. Sale or
    assignment of a stand-alone rider providing for long-term care
    insurance (where payments under the rider are not funded by
    reductions in the death benefit), however, is not considered
    the sale or assignment of the death benefit.
          The conference agreement provides that a viatical
    settlement provider is any person regularly engaged in the
    trade or business of purchasing or taking assignments of life
    insurance contracts on the lives of insured individuals who are
    terminally ill or chronically ill, so long as the viatical
    settlement provider meets certain requirements. The viatical
    settlement provider must either (1) be licensed, in the State
    where the insured resides, to engage in such transactions with
    terminally ill individuals (if the insured is terminally ill)
    or with chronically ill individuals (if the insured is
    chronically ill), or (2) if such licensing with respect to the
    insured individual is not required in the State, meet other
    requirements depending on whether the insured is terminally or
    chronically ill. If the insured is terminally ill, the viatical
    settlement provider must meet the requirements of sections 8
    and 9 of the Viatical Settlements Model Act, relating to
    disclosure and general rules (issued by the National
    Association of Insurance Commissioner (NAIC)), and also meet
    the section of the NAIC Viatical Settlements Model Regulation
    relating to standards for evaluation of reasonable payments,
    including discount rates, in determining amounts paid by the
    viatical settlement provider. If the insured is chronically
    ill, the viatical settlement provider must meet requirements
    similar to those of sections 8 and 9 of the NAIC Viatical
    Settlements Model Act, and also must meet the standards, if
    any, promulgated by the NAIC for evaluating the reasonableness
    of amounts paid in viatical settlement transactions with
    chronically ill individuals.
          The conference agreement clarifies the rules for
    chronically ill insureds so that the tax treatment of payments
    with respect to chronically ill individuals is reasonably
    similar under the long-term care rules of the bill and under
    this provision. In the case of a chronically ill individual,
    the exclusion under this provision with respect to amounts paid
    under a life insurance contract and amounts paid in a sale or
    assignment to a viatical settlement provider applies if the
    payment received is for costs incurred by the payee (not
    compensated by insurance or otherwise) for qualified long-term
    care services (as defined under the long-term care rules of the
    bill) for the insured person for the period, and two other
    requirements (similar to requirements applicable to long-term
    care insurance contracts under the bill) are met. The first
    requirement is that under the terms of the contract giving rise
    to the payment, the payment is not a payment or reimbursement
    of expenses reimbursable under Medicare (except where Medicare
    is a secondary payor under the arrangement, or the arrangement
    provides for per diem or other periodic payments without regard
    to expenses for qualified long-term care services). The
    conference agreement provides that no provision of law shall be
    construed or applied so as to prohibit the offering of such a
    contract giving rise to such a payment on the basis that the
    contract coordinates its payments with those provided under
    Medicare. The second requirement is that the arrangement
    complies with those consumer protection provisions applicable
    under the bill to long-term care insurance contracts and
    issuers that are specified in Treasury regulations. It is
    intended that such guidance incorporate rules similar to those
    of section 6F (relating to right to return, permitting the
    payee 30 days to rescind the arrangement) of the NAIC Long-Term
    Care Insurance Model Act, and section 13 (relating to
    requirements for application, requiring that the payee be asked
    if he or she already has long-term care insurance, Medicaid, or
    similar coverage) of the NAIC Long-Term Care Insurance Model
    Regulations. If the NAIC or the State in which the policyholder
    resides issues standards relating to chronically ill
    individuals, then the analogous requirements under Treasury
    regulations cease to apply.
          An individual who meets the definition of a terminally
    ill individual is not treated as chronically ill, for purposes
    of this provision.
          Payments made on a per diem or other periodic basis,
    without regard to expenses incurred for qualified long-term
    care services, are nevertheless excludable under this
    provision, subject to the dollar cap on excludable benefits
    that applies for amounts that are excludable under per diem
    type long-term care insurance contracts. The conference
    agreement modifies the calculation of the dollar cap applicable
    to aggregate payments under per diem type long-term care
    insurance contracts and amounts received with respect to a
    chronically ill individual pursuant to a life insurance
    contract.\17\ The amount of the dollar cap with respect to the
    aggregate amount received under per diem type long-term care
    insurance contracts and this provision with respect to any one
    chronically ill individual (who is not terminally ill) is $175
    per day ($63,875 annually) (indexed), reduced by the amount of
    reimbursements and payments received by anyone for the cost of
    qualified long-term care services for the chronically ill
    individual. If more than one payee receives payments with
    respect to any one chronically ill individual, the amount of
    the dollar cap is utilized first by the chronically ill person,
    and any remaining amount is allocated in accordance with
    Treasury regulations. If payments under such contracts exceed
    the dollar cap, then the excess is excludable only to the
    extent of actual costs incurred for long-term care services.
    Amounts in excess of the dollar cap, with respect to which no
    actual costs (in excess of the dollar cap) were incurred for
    long-term care services, are fully includable in income without
    regard to rules relating to return of basis under Code section
    72.
    ---------------------------------------------------------------------------
        \17\ See item C, above.
    ---------------------------------------------------------------------------
          The conference agreement modifies the reporting
    requirement for payors of amounts excludable under the
    provision. Thus, in addition to the reporting requirements of
    the House bill, a payor is required to report the name,
    address, and taxpayer identification number of the chronically
    ill individual on account of whose condition such amounts are
    paid, and whether the contract under which the amount is paid
    is a per diem-type contract.

        e. exemption from income tax for state-sponsored organizations
      providing health coverage for high-risk individuals; exemption from
       income tax for state-sponsored workers' compensation reinsurance
                                 organizations

          (Sec. 341 of the House bill and sec. 451 of the Senate
    amendment).
    Present law
          In general, the Internal Revenue Service (``IRS'') takes
    the position that organizations that provide insurance for
    their members or other individuals are not considered to be
    engaged in a tax-exempt activity. The IRS maintains that such
    insurance activity is either (1) a regular business of a kind
    ordinarily carried on for profit, or (2) an economy or
    convenience in the conduct of members' businesses because it
    relieves the members from obtaining insurance on an individual
    basis.
          Certain insurance risk pools have qualified for tax
    exemption under Code section 501(c)(6). In general, these
    organizations (1) assign any insurance policies and
    administrative functions to their member organizations
    (although they may reimburse their members for amounts paid and
    expenses), (2) serve an important common business interest of
    their members, and (3) must be membership organizations
    financed, at least in part, by membership dues.
          State insurance risk pools may also qualify for tax-
    exempt status under section 501(c)(4) as a social welfare
    organization or under section 115 as serving an essential
    governmental function of a State. In seeking qualification
    under section 501(c)(4), insurance organizations generally are
    constrained by the restrictions on the provision of
    ``commercial-type insurance'' contained in section 501(m).
    Section 115 generally provides that gross income does not
    include income derived from the exercise of any essential
    governmental function and accruing to a State or any political
    subdivision thereof. However, the IRS may be reluctant to rule
    that particular State risk-pooling entities satisfy the section
    501(c)(4) or 115 requirements for tax-exempt status.
    House bill
                Health coverage for high-risk individuals
          The House bill provides tax-exempt status to any
    membership organization that is established by a State
    exclusively to provide coverage for medical care on a nonprofit
    basis to certain high-risk individuals, provided certain
    criteria are satisfied.\18\ The organization may provide
    coverage for medical care either by issuing insurance itself or
    by entering into an arrangement with a health maintenance
    organization (``HMO'').
    ---------------------------------------------------------------------------
        \18\ No inference is intended as to the tax treatment of other
    types of State-sponsored organizations.
    ---------------------------------------------------------------------------
          High-risk individuals eligible to receive medical care
    coverage from the organization must be residents of the State
    who, due to a pre-existing medical condition, are unable to
    obtain health coverage for such condition through insurance or
    an HMO, or are able to acquire such coverage only at a rate
    that is substantially higher than the rate charged for such
    coverage by the organization. The State must determine the
    composition of membership in the organization. For example, a
    State could mandate that all organizations that are subject to
    insurance regulation by the State must be members of the
    organization.
          The House bill further requires the State or members of
    the organization to fund the liabilities of the organization to
    the extent that premiums charged to eligible individuals are
    insufficient to cover such liabilities. Finally, no part of the
    net earnings of the organization can inure to the benefit of
    any private shareholder or individual.
          Effective date.--The provision applies to taxable years
    beginning after December 31, 1996.
                Workers' compensation reinsurance organizations
          No provision.
    Senate amendment
          The Senate amendment is the same as the House bill.
    Conference agreement
                Health coverage for high-risk individuals
          The conference agreement follows the House bill and the
    Senate amendment.
                Workers' compensation reinsurance organizations
          The conference agreement provides tax-exempt status to
    any membership organization that is established by a State
    before June 1, 1996, exclusively to reimburse its members for
    workers' compensation insurance losses, and that satisfies
    certain other conditions. A State must require that the
    membership of the organization consist of all persons who issue
    insurance covering workers' compensation losses in such State,
    and all persons and governmental entities who self-insure
    against such losses. In addition, the organization must operate
    as a nonprofit organization by returning surplus income to
    members or to workers' compensation policyholders on a periodic
    basis and by reducing initial premiums in anticipation of
    investment income.
          Effective date.--The provision applies to taxable years
    ending after the date of enactment.

     f. health insurance organizations eligible for benefits of section 833

          (Sec. 351 of the House bill).
    Present law
          An organization described in sections 501(c)(3) or (4) of
    the Code is exempt from tax only if no substantial part of its
    activities consists of providing commercial-type insurance
    (sec. 501(m)). Special rules apply to certain eligible health
    insurance organizations. Eligible health insurance
    organizations are (1) Blue Cross and Blue Shield organizations
    existing on August 16, 1986, which have not experienced a
    material change in structure or operations since that date, and
    (2) other organizations that meet certain community-service
    related requirements and substantially all of whose activities
    involve the providing of health insurance. Section 833 provides
    that eligible organizations are generally treated as stock
    property and casualty insurance companies.
          Section 833 provides a special deduction for eligible
    organizations, equal to 25 percent of the claims and expenses
    incurred during the year, less the adjusted surplus at the
    beginning of the year. This deduction is calculated by
    computing surplus, taxable income, claims incurred, expenses
    incurred, tax-exempt income, net operating loss carryovers, and
    other items attributable to health expenses. The deduction may
    not exceed taxable income attributable to health business for
    the year (calculated without regard to this deduction).
          In addition, section 833 eliminates, for eligible
    organizations, the 20 percent reduction in unearned premium
    reserves that applies generally to all property and casualty
    insurance companies.
    House bill
          The House bill applies the special rules under section
    833 to the same extent they are provided to certain existing
    Blue Cross or Blue Shield organizations, in the case of any
    organization that (1) is not a Blue Cross or Blue Shield
    organization existing on August 16, 1986, and (2) otherwise
    meets the requirements of section 833(c)(2) (including the
    requirement of no material change in operations or structure
    since August 16, 1986). Under the provision, an organization
    qualifies for this treatment only if (1) it is not a health
    maintenance organization and (2) it is organized under and
    governed by State laws which are specifically and exclusively
    applicable to not-for-profit health insurance or health service
    type organizations.
          Effective date.--The provision is effective for taxable
    years ending after December 31, 1996.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement follows the House bill.

           g. penalty-free withdrawals from iras for medical expenses

          (Sec. 461 of the Senate amendment).
    Present law
          Amounts withdrawn from an individual retirement
    arrangement (``IRA'') are includible in income (except to the
    extent of any nondeductible contributions). In addition, a 10-
    percent additional tax applies to withdrawals from IRAs made
    before age 59\1/2\, unless the withdrawal is made on account of
    death or disability or is made in the form of annuity payments.
          A similar additional tax applies to early withdrawals
    from employer-sponsored tax-qualified pension plans. However,
    the 10-percent additional tax does not apply to withdrawals
    from such plans to the extent used for medical expenses that
    exceed 7.5 percent of adjusted gross income (``AGI'').
    House bill
          No provision.
    Senate amendment
          The Senate amendment extends the exception to the 10-
    percent tax for medical expenses in excess of 7.5 percent of
    AGI to withdrawals from IRAs. In addition, the Senate amendment
    provides that the 10-percent additional tax does not apply to
    withdrawals for medical insurance (without regard to the 7.5
    percent of AGI floor) if the individual (including a self-
    employed individual) has received unemployment compensation
    under Federal or State law for at least 12 weeks, and the
    withdrawal is made in the year such unemployment compensation
    is received or the following year. If a self-employed
    individual is not eligible for unemployment compensation under
    applicable law, then, to the extent provided in regulations, a
    self-employed individual is treated as having received
    unemployment compensation for at least 12 weeks if the
    individual would have received unemployment compensation but
    for the fact that the individual was self-employed.
          Effective date.--The provision is effective for taxable
    years beginning after December 31, 1996.
    Conference agreement
          The conference agreement follows the Senate amendment,
    with the modification that the exception ceases to apply if the
    individual has been reemployed for at least 60 days.

     h. require treasury to include organ and tissue donation information
                                with tax refunds

          (Sec. 307 of the Senate amendment).
    Present law
          There is no statutory requirement that Treasury include
    organ and tissue donation information with any payment of a
    refund of individual income taxes.
    House bill
          No provision.
    Senate amendment
          The Senate amendment requires Treasury to include organ
    and tissue donation information with any payment of a refund of
    individual income taxes made on or after February 1, 1997,
    through June 30, 1997.
          Effective date.--The provision is effective for refunds
    made on or after February 1, 1997, through June 30, 1997.
    Conference agreement
          The conference agreement generally follows the Senate
    amendment, with two technical modifications. The first
    modification requires that the organ donor card be included to
    the extent particable. The second modification clarifies that
    the organ donor card is to be included with the mailing of any
    payment of a refund of individual income taxes.
          Effective date.--The provision is effective for refunds
    made on or after February 1, 1997, through June 30, 1997.

    Title IV. Application and Enforcement of Group Health Plan Requirements

       a. application and enforcement of group health plan portability,
                     access, and renewability requirements

          (Sec. 104(b) of the House bill).
    Present Law
          Under present law, the health care continuation rules
    (referred to as ``COBRA'' rules, after the Consolidated Omnibus
    Budget Reconciliation Act of 1985 in which they were enacted)
    require that most employer-sponsored group health plans must
    offer certain employees and their dependents (``qualified
    beneficiaries'') the option of purchasing continued health
    coverage in the case of certain qualifying events. These
    qualifying events include: termination or reduction in hours of
    employment, death, divorce or legal separation, enrollment in
    Medicare, or the end of a child's dependency under a parent's
    health plan. In general, the maximum period of COBRA coverage
    is 18 months. An employer is permitted to charge qualified
    beneficiaries 102 percent of the applicable premium for COBRA
    coverage.
          A tax is imposed on the failure of a group health plan to
    satisfy the COBRA rules. The tax may be imposed on the employer
    sponsoring the plan in the case of a plan other than a
    multiemployer plan, on the plan in the case of a multiemployer
    plan, or on each person who is responsible for administering or
    providing benefits under the plan if such person has, by
    written agreement, assumed responsibility for performing the
    act pursuant to which the violation occurs.
          The amount of the tax is generally equal to $100 per day
    for each day on which there is a violation. The tax applies
    separately with respect to each qualified beneficiary for whom
    a failure occurs. In general, a tax will not be imposed if the
    violation was unintentional and is corrected within 30 days.
    The maximum tax for unintentional violations that can be
    imposed for a taxable year generally is the lesser of (1) 10
    percent of the employer's payments under group health plans (or
    under the trust funding the plan in the case of a multiemployer
    plan), or (2) $500,000. If the tax is imposed on another person
    responsible for administering or providing benefits under the
    plan, the maximum penalty for failures during the year is $2
    million. The Secretary may waive all or part of the tax to the
    extent that payment of the tax would be excessive relative to
    the failure involved.
          Other than the COBRA rules, there are no other
    requirements in the Code which apply to group health plans (or
    insurers or health maintenance organizations (``HMOs''))
    regarding portability through limitations on preexisting
    condition exclusions, prohibitions on excluding individuals
    from coverage based on health status, and guaranteed
    renewability of health plan coverage.
    House bill
          Under the House bill, group health plans, insurers, and
    HMOs are subject to certain requirements regarding portability
    through limitations on preexisting condition exclusions and
    prohibitions on excluding individuals from coverage based on
    health status. The House bill generally extends the tax for
    failures to satisfy the COBRA rules to failures to comply with
    these requirements.
          No tax is imposed on an insurer or HMO that is governed
    under a State law that the Secretary of Health and Human
    Services has determined to provide enforcement of similar
    requirements. In addition, no tax may be imposed on a small
    employer (defined as an employer who employs at least 2, but
    fewer than 51 employees on a typical business day) that
    provides health care benefits through a contract with an
    insurer or HMO and the violation is solely because of the
    product offered by the insurer or HMO under such contract. In
    addition, no tax is imposed if there has been enforcement by
    the Secretary of Labor or the Secretary of Health and Human
    Services.
          Effective date.--The provision generally is effective
    with respect to plan years beginning on or after January 1,
    1998.
    Senate amendment
          No provision. The requirements in the Senate amendment on
    group health plans, insurers, and HMOs regarding portability
    through limitations on preexisting condition exclusions and
    prohibitions on excluding individuals from coverage based on
    health status are not applied or enforced through the Code.
    Conference agreement
          Under the conference agreement, group health plans are
    subject to certain requirements regarding portability through
    limitations on preexisting condition exclusions, prohibitions
    on excluding individuals from coverage based on health status,
    and guaranteed renewability of health insurance coverage.\19\
    The conference agreement incorporates these requirements into
    the Code and generally imposes a tax with respect to any
    failure of a group health plan to comply with the requirements.
    The tax may generally be imposed on the employer sponsoring the
    plan. However, the tax may be imposed on the plan in the case
    of a multiemployer plan, and, with respect to violations of the
    requirements relating to guaranteed renewability, on the
    arrangement in the case of a multiple employer welfare
    arrangement.
    ---------------------------------------------------------------------------
        \19\ These requirements are discussed earlier in greater detail.
    ---------------------------------------------------------------------------
          The group health plan requirements contained in the Code
    do not apply to governmental plans and plans which on the first
    day of the plan year cover less than 2 current employees. In
    addition, no tax may be imposed on a small employer (defined as
    an employer who employed an average of 50 or fewer employees on
    business days during the preceding calendar year) that provides
    health care benefits through a contract with an insurer or HMO
    and the violation is solely because of the coverage offered by
    the insurer or HMO.
          The amount of the tax is generally equal to $100 per day
    for each day during which a failure occurs until the failure is
    corrected. The tax applies separately with respect to each
    individual affected by the failure. In general, a tax will not
    be imposed if the violation was unintentional and is corrected
    within 30 days.\20\ The maximum tax for unintentional
    violations that can be imposed generally is the lesser of (1)
    10 percent of the employer's payments during the taxable year
    in which the failure occurred under group health plans (or 10
    percent of the amount paid by the multiemployer plan or
    multiple employer welfare arrangement during the plan year in
    which the failure occurred for medical care, if applicable), or
    (2) $500,000. The Secretary may waive all or part of the tax to
    the extent that payment of the tax would be excessive relative
    to the failure involved.
    ---------------------------------------------------------------------------
        \20\ In the case of a church plan, this correction is generally
    extended to 270 days after the date of mailing by the Secretary of a
    notice of default with respect to a failure to comply with the group
    health plan requirements.
    ---------------------------------------------------------------------------
          Effective date.--The provision applies with respect to
    failures of group health plans to satisfy the requirements
    regarding portability through limitations on preexisting
    condition exclusions, prohibitions on excluding individuals
    from coverage based on health status, and guaranteed
    renewability of health insurance coverage.

    b. clarification of certain cobra health care continuation requirements

          (Sec. 121 of the Senate amendment).
    Present law
          Under present law, the health care continuation rules
    (referred to as ``COBRA'' rules, after the Consolidated Omnibus
    Budget Reconciliation Act of 1985 in which they were enacted)
    require that most employer-sponsored group health plans must
    offer certain employees and their dependents (``qualified
    beneficiaries'') the option of purchasing continued health
    coverage in the case of certain qualifying events. These
    qualifying events include; termination or reduction in hours of
    employment, death, divorce or legal separation, enrollment in
    Medicare, or the end of a child's dependency under a parent's
    health plan. In general, the maximum period of COBRA coverage
    is 18 months. An employer is permitted to charge qualified
    beneficiaries 102 percent of the applicable premium for COBRA
    coverage. A $100 per day tax generally may be assessed against
    employers (plans in the case of multiemployer plans) for
    failures to comply with the COBRA rules, subject to certain
    exceptions and limitations.
          The 18-month maximum COBRA coverage period is extended to
    29 months if the qualified beneficiary is determined under the
    Social Security Act to have been disabled at the time of the
    qualifying event and the qualified beneficiary provides notice
    of such determination to the employer before the end of the 18-
    month period. A qualified beneficiary has 60 days to notify the
    employer of a disability determination. During the 11-month
    period of extended COBRA coverage, the qualified beneficiary
    may be charged 150 percent of the applicable premium.
          COBRA coverage may be terminated before the 18-month
    maximum coverage period in the case of certain events. These
    include: the employer ceases to maintain any group health plan,
    the qualified beneficiary fails to pay the premium, the
    qualified beneficiary becomes covered under another group
    health plan with no preexisting condition limitation or
    exclusion, or the qualified beneficiary becomes entitled to
    Medicare.
          Under present law, the term qualified beneficiary only
    includes individuals who were either the spouse or the
    dependent of the covered employee at the time of the qualifying
    event.
          A group health plan is required to notify each covered
    employee and the covered employee's spouse of their COBRA
    rights upon commencement of participation in the plan. Further,
    the group health plan administrator must notify each qualified
    beneficiary of their COBRA rights within 14 days after
    notification of the occurrence of a qualifying event.
    House bill
          No provision. However, the House bill modifies the COBRA
    rules so that the penalties applicable to failures to comply
    with the COBRA rules generally apply to failures to comply with
    the requirements in the House bill on group health plans,
    insurers, and health maintenance organizations (``HMOs'')
    regarding portability through limitations on preexisting
    condition exclusions and prohibitions on excluding individuals
    from coverage based on health status.
    Senate amendment
          The Senate amendment modifies the COBRA rules by
    clarifying that the extended maximum COBRA coverage period of
    29 months in cases of disability also applies to the disabled
    qualified beneficiary of the covered employee. In addition, the
    Senate amendment provides the extended COBRA coverage if the
    disability exists at any time during the initial 18-month COBRA
    coverage period as opposed to requiring the disability to exist
    at the time of the qualifying event. As under present law, the
    disability determination still has to be made, and the notice
    of the disability still has to be given, before the end of the
    initial COBRA coverage period.
          The Senate amendment coordinates the COBRA rules with the
    new requirements regarding preexisting condition exclusions so
    that COBRA coverage can be terminated if a qualified
    beneficiary becomes covered under another group health plan,
    even if such group health plan contains a preexisting condition
    limitation or exclusion, provided the preexisting condition
    limitation or exclusion does not apply to the qualified
    beneficiary by reason of the new requirements restricting the
    application of preexisting condition limitations and
    exclusions.
          The Senate amendment also modifies the definition of
    qualified beneficiary to include a child born to our placed for
    adoption with the covered employee during the period of COBRA
    coverage. Consequently, since the health care availability
    provisions in the Senate amendment require group health plans
    to allow participants to change their coverage status (i.e., to
    change from individual coverage to family coverage, or to add
    on the new child) upon the birth or adoption of a new child,
    COBRA participants would also be allowed to change their
    coverage status upon the birth or adoption of a new child.
          The Senate amendment requires a group health plan to
    notify each qualified beneficiary who has elected COBRA
    coverage of the changes to the COBRA rules contained in the
    Senate amendment no later than November 1, 1996.
          Effective date.--The provision applies to qualifying
    events occurring on or after the date of enactment for plan
    years beginning after December 31, 1997.
    Conference agreement
          The conference agreement follows the Senate amendment,
    except the extended period of COBRA coverage in cases of
    disability applies if the disability exists at any time during
    the first 60 days of COBRA coverage.
          Effective date.--The provision is effective on January 1,
    1997, regardless of whether the qualifying event occurred
    before, on, or after such date.

                            TITLE V. REVENUE OFFSETS

       a. disallow interest deduction for corporate-owned life insurance
                                  policy loans

          (Sec. 495 of the Senate amendment).
     Present law
          No Federal income tax generally is imposed on a
    policyholder with respect to the earnings under a life
    insurance contract (``inside buildup''). \21\ Further, an
    exclusion from Federal income tax is provided for amounts
    received under a life insurance contract paid by reason of the
    death of the insured (sec. 101(a)). The policyholder may borrow
    with respect to the life insurance contract without affecting
    these exclusions, subject to certain limitations.
    ---------------------------------------------------------------------------
        \21\ This favorable tax treatment is available only if a life
    insurance contract meets certain requirements designed to limit the
    investment character of the contract (sec. 7702). Distributions from a
    life insurance contract (other than a modified endowment contract) that
    are made prior to the death of the insured generally are includible in
    income, to the extent that the amounts distributed exceed the
    taxpayer's basis in the contract; such distributions generally are
    treated first as a tax-free recovery of basis, and then as income (sec.
    72(e)). In the case of a modified endowment contract, however, in
    general, distributions are treated as income first, loans are treated
    as distributions (i.e., income rather than basis recovery first), and
    an additional 10 percent tax is imposed on the income portion of
    distributions made before age 59\1/2\ and in certain other
    circumstances (secs. 72 (e) and (v)). A modified endowment contract is
    a life insurance contract that does not meet a statutory ``7-pay''
    test, i.e., generally is funded more rapidly than 7 annual level
    premiums (sec. 7702A).
    ---------------------------------------------------------------------------
          The limitations on borrowing with respect to a life
    insurance contract under present law provide that no deduction
    is allowed for any interest paid or accrued on any indebtedness
    with respect to one or more life insurance policies owned by
    the taxpayer covering the life of any individual who (1) is an
    officer or employee of, or (2) is financially interested in,
    any trade or business carried on by the taxpayer to the extent
    that the aggregate amount of such debt with respect to policies
    covering the individual exceeds $50,000 (sec. 264(a)(4)).
          Further, no deduction is allowed for any amount paid or
    accrued on debt incurred or continued to purchase or carry a
    life insurance, endowment, or annuity contract pursuant to a
    plan of purchase that contemplates the systematic direct or
    indirect borrowing of part or all of the increases in the cash
    value of the contract.\22\ An exception to the latter rule is
    provided, permitting deductibility of interest on bona fide
    debt that is part of such a plan, if no part of 4 of the annual
    premiums due during the first 7 years is paid by means of debt
    (the ``4-out-of-7 rule'') (sec. 264(c)(1)). Provided the
    transaction gives rise to debt for Federal income tax purposes,
    and provided the 4-out-of-7 rule is met,\23\ a company may
    under present law borrow up to $50,000 per employee, officer,
    or financially interested person to purchase or carry a life
    insurance contract covering such a person, and is not precluded
    under section 264 from deducting the interest on the debt, even
    though the earnings inside the life insurance contract (inside
    buildup) are tax-free, and in fact the taxpayer has full use of
    the borrowed funds.
    ---------------------------------------------------------------------------
        \22\ The statute provides that the $50,000 limitation applies only
    with respect to contracts purchased after June 20, 1986. However,
    additional limitations are imposed on the deductibility of interest
    with respect to single premium contracts (sec. 264(a)(2)), and on the
    deductibility of premiums paid on a life insurance contract covering
    the life of any officer or employee or person financially interested in
    a trade or business of the taxpayer when the taxpayer is directly or
    indirectly a beneficiary under the contract (sec. 264(a)(1)).
        \23\ Interest deductions are disallowed if any of the disallowance
    rules of section 264(a)(2)-(4) apply. The disallowance rule of section
    264(a)(3) is not applicable if one of the exceptions of section 264(c),
    such as the 4-out-of-7 rule (sec. 264(c)(1)) is satisfied. In addition
    to the specific disallowance rules of section 264, generally applicable
    principles of tax law apply.
    ---------------------------------------------------------------------------
    House bill
          No provision.
    Senate amendment
          Under the Senate amendment, no deduction is allowed for
    interest paid or accrued on any indebtedness with respect to
    one or more life insurance policies or annuity or endowment
    contracts owned by the taxpayer covering any individual who is
    (1) an officer or employee of, or (2) financially interested
    in, any trade or business carried on by the taxpayer,
    regardless of the aggregate amount of debt with respect to
    policies or contracts covering the individual.
          An exception is provided retaining present law for
    interest on indebtedness with respect to life insurance
    policies covering up to 10 key persons. A key person is an
    individual who is either an officer or a 20-percent owner of
    the taxpayer. The number of individuals that can be treated as
    key persons may not exceed the greater of (1) 5 individuals, or
    (2) the lesser of 5 percent of the total number of officers and
    employees of the taxpayer or 10 individuals. Interest paid or
    accrued on debt with respect to a life insurance contract
    covering a key person is deductible only to the extent the rate
    of interest does not exceed Moody's Corporate Bond Yield
    Average--Monthly Average Corporates for each month interest is
    paid or accrued.
          Effective date.--The Senate amendment provision generally
    is effective with respect to interest paid or accrued after
    December 31, 1995 (subject to a phase-in rule).
          The phase-in rule provides that with respect to debt
    incurred before January 1, 1996, any otherwise deductible
    interest paid or accrued after October 13, 1995, and before
    January 1, 1999, is allowed to the extent the rate of interest
    does not exceed the lesser of (1) the borrowing rate specified
    in the contract as of October 13, 1995, or (2) a percentage of
    Moody's Corporate Bond Yield Average--Monthly Average
    Corporates for each month the interest is paid or accrued. For
    interest paid or accrued after October 13, 1995, and before
    January 1, 1996, the percentage of the Moody's rate is 100
    percent; for interest paid or accrued in 1996, the percentage
    is 90 percent; for interest paid or accrued in 1997, the
    percentage is 80 percent; for 1998, the percentage is 70
    percent; for 1999 and thereafter, the percentage is 0 percent.
    Only interest that would have been allowed as a deduction but
    for the provision is allowed under the phase-in. Interest that
    is deductible under the phase-in rules does not include
    interest on borrowings by the taxpayer with respect to
    contracts on the lives of more than 20,000 insured individuals,
    effective for interest paid or accrued after December 31, 1995.
    For this purpose, all persons treated as a single employer are
    treated as one taxpayer.
          An exception is provided under the effective date with
    respect to any life insurance contract entered into during 1994
    or 1995. In the case of such contracts, with respect to debt
    incurred before January 1, 1997, a deduction is allowed for
    interest (that is otherwise deductible) only (1) with respect
    to policies that satisfy the key person exception, and (2) as
    provided under the phase-in rule. Thus, with respect to
    interest on amounts borrowed during 1996 with respect to such a
    contract, the phase-in rule applies, capping the rate for
    determining the amount of deductible interest at the lesser of
    (1) the borrowing rate specified in the contract as of October
    13, 1995, or (2) the applicable percentage of Moody's Corporate
    Bond Yield Average--Monthly Average Corporates for each month
    the interest is paid or accrued. For example, for interest paid
    or accrued in 1996 on amounts borrowed in 1996 with respect to
    such a contract, the applicable percentage is 90 percent.
          The provision generally does not apply to interest on
    debt with respect to contracts purchased on or before June 20,
    1986 (thus generally continuing the effective date provision of
    the $50,000 limitation enacted in the 1986 Act.) If the policy
    loan interest rate under such a contract provides for a fixed
    rate of interest, then interest on such a contract paid or
    accrued after October 13, 1995, is allowable only to the extent
    the fixed rate of interest does not exceed Moody's Corporate
    Bond Yield Average--Monthly Average Corporates for the month in
    which the contract was purchased. If the policy loan interest
    rate under such a contract does not provide for a fixed rate of
    interest, then interest on such a contract paid or accrued
    after October 13, 1995, is allowable only to the extent the
    rate of interest for each fixed period selected by the taxpayer
    does not exceed Moody's Corporate Bond Yield Average--Monthly
    Average Corporates, for the month immediately preceding the
    beginning of the fixed period. The fixed period must be 12
    months or less. It is intended that conforming a contract to
    satisfy this interest rate limitation not be treated as a
    material modification for purposes of this grandfather rule or
    sections 101(f), 7702 or 7702A. No inference is intended as to
    whether such a change is a material modification under present
    law.
          Any amount included in income during 1996, 1997, or 1998,
    that is received under a contract described in the proposal on
    the complete surrender, redemption or maturity of the contract
    or in full discharge of the obligation under the contract that
    is in the nature of a refund of the consideration paid for the
    contract, is includable ratably over the first 4 taxable years
    beginning with the taxable year the amount would otherwise have
    been includable. Utilization of this 4-year income-spreading
    rule does not cause interest paid or accrued prior to January
    1, 1999, to be nondeductible solely by reason of (1) failure to
    meet the 4-out-or-7 rule, or (2) causing the contract to be
    treated as single premium contract within the meaning of
    section 264(b)(1) (i.e., a contract in which substantially all
    of the premiums are paid within 4 years after the date of
    purchase). In addition, the lapse of a contract after October
    13, 1995, due to nonpayment of premiums does not cause interest
    paid or accrued prior to January 1, 1999, to be nondeductible
    solely by reason of (1) failure to meet the 4-out-of-7 rule, or
    (2) causing the contract to be treated as a single premium
    contract within the meaning of section 264(b)(1).
          In the case of an insurance company, the unamortized
    balance of policy expense attributable to a contract with
    respect to which the 4-year income-spreading treatment is
    allowed to the policyholder is deductible in the year in which
    the transaction giving rise to income-spreading occurs.
          No inference, is intended as to the treatment of interest
    paid or accrued under present law.
    Conference agreement
          The conference agreement follows the Senate amendment,
    with the following modifications.
          The exception relating to key persons is modified to
    apply to life insurance policies covering up to 20 key persons.
    Thus, under the conference agreement, the number of individuals
    that can be treated as key persons may not exceed the greater
    of (1) 5 individuals, or (2) the lesser of 5 percent of the
    total number of officers and employees of the taxpayer or 20
    individuals.
          The cap (based on Moody's Corporate Bond Yield Average--
    Monthly Average Corporates) on deductible interest paid or
    accrued with respect to (1) interest paid or accrued on debt
    with respect to a life insurance contract covering a key
    person, and (2) interest on debt with respect to contracts
    purchased on or before June 20, 1986, applies only for interest
    paid or accrued for any month beginning after December 31,
    1995.
          In addition, in the case of a contract purchased on or
    before June 20, 1986, where the policy loan interest rate under
    the contract does not provide for a fixed rate of interest, the
    interest is allowable only to the extent the rate of interest
    for each period does not exceed Moody's Corporate Bond Yield
    Average--Monthly Average Corporates for the third month
    preceding the first month preceding the period.
          Effective date.--The conference agreement modifies the
    percentages of the Moody's Corporate Bond Yield Average--
    Monthly Average Corporates that apply with respect to qualified
    interest under the phase-in rule. Thus, under the conference
    agreement, the percentage of the Moody's rate is 100 percent
    for interest paid or accrued in 1996; 90 percent for interest
    paid or accrued in 1997; 80 percent for interest paid or
    accrued in 1998; and 0 percent thereafter. The rule limiting
    deductible interest to the applicable percentage of the Moody's
    rate does not apply for interest paid or accrued in any month
    beginning before January 1, 1996.

                         B. Expatriation Tax Provisions

          (Secs. 421-423 of the House bill and secs. 471-473 of the
    Senate amendment.)
    Present law
          Individuals who relinquish U.S. citizenship with a
    principal purpose of avoiding U.S. taxes are subject to special
    tax provisions for 10 years after expatriation. The
    determination of who is a U.S. citizen for tax purposes, and
    when such citizenship is lost, is governed by the provisions of
    the Immigration and Nationality Act, 8 U.S.C. section 1401, et
    seq.
          An individual who relinquishes his U.S. citizenship with
    a principal purpose of avoiding U.S. taxes is subject to tax on
    his or her U.S. source income at the rates applicable to U.S.
    citizens, rather than the rates applicable to other non-
    resident aliens, for 10 years after expatriation. In addition,
    the scope of items treated as U.S. source income for this
    purpose is broader than those items generally considered to be
    U.S. source income. For example, gains on the sale of personal
    property located in the United States and gains on the sale or
    exchange of stock or securities issued by U.S. persons are
    treated as U.S. source income. This alternative method of
    income taxation applies only if it results in higher U.S. tax
    liability.
           Rules applicable in the estate and gift tax contexts
    expand the categories of items that are subject to the gift and
    estate taxes in the case of a U.S. citizen who relinquished
    citizenship with a principal purpose of avoiding U.S. taxes
    within the 10-year period ending on the date of the transfer.
    For example, U.S. property held through a foreign corporation
    controlled by such individual and related persons is included
    in his or her estate and gifts of U.S.-situs intangible
    property by such individual are subject to the gift tax.
    House bill
                Overview
          The House bill expands and substantially strengthens in
    several ways the present-law provisions that subject U.S.
    citizens who lose their citizenship for tax avoidance purposes
    to special tax rules for 10 years after such loss of
    citizenship (secs. 877, 2107, and 2501(a)(3)). First, the House
    bill extends the expatriation tax provisions to apply not only
    to U.S. citizens who lose their citizenship but also to certain
    long-term residents of the United States whose U.S. residency
    is terminated. Second, the House bill subjects certain
    individuals to the expatriation tax provisions without inquiry
    as to their motive for losing their U.S. citizenship or
    residency, but allows certain categories of citizens to show an
    absence of tax-avoidance motive if they request a ruling from
    the Secretary of the Treasury as to whether the loss of
    citizenship had a principal purpose of tax avoidance. Third,
    the House bill expands the categories of income and gains that
    are treated as U.S. source (and therefore subject to U.S.
    income tax under section 877) if earned by an individual who is
    subject to the expatriation tax provisions and includes
    provisions designed to eliminate the ability to engage in
    certain transactions that under current law partially or
    completely circumvent the 10-year reach of section 877.
    Further, the House bill provides relief from double taxation in
    circumstances where another country imposes tax on items that
    would be subject to U.S. tax under the expatriation tax
    provisions.
          The House bill also contains provisions to enhance
    compliance with the expatriation tax provisions. The House bill
    imposes information reporting obligations on U.S. citizens who
    lose their citizenship and long-term residents whose U.S.
    residency is terminated at the time of expatriation. In
    addition, the House bill directs the Treasury Department to
    undertake a study regarding compliance by individuals living
    abroad with their U.S. tax reporting obligations and to make
    recommendations with respect to improving such compliance.
                Individuals covered
          The present-law expatriation tax provisions apply only to
    certain U.S. citizens who lose their citizenship. The House
    bill extends these expatriation tax provisions to apply also to
    long-term residents of the United States whose U.S. residency
    is terminated. For this purpose, a long-term resident is any
    individual who was a lawful permanent resident of the United
    States for at least 8 out of the 15 taxable years ending with
    the year in which such termination occurs. In applying this 8-
    year test, an individual is not considered to be a lawful
    permanent resident for any year in which the individual is
    taxed as a resident of another country under a treaty tie-
    breaker rule. An individual's U.S. residency is considered to
    be terminated when either the individual ceases to be a lawful
    permanent resident pursuant to section 7701(b)(6) (i.e., the
    individual loses his or her green-card status) or the
    individual is treated as a resident of another country under a
    tie-breaker provision of a tax treaty (and the individual does
    not elect to waive the benefits of such treaty). Furthermore, a
    long-term resident may elect to use the fair market value basis
    of property on the date the individual became a U.S. resident
    (rather than the property's historical basis) to determine the
    amount of gain subject to the expatriation tax provisions if
    the asset is sold within the 10-year period.
          Under present law, the expatriation tax provisions are
    applicable to a U.S. citizen who loses his or her citizenship
    unless such loss did not have as a principal purpose the
    avoidance of taxes. Under the House bill, U.S. citizens who
    lose their citizenship and long-term residents whose U.S.
    residency is terminated are generally treated as having lost
    such citizenship or terminated such residency with a principal
    purpose of the avoidance of taxes if either: (1) the
    individual's average annual U.S. Federal income tax liability
    for the 5 taxable years ending before the date of such loss or
    termination is greater than $100,000 (the ``tax liability
    test''), or (2) the individual's net worth as of the date of
    such loss or termination is $500,000 or more (the ``net worth
    test''). The dollar amount thresholds contained in the tax
    liability test and the net worth test are indexed for inflation
    in the case of a loss of citizenship or termination of
    residency occurring in any calendar year after 1996. An
    individual who falls below the thresholds specified in both the
    tax liability test and the net worth test is subject to the
    expatriation tax provisions unless the individual's loss of
    citizenship or termination of residency did not have as a
    principal purpose the avoidance of tax (as under present law in
    the case of U.S. citizens).
          A U.S. citizen, who loses his or her citizenship and who
    satisfies either the tax liability test or the net worth test,
    is not subject to the expatriation tax provisions if such
    individual can demonstrate that he or she did not have a
    principal purpose of tax avoidance and the individual is within
    one of the following categories: (1) the individual was born
    with dual citizenship and retains only the non-U.S.
    citizenship; (2) the individual becomes a citizen of the
    country in which the individual, the individual's spouse, or
    one of the individual's parents, was born; (3) the individual
    was present in the United States for no more than 30 days
    during any year in the 10-year period immediately preceding the
    date of his or her loss of citizenship; (4) the individual
    relinquishes his or her citizenship before reaching age 18\1/
    2\; or (5) any other category of individuals prescribed by
    Treasury regulations. In all of these situations, the
    individual would have been subject to tax on his or her
    worldwide income (as are all U.S. citizens) until the time of
    expatriation. In order to qualify for one of these exceptions,
    the former U.S. citizen must, within one year from the date of
    loss of citizenship, submit a ruling request for a
    determination by the Secretary of the Treasury as to whether
    such loss had as one of its principal purposes the avoidance of
    taxes. A former U.S. citizen who submits such a ruling request
    is entitled to challenge an adverse determination by the
    Secretary of the Treasury. However, a former U.S. citizen who
    fails to submit a timely ruling request is not eligible for
    these exceptions. It is expected that in making a determination
    as to the presence of a principal purpose of tax avoidance, the
    Secretary of the Treasury will take into account factors such
    as the substantiality of the former citizen's ties to the
    United States (including ownership of U.S. assets) prior to
    expatriation, the retention of U.S. citizenship by the former
    citizen's spouse, and the extent to which the former citizen
    resides in a country that imposes little or no tax.
          The foregoing exceptions are not available to long-term
    residents whose U.S. residency is terminated. However, the
    House bill authorizes the Secretary of the Treasury to
    prescribe regulations to exempt certain categories of long-term
    residents from the House bill's provisions.
                Items subject to section 877
          Under section 877, an individual covered by the
    expatriation tax provisions is subject to tax on U.S. source
    income and gains for a 10-year period after expatriation at the
    graduated rates applicable to U.S. citizens.\24\ The tax under
    section 877 applies to U.S. source income and gains of the
    individual for the 10-year period, without regard to whether
    the property giving rise to such income or gains was acquired
    before or after the date the individual became subject to the
    expatriation tax provisions. For example, a U.S. citizen who
    inherits an appreciated asset immediately before losing
    citizenship and disposes of the asset immediately after such
    loss would not recognize any taxable gain on such disposition
    (because of the date of death fair market value basis accorded
    to inherited assets), but the individual would continue to be
    subject to tax under section 877 on the income or gain derived
    from any U.S. property acquired with the proceeds from such
    disposition.
    ---------------------------------------------------------------------------
        \24\ Under present law, all nonresident aliens (including
    expatriates) are subject to U.S. income tax at graduated rates on
    certain types of income. Such income includes income effectively
    connected with a U.S. trade or business and gains from the disposition
    of interests in U.S. real property. For example, compensation
    (including deferred compensation) paid with respect to services
    performed in the United States is subject to such tax. Thus, under
    current law, a U.S. citizen who earns a stock option while employed in
    the United States and delays the exercise of such option until after
    such individual loses his or her citizenship is subject to U.S. tax on
    the compensation income recognized upon exercise of the stock option
    (even if the stock received upon the exercise is stock in a foreign
    corporation).
    ---------------------------------------------------------------------------
          In addition, section 877 currently recharacterizes as
    U.S. source income certain gains of individuals who are subject
    to the expatriation tax provisions, thereby subjecting such
    individuals to U.S. income tax on such gains. Under this rule,
    gain on the sale or exchange of stock of a U.S. corporation or
    debt of a U.S. person is treated as U.S. source income. In this
    regard, under current law, the substitution of a foreign
    obligor for a U.S. obligor is generally treated as a taxable
    exchange of the debt instrument, and therefore any gain on such
    exchange is subject to tax under section 877. The House bill
    extends this recharacterization to income and gains derived
    from property obtained in certain transactions on which gain or
    loss is not recognized under present law. An individual covered
    by section 877 who exchanges property that would produce U.S.
    source income for property that would produce foreign source
    income is required to recognize immediately as U.S. source
    income any gain on such exchange (determined as if the property
    had been sold for its fair market value on such date). To the
    extent gain is recognized under this provision, the property
    would be accorded the step-up in basis provided under current
    law. This rule requiring immediate gain recognition does not
    apply if the individual enters into an agreement with the
    Secretary of the Treasury specifying that any income or gains
    derived from the property received in the exchange during the
    10-year period after the loss of citizenship (or termination of
    U.S. residency, as applicable) would be treated as U.S. source
    income. Such a gain recognition agreement terminates if the
    property transferred in the exchange is disposed of by the
    acquiror, and any gain that had not been recognized by reason
    of such agreement is recognized as U.S. source as of such date.
    It is expected that a gain recognition agreement would be
    entered into not later than the due date for the tax return for
    the year of the exchange. In this regard, the Secretary of the
    Treasury is authorized to issue regulations providing similar
    treatment for nonrecognition transactions that occur within 5
    years immediately prior to the date of loss of citizenship (or
    termination of U.S. residency, as applicable).
          The Secretary of Treasury is authorized to issue
    regulations to treat removal of tangible personal property from
    the United States, and other circumstances that result in a
    conversion of U.S. source income to foreign source income
    without recognition of any unrealized gain, as exchanges for
    purposes of computing gain subject to section 877. The taxpayer
    may defer the recognition of the gain if he or she enters into
    a gain recognition agreement as described above. For example, a
    former citizen who removes appreciated artwork that he or she
    owns from the United States could be subject to immediate tax
    on the appreciation under this provision unless the individual
    enters into a gain recognition agreement.
          The foregoing rules regarding the treatment under section
    877 of nonrecognition transactions are illustrated by the
    following examples: Ms. A loses her U.S. citizenship on January
    1, 1996, and is subject to section 877. On June 30, 1997, Ms. A
    transfers the stock she owns in a U.S. corporation, USCo, to a
    wholly-owned foreign corporation, FCo, in a transaction that
    qualifies for tax-free treatment under section 351. At the time
    of such transfer, A's basis in the stock of USCo is $100,000
    and the fair market value of the stock is $150,000. Under
    present law, Ms. A. would not be subject to U.S. tax on the
    $50,000 of gain realized on the exchange. Moreover, Ms. A would
    not be subject to U.S. tax on any distribution of the proceeds
    from a subsequent disposition of the USCo stock by FCo. Under
    the House bill, if Ms. A does not enter into a gain recognition
    agreement with the Secretary of the Treasury, Ms. A would be
    deemed to have sold the USCo stock for $150,000 on the date of
    the transfer, and would be subject to U.S. tax in 1997 on the
    $50,000 of gain realized. Alternatively, if Ms. A enters into a
    gain recognition agreement, she would not be required to
    recognize for U.S. tax purposes in 1997 the $50,000 of gain
    realized upon the transfer of the USCo stock to FCo. However,
    under the gain recognition agreement, for the 10-year period
    ending on December 31, 2005, any income (e.g., dividends) or
    gain with respect to the FCo stock would be treated as U.S.
    source, and therefore Ms. A would be subject to tax on such
    income or gain under section 877. If FCo disposes of the USCo
    stock on January 1, 2002, Ms. A's gain recognition agreement
    would terminate on such date, and Ms. A would be required to
    recognize as U.S. source income at that time the $50,000 of
    gain that she previously deferred under the gain recognition
    agreement. (The amount of gain required to be recognized by Ms.
    A in this situation would not be affected by any changes in the
    value of the USCo stock since her June 30, 1997 transfer of
    such stock to FCo.)
          The House bill also extends the recharacterization rules
    of section 877 to treat as U.S. source any income and gains
    derived from stock in a foreign corporation if the individual
    losing citizenship or terminating residency owns, directly or
    indirectly, more than 50 percent of the vote or value of the
    stock of the corporation on the date of such loss or
    termination or at any time during the 2 years preceding such
    date. Such income and gains are recharacterized as U.S. source
    only to the extent of the amount of earnings and profits
    attributable to such stock earned or accumulated prior to the
    date of loss of citizenship (or termination of residency, as
    applicable) and while such ownership requirement is satisfied.
          The following example illustrates this rule: Mr. B loses
    his U.S. citizenship on July 1, 1996 and is subject to section
    877. Mr. B has owned all of the stock of a foreign corporation,
    FCo, since its incorporation in 1991. As of FCo's December 31,
    1995 year-end, FCo has accumulated earnings and profits of
    $500,000. FCo has earnings and profits of $100,000 for 1996 and
    does not have any subpart F income (as defined in sec. 952).
    FCo makes a $100,000 distribution to Mr. B in each of 1997 and
    1998. On January 1, 1999, Mr. B disposes of all his stock of
    FCo and realizes $400,000 of gain. Under present law, neither
    the distributions from FCo nor the gain on the disposition of
    the FCo stock would be subject to U.S. tax. Under the House
    bill, the distributions from FCo and the gain on the sale of
    the stock of FCo would be treated as U.S. source income and
    would be taxed to Mr. B under section 877, subject to the
    earnings and profits limitation. For this purpose, the amount
    of FCo's earnings and profits for 1996 is prorated based on the
    number of days during 1996 that Mr. B is a U.S. citizen. Thus,
    the amount of FCo's earnings and profits earned or accumulated
    before Mr. B's loss of citizenship is $550,000. Accordingly,
    the $100,000 distributions from FCo in 1997 and 1998 would be
    treated as U.S. source income taxable to Mr. B under section
    877 in such years. In addition, $350,000 of the gain realized
    from the sale of the stock of FCo in 1999 would be treated as
    U.S. source income taxable to Mr. B under section 877 in that
    year.
                Special rule for shift in risks of ownership
          Section 877 applies to income and gains for the 10-year
    period following the loss of citizenship (or termination of
    residency, as applicable). For purposes of applying section
    877, the House bill suspends this 10-year period for gains
    derived from a particular property during any period in which
    the individual's risk of loss with respect to such property is
    substantially diminished. For example, Ms. C loses her
    citizenship on January 1, 1996 and is subject to section 877.
    On that date Ms. C owns 10,000 shares of stock of a U.S.
    corporation, USCo, with a value of $1 million. On the same date
    Ms. C enters into an equity swap with respect to such USCo
    stock with a 5-year term. Under the transaction, Ms. C will
    transfer to the counter-party an amount equal to the dividends
    on the USCo stock and any increase in the value of the USCo
    stock for the 5-year period. The counter-party will transfer to
    Ms. C an amount equal to a market rate of interest on $1
    million and any decrease in the value of the USCo stock for the
    same period. Ms. C's risk of loss with respect to the USCo
    stock is substantially diminished during the 5-year period in
    which the equity swap is in effect, and therefore, under the
    House bill, the 10-year period under section 877 is suspended
    during such period. Accordingly, under the House bill, if Ms. C
    sells her USCo stock for a gain on January 1, 2010, such gain
    would be treated as U.S. source income taxable to Ms. C under
    section 877. Such gain would not be subject to U.S. tax under
    present law.
                Double tax relief
          In order to avoid the double taxation of individuals
    subject to the expatriation tax provisions, the House bill
    provides a credit against the U.S. tax imposed under such
    provisions for any foreign income, gift, estate or similar
    taxes paid with respect to the items subject to such taxation.
    This credit is available only against the tax imposed solely as
    a result of the expatriation tax provisions, and is not
    available to be used to offset any other U.S. tax liability.
    For example, Mr. D loses his citizenship on January 1, 1996 and
    is subject to section 877. Mr. D becomes a resident of Country
    X. During 1996, Mr. D recognizes a $100,000 gain upon the sale
    of stock of a U.S. corporation, USCo. Country X imposes $20,000
    tax on this capital gain. But for the double tax relief
    provision, Mr. D would be subject to tax of $28,000 on this
    gain under section 877. However, Mr. D's U.S. tax under section
    877 would be reduced by the $20,000 of foreign tax paid, and
    Mr. D's resulting U.S. tax on this gain would be $8,000.
                Effect on tax treaties
          While it is believed that the expatriation tax
    provisions, as amended by the House bill, are generally
    consistent with the underlying principles of income tax
    treaties to the extent the House bill provides a foreign tax
    credit for items taxed by another country, it is intended that
    the purpose of the expatriation tax provisions, as amended, not
    be defeated by any treaty provision. The Treasury Department is
    expected to review all outstanding treaties to determine
    whether the expatriation tax provisions, as revised,
    potentially conflict with treaty provisions and to eliminate
    any such potential conflicts through renegotiation of the
    affected treaties as necessary. Beginning on the tenth
    anniversary of the enactment of the House bill, any conflicting
    treaty provisions that remain in force would take precedence
    over the expatriation tax provisions as revised.
                Required information reporting and sharing
          Under the House bill, a U.S. citizen who loses his or her
    citizenship is required to provide a statement to the State
    Department (or other designated government entity) which
    includes the individual's social security number, forwarding
    foreign address, new country of residence and citizenship and,
    in the case of individuals with a net worth of at least
    $500,000, a balance sheet. The entity to which such statement
    is to be provided is required to provide the Secretary of the
    Treasury copies of all statements received and the names of
    individuals who refuse to provide such statements. A long-term
    resident whose U.S. residency is terminated is required to
    attach a similar statement to his or her U.S. income tax return
    for the year of such termination. An individual's failure to
    provide the required statement results in the imposition of a
    penalty for each year the failure continues equal to the
    greater of (1) 5 percent of the individual's expatriation tax
    liability for such year, or (2) $1,000.
          The House bill requires the State Department to provide
    the Secretary of the Treasury with a copy of each certificate
    of loss of nationality (CLN) approved by the State Department.
    Similarly, the House bill requires the agency administering the
    immigration laws to provide the Secretary of the Treasury with
    the name of each individual whose status as a lawful permanent
    resident has been revoked or has been determined to have been
    abandoned.
          Further, the House bill requires the Secretary of the
    Treasury to publish in the Federal Register the names of all
    former U.S. citizens from whom it receives the required
    statements or whose names it receives under the foregoing
    information-sharing provisions.
                Treasury report on tax compliance by U.S. citizens and
                        residents living abroad
          The Treasury Department is directed to undertake a study
    on the tax compliance of U.S. citizens and green-card holders
    residing outside the United States and to make recommendations
    regarding the improvement of such compliance. The findings of
    such study and such recommendations are required to be reported
    to the House Committee on Ways and Means and the Senate
    Committee on Finance within 90 days of the date of enactment.
          During the course of the 1995 Joint Committee on Taxation
    staff study on expatriation (see Joint Committee on Taxation,
    Issues Presented by Proposals to Modify the Tax Treatment of
    Expatriation (JCS-17-95), June 1, 1995), a specific issue was
    identified regarding the difficulty in determining when a U.S.
    citizen has committed an expatriating act with the requisite
    intent, and thus no longer has the obligation to continue to
    pay U.S. taxes on his or her worldwide income due to the fact
    that the individual is no longer a U.S. citizen. Neither the
    Immigration and Nationality Act nor any other Federal law
    requires an individual to request a CLN within a specified
    amount of time after an expatriating act has been committed,
    even though the expatriating act terminates the status of the
    individual as a U.S. citizen for all purposes, including the
    status of being subject to U.S. tax on worldwide income.
    Accordingly, it is anticipated that the Treasury report, in
    evaluating whether improved coordination between executive
    branch agencies could improve compliance with the requirements
    of the Internal Revenue Code, will review the process through
    which the State Department determines when citizenship has been
    lost, and make recommendations regarding changes to such
    process to recognize the importance of such date for tax
    purposes. In particular, it is anticipated that the Treasury
    Department will explore ways of working with the State
    Department to insure that the State Department will not issue a
    CLN confirming the commission of an expatriating act with the
    requisite intent necessary to terminate citizenship in the
    absence of adequate evidence of both the occurrence of the
    expatriating act (e.g., the joining of a foreign army) and the
    existence of the requisite intent.
                Effective date
          The expatriation tax provisions as modified by the House
    bill generally apply to any individual who loses U.S.
    citizenship, and any long-term residents whose U.S. residency
    is terminated, on or after February 6, 1995. For citizens, the
    determination of the date of loss of citizenship remains the
    same as under present law (i.e., the date of loss of
    citizenship is the date of the expatriating act). However, a
    special transition rule applies to individuals who committed an
    expatriating act within one year prior to February 6, 1995, but
    had not applied for a CLN as of such date. Such an individual
    is subject to the expatriation tax provisions as amended by the
    House bill as of the date of application for the CLN, but is
    not retroactively liable for U.S. income taxes on his or her
    worldwide income. In order to qualify for the exceptions
    provided for individuals who fall within one of the specified
    categories, such individual is required to submit a ruling
    request within 1 year after the date of enactment of the House
    bill.
          The special transition rule is illustrated by the
    following example. Mr. E joined a foreign army on October 1,
    1994 with the intent to relinquish his U.S. citizenship, but
    Mr. E does not apply for a CLN until October 1, 1995. Mr. E
    would be subject to the expatriation tax provisions (as
    amended) for the 10-year period beginning on October 1, 1995.
    Moreover, if Mr. E falls within one of the specified categories
    (i.e., Mr. E is age 18 when he joins the foreign army), in
    order to qualify for the exception provided for such
    individuals, Mr. E would be required to submit his ruling
    request within 1 year after the date of enactment of the House
    bill. Mr. E would not, however, be liable for U.S. income taxes
    on his worldwide income for any period after October 1, 1994.
    Senate amendment
                In general
          The Senate amendment replaces the present-law
    expatriation income tax rules with rules that generally subject
    certain U.S. citizens who relinquish their U.S. citizenship and
    certain long-term U.S. residents who relinquish their U.S.
    residency to tax on the net unrealized gain in their property
    as if such property were sold for fair market value on the
    expatriation date. The Senate amendment also imposes
    information reporting obligations on U.S. citizens who
    relinquish their citizenship and long-term residents whose U.S.
    residency is terminated.
                Individuals covered
          The Senate amendment applies the expatriation tax to
    certain U.S. citizens and long-term residents who terminate
    their U.S. citizenship or residency. For this purpose, a long-
    term resident is any individual who was a lawful permanent
    resident of the United States for at least 8 out of the 15
    taxable years ending with the year in which the termination of
    residency occurs. In applying this 8-year test, an individual
    is not considered to be a lawful permanent resident of the
    United States for any year in which the individual is taxed as
    a resident of another country under a treaty tie-breaker rule.
    An individual's U.S. residency is considered to be terminated
    when either the individual ceases to be a lawful permanent
    resident pursuant to section 7701(b)(6) (i.e., the individual
    loses his or her green-card status) or the individual is
    treated as a resident of another country under a tie-breaker
    provision of a tax treaty (and the individual does not elect to
    waive the benefits of such treaty).
          The expatriation tax under the Senate amendment applies
    only to individuals whose average income tax liability or net
    worth exceeds specified levels. U.S. citizens who lose their
    citizenship and long-term residents who terminate U.S.
    residency are subject to the expatriation tax if they meet
    either of the following tests: (1) the individual's average
    annual U.S. Federal income tax liability for the 5 taxable
    years ending before the date of such loss or termination is
    greater than $100,000, or (2) the individual's net worth as of
    the date of such loss or termination is $500,000 or more. The
    dollar amount thresholds contained in these tests are indexed
    for inflation in the case of a loss of citizenship or
    termination of residency occurring in any calendar year after
    1996.
          Exceptions from the expatriation tax under the Senate
    amendment are provided for individuals in two situations. The
    first exception applies to an individual who was born with
    citizenship both in the United States and in another country,
    provided that (1) as of the date of relinquishment of U.S.
    citizenship the individual continues to be a citizen of, and is
    taxed as a resident of, such other country, and (2) the
    individual was a resident of the United States for no more than
    8 out of the 15 taxable years ending with the year in which the
    relinquishment of U.S. citizenship occurred. The second
    exception applies to a U.S. citizen who relinquishes
    citizenship before reaching age 18\1/2\, provided that the
    individual was a resident of the United States for no more than
    5 taxable years before such relinquishment.
                Deemed sale of property upon expatriation
          Under the Senate amendment, individuals who are subject
    to the expatriation tax generally are treated as having sold
    all of their property at fair market value immediately prior to
    the relinquishment of citizenship or termination of residency.
    Gain or loss from the deemed sale of property is recognized at
    that time, generally without regard to provisions of the Code
    that would otherwise provide nonrecognition treatment. The net
    gain, if any, on the deemed said of all such property is
    subject to U.S. tax at such time to the extent it exceeds
    $600,000 ($1.2 million in the case of married individuals
    filing a joint return, both of whom expatriate).
          The deemed sale rule of the Senate amendment generally
    applies to all property interests held by the individual on the
    date of relinquishment of citizenship or termination of
    residency, provided that the gain on such property interest
    would be includible in the individual's gross income if such
    property interest were sold for its fair market value on such
    date. Special rules apply in the case of trust interests (see
    ``Interests in trusts,'' below). U.S. real property interests,
    which remain subject to U.S. taxing jurisdiction in the hands
    of nonresident aliens, generally are excepted from the Senate
    amendment. An exception also applies to interests in qualified
    retirement plans and, subject to a limit of $500,000, interests
    in certain foreign pension plans as prescribed by regulations.
    The Secretary of the Treasury is authorized to issue
    regulations exempting other property interests as appropriate.
    For example, an exclusion may be provided for an interest in a
    nonqualified compensation plan of a U.S. employer, where
    payments from such plan to the individual following
    expatriation would continue to be subject to U.S. withholding
    tax.
          Under the Senate amendment, an individual who is subject
    to the expatriation tax is required to pay a tentative tax
    equal to the amount of tax that would be due for a hypothetical
    short tax year ending on the date the individual relinquished
    citizenship or terminated residency. Thus, the tentative tax is
    based on all income, gain, deductions, loss and credits of the
    individual for the year through such date, including amounts
    realized from the deemed sale of property. The tentative tax is
    due on the 90th day after the date of relinquishment of
    citizenship or termination of residency.
                Deferral of payment of tax
          Under the Senate amendment, an individual is permitted to
    elect to defer payment of the expatriation tax with respect to
    the deemed sale of any property. Under this election, the
    expatriation tax with respect to a particular property, plus
    interest thereon, is due when the property is subsequently
    disposed of. For this purpose, except as provided in
    regulations, the disposition of property in a nonrecognition
    transaction constitutes a disposition. In addition, if an
    individual holds property until his or her death, the
    individual is treated as having disposed of the property
    immediately before death. In order to elect deferral of the
    expatriation tax, the individual is required to provide
    adequate security to ensure that the deferred expatriation tax
    and interest ultimately will be paid. A bond in the amount of
    the deferred tax and interest constitutes adequate security.
    Other security mechanisms are also permitted provided that the
    individual establishes to the satisfaction of the Security of
    the Treasury that the security is adequate. In the event that
    the security provided with respect to a particular property
    subsequently becomes inadequate and the individual fails to
    correct such situation, the deferred expatriation tax and
    interest with respect to such property will become due. As a
    further condition to making this election, the individual is
    required to consent to the waiver of any treaty rights that
    would preclude the collection of the expatriation tax.
                Interests in trusts
          In general.--Under the Senate amendment, special rules
    apply to trust interests held by the individual at the time of
    relinquishment of citizenship or termination of residency. The
    treatment of trust interests depends upon whether the trust is
    a qualified trust. For this purpose, a ``qualified trust'' is a
    trust that is organized under and governed by U.S. law and that
    is required by its instruments to have at least one U.S.
    trustee.
          Constructive ownership rules apply to a trust beneficiary
    that is a corporation, partnership, trust or estate. In such
    cases, the shareholders, partners or beneficiaries of the
    entity are deemed to be the direct beneficiaries of the trust
    for purposes of applying these provisions. In addition, an
    individual who holds (or who is treated as holding) a trust
    interest at the time of relinquishment of citizenship or
    termination of residency is required to disclose on his or her
    tax return the methodology used to determine his or her
    interest in the trust, and whether such individual knows (or
    has reason to know) that any other beneficiary of the trust
    uses a different method.
          Nonqualified trusts.--If an individual holds an interest
    in a trust that is not a qualified trust, a special rule
    applies for purposes of determining the amount of the
    expatriation tax due with respect to such trust interest. The
    individuals interest in the trust is treated as a separate
    trust consisting of the trust assets allocable to such
    interest. Such separate trust is treated as having sold its
    assets as of the date of relinquishment of citizenship or
    termination of residency and having distributed all proceeds to
    the individual, and the individual is treated as having
    recontributed such proceeds to the trust. The individual is
    subject to the expatriation tax with respect to any net income
    or gain arising from the deemed distribution from the trust.
    The election to defer payment is available for the expatriation
    tax attributable to a nonqualifed trust interest.
          A beneficiary's interest in a nonqualified trust is
    determined on the basis of all facts and circumstances. These
    include the terms of the trust instrument itself, any letter of
    wishes or similar document, historical patterns of trust
    distributions, and the role of any trust protector or similar
    advisor.
          Qualified trusts.--If the individual has an interest in a
    qualified trust, a different set of rules applies. Under these
    rules, the amount of unrealized gain allocable to the
    individual's trust interest is calculated at the time of
    expatriation. In determining this amount, all contingencies and
    discretionary interests are assumed to be resolved in the
    individual's favor (i.e., the individual is allocated the
    maximum amount that he or she potentially could receive under
    the terms of the trust instrument). The expatriation tax
    imposed on such gains generally is collected when the
    individual receives distributions from the trust, or, if
    earlier, upon the individual's death. Interest is charged for
    the period between the date of expatriation and the date on
    which the tax is paid.
          If an individual has an interest in a qualified trust,
    the individual is subject to expatriation tax upon the receipt
    of any distribution from the trust. Such distributions may also
    be subject to U.S. income tax. For any distribution from a
    qualified trust made to an individual after he or she has
    expatriated, expatriation tax is imposed in an amount equal to
    the amount of the distribution multiplied by the highest tax
    rate generally applicable to trusts and estates, but in no
    event will the tax imposed exceed the deferred tax amount with
    respect to such trust interest. The ``deferred tax amount''
    would be equal to (1) the tax calculated with respect to the
    unrealized gain allocable to the trust interest at the time of
    expatriation, (2) increased by interest thereon, and (3)
    reduced by the tax imposed under this provision with respect to
    prior trust distributions to the individual.
          If an individual's interest in a trust is vested as of
    the expatriation date (e.g., if the individual's interest in
    the trust is non-contingent and non-discretionary), the gain
    allocable to the individual's trust interest is determined
    based on the truth assets allocable to his or her trust
    interest. If the individual's interest in the trust is not
    vested as of the expatriation date (e.g., if the individual's
    trust interest is a contingent or discretionary interest), the
    gain allocable to his or her trust interest is determined based
    on all of the trust assets that could be allocable to his or
    her trust interest, determined by resolving all contingencies
    and discretionary powers in the individual's favor. In the case
    where more than one trust beneficiary is subject to the
    expatriation tax with respect to trust interests that are not
    vested, the rules are intended to apply so that the same
    unrealized gain with respect to assets in the trust is not
    taxed to both individuals.
          If the individual disposes of his or her trust interest,
    the trust ceases to be a qualified trust, or the individual
    dies, expatriation tax is imposed as of such date. The amount
    of such tax equal to the lesser of (1) the tax calculated under
    the rules for nonqualified trust interests applied as of such
    date or (2) the deferred tax amount with respect to the trust
    interest as of such date.
          If the individual agrees to waive any treaty rights that
    would preclude collection of the tax, the tax is imposed under
    this provision with respect to distributions from a qualified
    trust to the individual deducted and withheld from
    distributions. If the individual does not agree to such a
    waiver of treaty rights, the tax with respect to distributions
    to the individual is imposed on the trust, the trustee is
    personally liable therefore, and any other beneficiary of the
    trust has a right of contribution against such individual with
    respect to such tax. Similarly, in the case of the tax imposed
    in connection with an individual's disposition of a trust
    interest, the individual's death while holding a trust interest
    or the individual's holding of an interest in a trust that
    ceases to be qualified, the tax is imposed on the trust, the
    trustee is personnaly liable therefor, and any other
    beneficiary of the trust has a right of contribution against
    such individual with respect to such tax.
                Election to be treated as a U.S. citizen
          Under the Senate amendment, an individual is permitted to
    make an irrevocable election to continue to be taxed as a U.S.
    citizen with respect to all property that otherwise is covered
    by the expatriation tax. This election is an ``all-or-nothing''
    election; an individual is not permitted to elect this
    treatment for some property but not other property. The
    election, if made, applies to all property that would be
    subject to the expatriation tax and to any property the basis
    of which is determined by reference to such property. Under
    this election, the individual continues to pay U.S. income
    taxes at the rates applicable to U.S. citizens following
    expatriation on any income generated by the property and on any
    gain realized on the disposition of the property, as well as
    any excise tax imposed with respect to property (see, e.g.,
    sec. 1491). In addition, the property continues to be subject
    to U.S. gift, estate, and generation-shipping taxes. However,
    the amount of any transfer tax so imposed is limited to the
    amount of income tax that would have been due if the property
    had been sold for its fair market value immediately before the
    transfer or death. The $600,000 exclusion provided with respect
    to the expatriation tax under the Senate amendment is available
    to reduce the tax imposed by reason of this election. In order
    to make this election, the taxpayer is required to waive any
    treaty rights that would preclude the collection of the tax.
    The individual is also required to provide security to ensure
    payment of the tax under this election in such form, manner,
    and amount as the Secretary of the Treasury requires.
                Date of relinquishment of citizenship
          Under the Senate amendment, as individual is treated as
    having relinquished U.S. citizenship on the date that the
    individual first makes known to U.S. government of consular
    officer his or her intention to relinquish U.S. citizenship.
    Thus, a U.S. citizen who relinquishes citizenship by formally
    renouncing his or her U.S. nationality before a diplomatic or
    consular officer for the United States is treated as having
    relinquished ciizenship on that date, provided that the
    renunciation is later confirmed by the issuance of a CLN. A
    U.S. citizen who furnishes to the State Department a signed
    statement of voluntary relinquishment of U.S. nationality
    confirming the performance of an expatriating act with the
    requisite interest to relinquish his or her citizenship is
    treated as having relinquished his or her citizenship on the
    date the statement is so furnished (regardless of when the
    expatriating act was performed), provided that the voluntary
    relinquishment is later confirmed by the issuance of a CLN. If
    neither of these circumstances exist, the individual is treated
    as having relinquished citizenship on the date a CLN is issued
    or a certificate of naturalization is cancelled. The date of
    relinquishment of citizenship determined under the Senate
    amendment applies for all purposes.
                Effect on present-law expatriation provisions
          Under the Senate amendment, the present-law income tax
    provisions with respect to U.S. citizens who expatriate with a
    principal purpose of avoiding tax (sec. 877) and certain aliens
    who have a break in residency status (sec. 7701(b)(10)) do
    applying to U.S. citizens who are treated as relinquishing
    their citizenship on or after February 6, 1995 or to long-term
    U.S. residents who terminate their residency on or after such
    date. The special estate and gift tax provisions with respect
    to individuals who expatriate with a principal purpose of
    avoiding tax (secs. 2107 and 2501(a)(3)), however, continue to
    apply; a credit against the tax imposed solely by reason of
    such special provisions is allowed for the expatriation tax
    imposed with respect to the same property.
                Treatment of gifts and inheritances from an expatriate
          Under the Senate amendment, the exclusion from income
    provided in section 102 does not apply to the value of any
    property received by gift or inheritance from an individual who
    was subject to the expatriation tax (i.e., an individual who
    relinquished citizenship or terminated residency and to whom
    the expatriation tax was applicable). Accordingly, a U.S.
    taxpayer who receives a gift or inheritance from such an
    individual is required to include the value of such gift or
    inheritance in gross income and is subject to U.S. income tax
    on such amount.
                Required information reporting and sharing
          Under the Senate amendment, an individual who
    relinquishes citizenship or terminates residency is required to
    provide a statement which includes the individual's social
    security number, forwarding foreign address, new country of
    residence and citizenship and, in the case of individuals with
    a net worth of at least $500,000, a balance sheet. In the case
    of a former citizen, such statement is due not later than the
    date the individual's citizenship is treated as relinquished
    and is to be provided to the State Department (or other
    government entity involved in the administration of such
    relinquishment). The entity to which the statement is to be
    provided by former citizens is required to provide to the
    Secretary of the Treasury copies of all statements received and
    the names of individuals who refuse to provide such statements.
    In the case of a former long-term resident, the statement is
    provided to the Secretary of the Treasury with the individual's
    tax return for the year in which the individual's U.S.
    residency is terminated. An individual's failure to provide the
    statement required under this provision results in the
    imposition of a penalty for each year the failure continues
    equal to the greater of (1) 5 percent of the individual's
    expatriation tax liability for such year or (2) $1,000.
          The Senate amendment requires the State Department to
    provide the Secretary of the Treasury with a copy of each CLN
    approved by the State Department. Similarly, the Senate
    amendment requires the agency administering the immigration
    laws to provide the Secretary of the Treasury with the name of
    each individual whose status as a lawful permanent resident has
    been revoked or has been determined to have been abandoned.
          Further, the Senate amendment requires the Secretary of
    the Treasury to publish in the Federal Register the names of
    all former U.S. citizens with respect to whom it receives the
    required statements or whose names it receives under the
    foregoing information-sharing provisions.
                Treasury report on tax compliance by U.S. citizens and
                        residents living abroad
          The Treasury Department is directed to undertake a study
    on the tax compliance of U.S. citizens and green-card holders
    residing outside the United States and to make recommendations
    regarding the improvement of such compliance. The findings of
    such study and such recommendations are required to be reported
    to the House Committee on Ways and Means and the Senate
    Committee on Finance within 90 days of the date of enactment.
                Effective date
          The provision is effective for U.S. citizens whose date
    of relinquishment of citizenship (as determined under the
    Senate amendment, see ``Date of relinquishment of citizenship''
    above) occurs on or after February 6, 1995. Similarly, the
    provision is effective for long-term residents who terminate
    their U.S. residency on or after February 6, 1995.
          U.S. citizens who committed an expatriating act with the
    requisite intent to relinquish their U.S. citizenship prior to
    February 6, 1995, but whose date of relinquishment of
    citizenship (as determined under the Senate amendment) does not
    occur until after such date, are subject to the expatriation
    tax under the Senate amendment as of date of relinquishment of
    citizenship. However, the individual is not subject
    retroactively to worldwide tax as a U.S. citizen for the period
    after he or she committed the expatriating act (and therefore
    ceased being a U.S. citizen for tax purposes under present
    law). Such an individual continues to be subject to the
    expatriation tax imposed by present-law section 877 until the
    individual's date of relinquishment of citizenship (at which
    time the individual would be subject to the expatriation tax of
    the Senate amendment). The rules described in this paragraph do
    not apply to an individual who committed an expatriating act
    prior to February 6, 1995, but did not do so with the requisite
    intent to relinquish his or her U.S. citizenship.
          The tentative tax is not required to be paid, and the
    reporting requirements would not be required to be met, until
    90 days after the date of enactment. Such provisions apply to
    all individuals whose date of relinquishment of U.S.
    citizenship or termination of U.S. residency occurs on or after
    February 6, 1995.
    Conference agreement
          The conference agreement follows the House bill with
    modifications. Under the conference agreement, modified rules
    apply if an individual who is covered by section 877
    contributes property that would produce U.S. source income to a
    foreign corporation if (1) the individual, directly or
    indirectly, owns 10 percent or more (by vote) of the stock of
    such corporation and (2) the individual, directly, indirectly
    or constructively, owns more than 50 percent (by vote or by
    value) of the stock of such corporation. For purposes of
    determining indirect and constructive ownership, the rules of
    section 958 apply. Under the modified rules, for the ten-year
    period following expatriation the individual is treated as
    receiving or accruing directly the income or gains received or
    accrued by the foreign corporation with respect to the
    contributed property (or other property which has a basis
    determined by reference to the basis of such contributed
    property). Moreover, if the individual disposes of the stock of
    the foreign corporation, the individual is subject to U.S. tax
    on the gain that would have been recognized if the corporation
    had sold such property immediately before the disposition. If
    the individual disposes of less than all of his or her stock in
    the foreign corporation, such disposition is treated as a
    disposition of a pro rata share (determined based on value) of
    such contributed property (e.g., if the individual owns 100
    shares of the foreign corporation's stock and disposes of 10 of
    such shares, such disposition is treated as a disposition of 10
    percent of the property contributed to the foreign
    corporation). Regulatory authority is provided to prescribe
    regulations to prevent the avoidance of this rule. Information
    reporting will be required as necessary to carry out the
    purposes of this rule. In addition, under the conference
    agreement, in the case of any former U.S. citizen, a request
    for a ruling that such individual did not have the avoidance of
    U.S. tax as a principal purpose for such individual's loss of
    citizenship would be due not earlier than 90 days after date of
    enactment.

           c. treatment of bad debt deductions of thrift institutions

          (Sec. 401 of the House bill and and sec. 611 of the
    Senate amendment.)
    Present law
          Generally, a taxpayer engaged in a trade or business may
    deduct the amount of any debt that becomes wholly or partially
    worthless during the year (the ``specific charge-off'' method
    of sec. 166). Certain thrift institutions (building and loan
    associations, mutual savings banks, or cooperative banks) are
    allowed deductions for bad debts under methods more favorable
    than those granted to other taxpayers (and more favorable than
    the rules applicable to other financial institutions).
    Qualified thrift institutions may compute deductions for bad
    debts using either the specific charge-off method or the
    reserve method of section 593.
          Under section 593, a thrift institution annually may
    elect to deduct bad debts under either (1) the ``percentage of
    taxable income'' method applicable only to thrift institutions,
    or (2) the ``experience'' method that also is available to
    small banks. Under the ``percentage of taxable income'' method,
    a thrift institution generally is allowed a deduction for an
    addition to its bad debt reserve equal to 8 percent of its
    taxable income (determined without regard to this deduction and
    with additional adjustments). Under the experience method, a
    thrift institution generally is allowed a deduction for an
    addition to its bad debt reserve equal to the greater of: (1)
    an amount based on its actual average experience for losses in
    the current and five preceding taxable years, or (2) an amount
    necessary to restore the reserve to its balance as of the close
    of the base year.
          If a thrift institution becomes ineligible to use the
    section 593 method, it is required to change its method of
    accounting for bad debts and, under proposed Treasury
    regulations, is required to recapture all or a portion of its
    bad debt reserve. In addition, a thrift institution eligible to
    use the section 593 method may be subject to a form of reserve
    recapture if the institution makes certain excessive
    distributions to its shareholders (sec. 593(e)).
    House bill
                Repeal of section 593
          The House bill repeals the section 593 reserve method of
    accounting for bad debts by thrift institutions, effective for
    taxable years beginning after 1995. Thrift institutions that
    would be treated as small banks are allowed to utilize the
    experience method applicable to such institutions, while thrift
    institutions that are treated as large banks are required to
    use only the specific charge-off method. Thus, the percentage
    of taxable income method of accounting for bad debts is no
    longer available for any financial institution.
                Treatment of recapture of bad debt reserves
          A thrift institution required to change its method of
    computing reserves for bad debts will treat such change as a
    change in a method of accounting, initiated by the taxpayer,
    and having been made with the consent of the Secretary of the
    Treasury. Any section 481(a) adjustment required to be
    recaptured with respect to such change generally will be
    determined solely with respect to the ``applicable excess
    reserves'' of the taxpayer. The amount of applicable excess
    reserves will be taken into account ratably over a six-taxable
    year period, beginning with the first taxable year beginning
    after 1995, subject to the residential loan requirement
    described below. In the case of a thrift institution that
    becomes a large bank, the amount of the institution's
    applicable excess reserves generally is the excess of (1) the
    balances of its reserve for losses on qualifying real property
    loans and its reserve for losses on nonqualifying loans as of
    the close of its last taxable year beginning before January 1,
    1996, over (2) the balances of such reserves as of the close of
    its last taxable year beginning before January 1, 1988 (i.e.,
    the ``pre-1988 reserves.'') Similar rules are provided for
    small banks that are allowed to use the experience method.
          For taxable years that begin after December 31, 1995, and
    before January 1, 1998, if the taxpayer continues to make a
    certain level of residential loans, the recapture of the
    applicable excess reserves otherwise required to be taken into
    account for such years will be suspended.
          The balance of the pre-1988 reserves is subject to the
    provisions of section 593(e), as modified by the House bill
    (requiring recapture in the case of certain excessive
    distributions to shareholders.)
          Other special recapture rules are provided if a thrift
    institution no longer qualifies as a bank or if a thrift
    institution becomes a credit union.
                Effective date
          The provision generally is effective for taxable years
    beginning after December 31, 1995.
    Senate amendment
          The Senate amendment generally is the same as the House
    bill, with certain modifications.
    Conference agreement
          The conference agreement does not include either the
    provision in the House bill or the provision in the Senate
    amendment.

                       d. earned income credit provisions

          (Sec. 411 of the House bill.)
    Present law
                In general
          Certain eligible low-income workers are entitled to claim
    a refundable credit on their income tax return. The amount of
    the credit an eligible individual may claim depends upon
    whether the individual has one, more than one or no qualifying
    children and is determined by multiplying the credit rate by
    the individual's \25\ earned income up to an earned income
    amount. The maximum amount of the credit is the product of the
    credit rate and the earned income amount. For individuals with
    earned income (or adjusted gross income (AGI), if greater) in
    excess of the beginning of the phaseout range, the maximum
    credit amount is reduced by the phaseout rate multiplied by the
    amount of earned income (or AGI, if greater) in excess of the
    beginning of the phaseout range. For individuals with earned
    income (or AGI, if greater) in excess of the end of the
    phaseout range, no credit is allowed.
    ---------------------------------------------------------------------------
        \25\ In the case of a married individual who files a joint return
    with his or her spouse, the income for purposes of these tests is the
    combined income of the couple.
    ---------------------------------------------------------------------------
          The parameters for the credit depend upon the number of
    qualifying children the individual claims. For 1996, the
    parameters are given in the following table:

    ------------------------------------------------------------------------
                                       Two or more      One           No
                                        qualifying   qualifying   qualifying
                                        children--    child--     children--
    ------------------------------------------------------------------------
    Credit rate (percent)............        40.00        34.00         7.65
    Earned income amount.............       $8,890       $6,330       $4,220
    Maximum credit...................       $3,356       $2,152         $323
    Phaseout begins..................      $11,610      $11,610       $5,280
    Phaseout rate (percent)..........        21.06        15.98         7.65
    Phaseout ends....................      $28,495      $25,078       $9,500
    ------------------------------------------------------------------------

          For years after 1996, the credit rates and the phaseout
    rates will be the same as in the preceding table. The earned
    income amount and the beginning of the phaseout range are
    indexed for inflation; because the end of the phaseout range
    depends on those amounts as well as the phaseout rate and the
    credit rate, the end of the phaseout range will also increase
    if there is inflation.
          In order to claim the credit, an individual must either
    have a qualifying child or meet other requirements. A
    qualifying child must meet a relationship test, an age test, an
    identification test, and a residence test. In order to claim
    the credit without a qualifying child, an individual must not
    be a dependent and must be over age 24 and under age 65.
          To satisfy the identification test, individuals must
    include on their tax return the name and age of each qualifying
    child. For returns filed with respect to tax year 1996,
    individuals must provide a taxpayer identification number (TIN)
    for all qualifying children born on or before November 30,
    1996. For returns filed with respect to tax year 1997 and all
    subsequent years, individuals must provide TINs for all
    qualifying children, regardless of their age. An individual's
    TIN is generally that individual's social security number.
                Mathematical or clerical errors
          The IRS may summarily assess additional tax due as a
    result of a mathematical or clerical error without sending the
    taxpayer a notice of deficiency and giving the taxpayer an
    opportunity to petition the Tax Court. Where the IRS uses the
    summary assessment procedure for mathematical or clerical
    errors, the taxpayer must be given an explanation of the
    asserted error and a period of 60 days to request that the IRS
    abate its assessment. The IRS may not proceed to collect the
    amount of the assessment until the taxpayer has agreed to it or
    has allowed the 60-day period for objecting to expire. If the
    taxpayer files a request for abatement of the assessment
    specified in the notice, the IRS must abate the assessment. Any
    reassessment of the abated amount is subject to the ordinary
    deficiency procedures. The request for abatement of the
    assessment is the only procedure a taxpayer may use prior to
    paying the assessed amount in order to contest an assessment
    arising out of a mathematical or clerical error. Once the
    assessment is satisfied, however, the taxpayer may file a claim
    for refund if he or she believes the assessment was made in
    error.
    House bill
          Under the House bill, individuals are not eligible for
    the credit if they do not include their taxpayer identification
    number (and, if married, their spouse's taxpayer identification
    number) on their tax return. Solely for these purposes and for
    purposes of the present-law identification test for a
    qualifying child, a taxpayer identification number is defined
    as a social security number issued to an individual by the
    Social Security Administration other than a number issued under
    section 205(c)(2)(B)(i)(II) (or that portion of sec.
    205(c)(2)(B)(i)(III) relating to it) of the Social Security Act
    (regarding the issuance of a number to an individual applying
    for or receiving Federally funded benefits).
          If an individual fails to provide a correct taxpayer
    identification number, such omission will be treated as a
    mathematical or clerical error. If an individual who claims the
    credit with respect to net earnings from self-employment fails
    to pay the proper amount of self-employment tax on such net
    earnings, the failure will be treated as a mathematical or
    clerical error for purposes of the amount of credit allowed.
          Effective date.--The provision is effective for taxable
    years beginning after December 31, 1995.
    Senate amendment
          No provision.
    Conference agreement
          The conference agreement does not include the House bill
    provision.

                     e. modify treatment of foreign trusts

          (Secs. 601-606 of the Senate amendment).
    Present law
                Inbound grantor trusts with foreign grantors
          Under the grantor trust rules (secs. 671-679), a grantor
    that retains certain rights or powers generally is treated as
    the owner of the trust's assets without regard to whether the
    grantor is a domestic or foreign person. Under these rules,
    U.S. trust beneficiaries are not subject to U.S. tax on
    distributions from a trust where a foreign grantor is treated
    as owner of the trust, even though no tax may be imposed on the
    trust income by any jurisdiction. In addition, a special rule
    provides that if a U.S. beneficiary of an inbound grantor trust
    transfers property to the foreign grantor by gift, that U.S.
    beneficiary is treated as the grantor of the trust to the
    extent of the transfer.
                Foreign trusts that are not grantor trusts
          Under the accumulation distribution rules (which
    generally apply to distributions from a trust in excess of the
    trust's distributable net income for the taxable year), a
    distribution by a foreign nongrantor trust of previously
    accumulated income generally is taxed at the U.S. beneficiary's
    average marginal rate for the prior 5 years, plus interest
    (secs. 666 and 667). Interest is computed at a fixed annual
    rate of 6 percent, with no compounding (sec. 668). If adequate
    records of the trust are not available to determine the proper
    application of the rules relating to accumulation distributions
    to any distribution from a trust, the distribution is treated
    as an accumulation distribution out of income earned during the
    first year of the trust (sec. 666(d)).
          If a foreign nongrantor trust makes a loan to one of its
    beneficiaries, the principal of such a loan generally is not
    taxable as income to the beneficiary.
                Outbound foreign grantor trusts with U.S. grantors
          Under the grantor trust rules, a U.S. person that
    transfers property to a foreign trust generally is treated as
    the owner of the portion of the trust comprising that property
    for any taxable year in which there is a U.S. beneficiary of
    any portion of the trust (sec. 679(a)). This treatment
    generally does not apply, however, to transfers by reason of
    death, to transfers made before the transferor became a U.S.
    person, or to transfers that represent sales or exchanges of
    property at fair market value where gain is recognized to the
    transferor.
                Residence of trusts and estates
          An estate or trust is treated as foreign if it is not
    subject to U.S. income taxation on its income that is neither
    derived from U.S. sources nor effectively connected with the
    conduct of a U.S. trade or business. Thus, if a trust is taxed
    in a manner similar to a nonresident alien individual, it is
    considered to be a foreign trust. Any other trust is treated as
    domestic.
          Section 1491 generally imposes a 35-percent excise tax on
    a U.S. person that transfers appreciated property to certain
    foreign entities, including a foreign trust. In the case of a
    domestic trust that changes its situs and becomes a foreign
    trust, it is unclear whether property has been transferred from
    a U.S. person to a foreign entity and, thus, whether the
    transfer is subject to the excise tax.
                Information reporting and penalties related to foreign
                        trusts
          Any U.S. person that creates a foreign trust or transfers
    money or property to a foreign trust is required to report that
    event to the Treasury Department without regard to whether the
    trust is a grantor trust or a nongrantor trust. Similarly, any
    U.S. person that transfers property to a foreign trust that has
    one or more U.S. beneficiaries is required to report annually
    to the Treasury Department. In addition, any U.S. person that
    makes a transfer described in section 1491 is required to
    report the transfer to the Treasury Department.
          Any person that fails to file a required report with
    respect to the creation of, or a transfer to, a foreign trust
    may be subject to a penalty of 5 percent of the amount
    transferred to the foreign trust. Similarly, any person that
    fails to file a required annual report with respect to a
    foreign trust with U.S. beneficiaries may be subject to a
    penalty of 5 percent of the value of the corpus of the trust at
    the close of the taxable year. The maximum amount of the
    penalty imposed under either case may not exceed $1,000. A
    reasonable cause exception is available.
                Reporting of foreign gifts
          There is no requirement to report gifts or bequests from
    foreign sources.
    House bill
          No provision.
    Senate amendment
                Inbound grantor trusts with foreign grantors
          The Senate amendment generally applies the grantor trust
    rules only to the extent that they result, directly or
    indirectly, in income or other amounts being currently taken
    into account in computing the income of a U.S. citizen or
    resident or a domestic corporation. Certain exceptions apply to
    this general rule. Under one exception, the grantor trust rules
    continue to apply to a revocable trust. Under another
    exception, the grantor trust rules continue to apply to a trust
    where the only amounts distributable during the lifetime of the
    grantor are to the grantor or the grantor's spouse. The general
    rule denying grantor trust status does not apply to trusts
    established to pay compensation, and certain trusts in
    existence as of September 19, 1995 provided that such trust is
    treated as owned by the grantor under section 676 or 677 (other
    than sec. 677(a)(3)).\26\ In addition, the grantor trust rules
    generally apply where the grantor is a controlled foreign
    corporation (as defined in sec. 957). Finally, the grantor
    trust rules continue to apply in determining whether a foreign
    corporation is characterized as a passive foreign investment
    company (``PFIC''). Thus, a foreign corporation cannot avoid
    PFIC status by transferring its assets to a grantor trust.
    ---------------------------------------------------------------------------
        \26\ The exception does not apply to the portion of any such trust
    attributable to any transfers made after September 19, 1995.
    ---------------------------------------------------------------------------
          If a U.S. beneficiary of an inbound grantor trust
    transfers property to the foreign grantor, such beneficiary
    generally is treated as a grantor of a portion of the trust to
    the extent of the transfer. This rule applies without regard to
    whether the foreign grantor is otherwise treated as the owner
    of any portion of such trust. However, this rule does not apply
    if the transfer is a gift that qualifies for the annual
    exclusion described in section 2503(b).
          The Senate amendment provides a special rule that allows
    the Secretary of the Treasury to recharacterize a transfer,
    directly or indirectly, from a partnership or foreign
    corporation which the transferee treats as a gift or bequest,
    to prevent the avoidance of the purpose of section 672(f). In a
    case where a foreign person (that would be treated as the owner
    of a trust but for the above rule) actually pays tax on the
    income of the trust to a foreign country, it is anticipated
    that Treasury regulations will provide that, for foreign tax
    credit purposes, U.S. beneficiaries that are subject to U.S.
    income tax on the same income will be treated as having paid
    the foreign taxes that are paid by the foreign grantor. Any
    resulting foreign tax credits will be subject to applicable
    foreign tax credit limitations.
          Effective date.--The provisions described in this part
    are effective on the date of enactment.
                Foreign trusts that are not grantor trusts
          The Senate amendment changes the interest rate applicable
    to accumulation distributions from foreign trusts from simple
    interest at a fixed rate of 6 percent to compound interest
    determined in the same manner as interest imposed on
    underpayments of tax under section 6621(a)(2). Simple interest
    is accrued at the rate of 6 percent through 1995. Beginning on
    January 1, 1996 compound interest based on the underpayment
    rate is imposed on tax amounts determined under the
    accumulation distribution rules and the total simple interest
    for pre-1996 periods, if any. For purposes of computing the
    interest charge, the accumulation distribution is allocated
    proportionately to prior trust years in which the trust has
    undistributed net income (and the beneficiary receiving the
    distribution was a U.S. citizen or resident), rather than to
    the earliest of such years. An accumulation distribution is
    treated as reducing proportionately the undistributed net
    income from prior years.
          In the case of a loan of cash or marketable securities by
    the foreign trust to a U.S. grantor or a U.S. beneficiary (or a
    U.S. person related to such grantor or beneficiary), except to
    the extent provided by Treasury regulations, the Senate
    amendment treats the full amount of the loan as distributed to
    the grantor or beneficiary. It is expected that the Treasury
    regulations will provide an exception from this treatment for
    loans with arm's-length terms. In applying this exception, it
    is further expected that consideration be given to whether
    there is a reasonable expectation that a loan will be repaid.
    In addition, any subsequent transaction between the trust and
    the original borrower regarding the principal of the loan
    (e.g., repayment) is disregarded for all purposes of the Code.
    This provision does not apply to loans made to persons that are
    exempt from U.S. income tax.
          Effective date.--The provision to modify the interest
    charge on accumulation distributions applies to distributions
    after the date of enactment. The provision with respect to
    loans to U.S. grantors, U.S. beneficiaries or a U.S. person
    related to such a grantor or beneficiary applies to loans made
    after September 19, 1995.
                Outbound foreign grantor trusts with U.S. grantors
          The Senate amendment makes several modifications to the
    general rule of section 679(a)(1) under which a U.S. person who
    transfers property to a foreign trust generally is treated as
    the owner of the portion of the trust comprising that property
    for any taxable year in which there is a U.S. beneficiary of
    the trust. The Senate amendment also conforms the definition of
    certain foreign corporations the income of which is deemed to
    be accumulated for the benefit of a U.S. beneficiary to the
    definition of controlled foreign corporations (as defined in
    sec. 957(a)).
          Sale or exchange at market value.--Present law contains
    several exceptions to grantor trust treatment under section
    679(a)(1) described above. Under one of the exceptions, grantor
    trust treatment does not result from a transfer of property by
    a U.S. person to a foreign trust in the form of a sale or
    exchange at fair market value where gain is recognized to the
    transferor. In determining whether the trust paid fair market
    value to the transferor, the Senator amendment provides that
    obligations issued (or, to the extent provided by regulations,
    guaranteed) by the trust, by any grantor or beneficiary of the
    trust, or by any person related to any grantor or beneficiary
    (referred to as ``trust obligations'') are not taken into
    account except as provided in Treasury regulations. It is
    expected that the Treasury regulations will provide an
    exception from this treatment for loans with arm's-length
    terms. In applying this exception, it is further expected that
    consideration be given to whether there is a reasonable
    expectation that a loan will be repaid. Principal payments by
    the trust on any such trust obligations generally will reduce
    the portion of the trust attributable to the property
    transferred (i.e., the portion of which the transferor is
    treated as the grantor).
          Other transfers.--The Senate amendment adds a new
    exception to the general rule of section 679(a)(1) described
    above. Under the Senate amendment, a transfer of property to
    certain charitable trusts is exempt from the application of the
    rules treating foreign trusts with U.S. grantors and U.S.
    beneficiaries as grantor trusts.
          Transferors or beneficiaries who become U.S. persons.--
    The Senate amendment applies the rule of section 679(a)(1) to
    certain foreign persons who transfer property to a foreign
    trust and subsequently become U.S. persons. A nonresident alien
    individual who transfers property, directly or indirectly, to a
    foreign trust and then becomes a resident of the United States
    within 5 years after the transfer generally is treated as
    making a transfer to the foreign trust on the individual's U.S.
    residency starting date (as defined in sec. 7701(b)(2)(A)). The
    amount of the deemed transfer is the portion of the trust
    (including undistributed earnings) attributable to the property
    previously transferred. Consequently, the individual generally
    is treated under section 679(a)(1) as the owner of that portion
    of the trust in any taxable year in which the trust has U.S.
    beneficiaries.
          Outbound trust migrations.--The Senate amendment applies
    the rules of section 679(a)(1) to a U.S. person that
    transferred property to a domestic trust if the trust
    subsequently becomes a foreign trust while the transferor is
    still alive. Such a person is deemed to make a transfer to the
    foreign trust on the date of the migration. The amount of the
    deemed transfer is the portion of the trust (including
    undistributed earnings) attributable to the property previously
    transferred. Consequently, the individual generally is treated
    under the rules of section 679(a)(1) as the owner of that
    portion of the trust in any taxable year in which the trust has
    U.S. beneficiaries.
          Effective date.--The provisions to amend section 679
    apply to transfers of property after February 6, 1995.
                Anti-abuse regulatory authority
          The Senate amendment includes an anti-abuse rule which
    authorizes the Secretary of the Treasury to issue regulations,
    on or after the date of enactment, that may be necessary or
    appropriate to carry out the purposes of the rules applicable
    to estates, trusts and beneficiaries, including regulations to
    prevent the avoidance of those purposes.
          Effective date.--The provision is effective on the date
    of enactment.
                Residence of trusts and estates
          The Senate amendment establishes a two-part objective
    test for determining for tax purposes whether a trust is
    foreign or domestic. If both parts of the test are satisfied,
    the trust is treated as domestic. Only the first part of the
    test applies to estates. Under the first part of the test, if a
    U.S. court (i.e., Federal, State, or local) exercises primary
    supervision over the administration of a trust or estate, the
    trust or estate is treated as domestic. Under the second part
    of the test, in order for a trust to be treated as domestic,
    one or more U.S. fiduciaries must have the authority to control
    all substantial decisions of the trust.
          Under the Senate amendment, if a domestic trust changes
    its situs and becomes a foreign trust, the trust is treated as
    having made a transfer of its assets to a foreign trust and is
    subject to the 35-percent excise tax imposed by present-law
    section 1491 unless one of the exceptions to this excise tax is
    applicable.
          Effective date.--The provision to modify the treatment of
    a trust or estate as a U.S. person applies to taxable years
    beginning after December 31, 1996. In addition, if the trustee
    of a trust so elects, the provision would apply to taxable
    years ending after the date of enactment. The amendment to
    section 1491 is effective on the date of enactment.
                Information reporting and penalties relating to foreign
                        trusts
          The Senate amendment generally requires the grantor,
    transferor or executor (i.e., the ``responsible party'') to
    notify the Treasury Department upon the occurrence of certain
    reportable events. The term ``reportable event'' means the
    creation of any foreign trust by a U.S. person, the direct and
    indirect transfer of any money or property to a foreign trust,
    including a transfer by reason of death, and the death of a
    U.S. citizen or resident if any portion of a foreign trust was
    included in the gross estate of the decedent. In addition, a
    U.S. owner of any portion of a foreign trust is required to
    ensure that the trust files an annual return to provide full
    accounting of all the trust activities for the taxable year.
    Finally, any U.S. person that relieves (directly or indirectly)
    any distribution from a foreign trust is required to file a
    return to report the aggregate amount of the distributions
    received during the year.
          The Senate amendment provides that if a U.S. owner of any
    portion of a foreign trust fails to appoint a limited U.S.
    agent to accept service of process with respect to any requests
    and summons by the Secretary of the Treasury in connection with
    the tax treatment of any items related to the trust, the
    Secretary of the Treasury may determine the tax consequences of
    amounts to be taken into account under the grantor trust rules.
    In cases where adequate records are not provided to the
    Secretary of Treasury to determine the proper treatment of any
    distributions from a foreign trust, the distribution is
    includible in the gross income of the U.S. distributee and is
    treated as an accumulation distribution from the middle year of
    a foreign trust (i.e., computed by taking the number of years
    that the trust has been in existence divided by 2) for purposes
    of computing the interest charge applicable to such
    distribution, unless the foreign trust elects to have a U.S.
    agent for the limited purpose of accepting service of process
    (as described above).
          Under the Senate amendment, a person that fails to
    provide the required notice or return in cases involving the
    transfer of property to a new or existing foreign trust, or a
    distribution by a foreign trust to a U.S. person, is subject to
    an initial penalty equal to 35 percent of the gross reportable
    amount (generally the value of the property involved in the
    transaction). A failure to provide an annual reporting of trust
    activities will result in an initial penalty equal to 5 percent
    of the gross reportable amount. An additional $10,000 penalty
    is imposed for continued failure for each 30-day period (or
    fraction thereof) beginning 90 days after the Treasury
    Department notifies the responsible party of such failure. Such
    penalties are subject to a reasonable cause exception. In no
    event will the total amount of penalties exceed the gross
    reportable amount.
          Effective date.--The reporting requirements and
    applicable penalties generally apply to reportable events
    occurring or distributions received after the date of
    enactment. The annual reporting requirement and penalties
    applicable to U.S. grantors apply to taxable years of such
    persons beginning after the date of enactment.
                Reporting of foreign gifts
          The Senate amendment generally requires any U.S. person
    (other than certain tax-exempt organizations) that receives
    purported gifts or bequests from foreign sources totaling more
    than $10,000 during the taxable year to report them to the
    Treasury Department. The threshold for this reporting
    requirement is indexed for inflation. The definition of a gift
    to a U.S. person for this purpose excludes amounts that are
    qualified tuition or medical payments made on behalf of the
    U.S. person, as defined for gift tax purposes (sec.
    2503(e)(2)). If the U.S. person fails, without reasonable
    cause, to report foreign gifts as required, the Treasury
    Secretary is authorized to determine, in his sole discretion,
    the tax treatment of the unreported gifts. In addition, the
    U.S. person is subject to a penalty equal to 5 percent of the
    amount of the gift for each month that the failure continues,
    with the total penalty not to exceed 25 percent of such amount.
          Effective date.--The provision applies to amounts
    received after the date of enactment.
    Conference agreement
          The conference agreement does not include the Senate
    amendment.

        f. repeal of financial institution transition rule to interest
                                allocation rules

    Present law
          For foreign tax credit purposes, taxpayers generally are
    required to allocate and apportion interest expense between
    U.S. and foreign source income based on the proportion of the
    taxpayer's total assets in each location. Such allocation and
    apportionment is required to be made for affiliated groups (as
    defined in sec. 864(e)(5)) as a whole rather than on a
    subsidiary-by-subsidiary basis. However, certain types of
    financial institutions that are members of an affiliated group
    are treated as members of a separate affiliated group for
    purposes of allocating and apportioning their interest expense.
    Section 1215(c)(5) of the Tax Reform Act of 1986 (P.L. 99-514,
    100 Stat. 2548) includes a targeted rule which treats a certain
    corporation as a financial institution for this purpose.
    House bill
          No provision.
    Senate amendment
          No provision. However, section 1606 of the Senate
    amendment to H.R. 3448 (Small Business Job Protection Act of
    1996) contained a provision that repeals section 1215(c)(5) of
    the Tax Reform Act of 1986.
          Effective date.--Taxable years beginning after December
    31, 1995.
    Conference agreement
          The conference agreement includes the provision in the
    Senate amendment to H.R. 3448 with one modification. The
    conference agreement repeals section 1215(c)(5) of the Tax
    Reform Act of 1986 effective on the date of enactment. Under
    the conference agreement, a taxpayer will perform two
    computations with respect to its taxable year that includes the
    enactment date. Under the first computation, the taxpayer's
    pre-effective date interest expense is allocated and
    apportioned taking into account the targeted rule, and under
    the second computation, the taxpayer's post-effective date
    interest expense is allocated and apportioned without regard to
    the targeted rule. These computations will not require a
    closing of a taxpayer's books and records and it is intended
    that an administratively simple approach be used in applying
    this rule.

                                       Bill Archer,
                                       Bill Thomas,
                                       Tom Bliley,
                                       Michael Bilirakis,
                                       William F. Goodling,
                                       H.W. Fawell,
                                       Henry Hyde,
                                       Bill McCollum,
                                       J. Dennis Hastert,
                                     Managers on the Part of the House.

                                       Bill Roth
                                       Nancy Landon Kassebaum,
                                       Trent Lott,
                                       Ted Kennedy,
                                    Managers on the Part of the Senate.