[House Report 107-572]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-572

======================================================================



 
             IMPROVING ACCESS TO LONG-TERM CARE ACT OF 2002

                                _______
                                

 July 15, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4946]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4946) to amend the Internal Revenue Code to provide 
health care incentives related to long-term care, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Summary and Background............................................5
        A. Purpose and Summary...................................     5
        B. Background and Need for Legislation...................     6
        C. Legislative History...................................     6
II. Explanation of the Bill...........................................6
        A. Above-the-Line Deduction for Long-Term Care Insurance 
            Premiums (sec. 2 of the bill and new sec. 223 of the 
            Code)................................................     6
        B. Provide an Additional Personal Exemption to Home 
            Caregivers of Family Members (sec. 3 of the bill and 
            sec. 151 of the Code)................................     8
        C. Expand Human Clinical Trials Expenses Qualifying for 
            the Orphan Drug Tax Credit (sec. 4 of the bill and 
            sec. 45C of the Code)................................    10
        D. Add Vaccines Against Hepatitis A to the List of 
            Taxable Vaccines (sec. 5 of the bill and sec. 4131 of 
            the Code)............................................    11
        E. Adjustment of Employer Contributions to Combined 
            Benefit Fund to Reflect Medicare Prescription Drug 
            Benefit (sec. 6 of the bill and sec. 9704 of the 
            Code)................................................    12
        F. Modifications to Medicare+Choice MSAs (sec. 7 of the 
            bill and sec. 220 of the Code).......................    13
III.Votes of the Committee...........................................15

IV. Budget Effects of the Bill.......................................16
        A. Committee Estimate of Budgetary Effects...............    16
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................    18
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    18
 V. Other Matters to be Discussed Under the Rules of the House.......20
        A. Committee Oversight Findings and Recommendations......    20
        B. Statement of General Performance Goals and Objectives.    21
        C. Constitutional Authority Statement....................    21
        D. Information Relating to Unfunded Mandates.............    21
        E. Applicability of House Rule XXI 5(b)..................    21
        F. Tax Complexity Analysis...............................    21
VI. Changes in Existing Law Made by the Bill, as Reported............22

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

  (a) Short Title.--This Act may be cited as the ``Improving Access to 
Long-Term Care Act of 2002''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.

SEC. 2. DEDUCTION FOR PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE 
                    CONTRACTS.

  (a) In General.--Part VII of subchapter B of chapter 1 (relating to 
additional itemized deductions) is amended by redesignating section 223 
as section 224 and by inserting after section 222 the following new 
subsection:

``SEC. 223. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

  ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the applicable percentage of 
eligible long-term care premiums (as defined in section 213(d)(10)) 
paid during the taxable year by the taxpayer for coverage for the 
taxpayer and the spouse and dependents of the taxpayer.
  ``(b) Applicable Percentage.--For purposes of subsection (a), the 
applicable percentage shall be determined in accordance with the 
following table:

``For taxable years beginning                               The 
                                            applicable
  in calendar year--                                        percentage 
                                            is--
    2003, 2004, and 2005..........................                  25 
    2006 and 2007.................................                  30 
    2008 and 2009.................................                  35 
    2010 and 2011.................................                  40 
    2012 and thereafter...........................                  50.

  ``(c) Limitation Based on Modified Adjusted Gross Income.--
          ``(1) In general.--If the modified adjusted gross income of 
        the taxpayer for the taxable year exceeds $20,000 (twice the 
        preceding dollar amount, as adjusted under paragraph (2), in 
        the case of a joint return) the amount which would (but for 
        this subsection) be allowed as a deduction under subsection (a) 
        shall be reduced (but not below zero) by the amount which bears 
        the same ratio to the amount which would be so allowed as such 
        excess bears to $20,000 ($40,000 in the case of a joint 
        return).
          ``(2) Adjustments for inflation.--
                  ``(A) In general.--In the case of a taxable year 
                beginning after December 31, 2003, the first $20,000 
                amount contained in paragraph (1) shall be increased by 
                an amount equal to--
                          ``(i) such dollar amount, multiplied by
                          ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2002' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                  ``(B) Rounding.--If any amount as adjusted under 
                subparagraph (A) is not a multiple of $1,000, such 
                amount shall be rounded to the nearest multiple of 
                $1,000 (or if such amount is a multiple of $500, such 
                amount shall be rounded to the next highest multiple of 
                $500).
          ``(3) Modified adjusted gross income.--For purposes of 
        paragraph (1), the term `modified adjusted gross income' means 
        adjusted gross income determined--
                  ``(A) without regard to this section and sections 
                911, 931, and 933, and
                  ``(B) after application of sections 86, 135, 137, 
                219, 221, 222, and 469.
  ``(d) Limitation Based on Subsidized Coverage.--
          ``(1) In general.--Subsection (a) shall not apply to premiums 
        paid for coverage of any individual for any calendar month if--
                  ``(A) for such month such individual is covered by 
                any insurance which is advertised, marketed, or offered 
                as long-term care insurance under any health plan 
                maintained by any employer of the taxpayer or of the 
                taxpayer's spouse, and
                  ``(B) 50 percent or more of the cost of any such 
                coverage (determined under section 4980B) for such 
                month is paid or incurred by the employer.
          ``(2) Plans maintained by certain employers.--A health plan 
        which is not otherwise described in paragraph (1)(A) shall be 
        treated as described in such paragraph if such plan would be so 
        described if all health plans of persons treated as a single 
        employer under subsection (b), (c), (m), or (o) of section 414 
        were treated as one health plan.
  ``(e) Coordination With Other Deductions.--Any amount taken into 
account under subsection (a) shall not be taken into account in 
computing the amount allowable as a deduction under section 162(l) or 
213(a).
  ``(f) Married Couples Must File Joint Return.--
          ``(1) In general.--If the taxpayer is married at the close of 
        the taxable year, the deduction shall be allowed under 
        subsection (a) only if the taxpayer and the taxpayer's spouse 
        file a joint return for the taxable year.
          ``(2) Marital status.--For purposes of paragraph (1), marital 
        status shall be determined in accordance with section 7703.
  ``(g) Regulations.--The Secretary shall prescribe such regulations as 
may be appropriate to carry out this section, including regulations 
requiring employers to report to their employees and the Secretary such 
information as the Secretary determines to be appropriate.''.
  (b) Deduction Allowed Whether or not Taxpayer Itemizes.--Subsection 
(a) of section 62 is amended by inserting after paragraph (18) the 
following new item:
          ``(19) Premiums on qualified long-term care insurance 
        contracts.--The deduction allowed by section 223.''.
  (c) Conforming Amendments.--
          (1) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 
        219(g)(3)(A)(ii), and 221(b)(2)(C)(i) are each amended by 
        inserting ``223,'' after ``222,''.
          (2) Section 222(b)(2)(C)(i) is amended by inserting ``223,'' 
        before ``911''.
          (3) Section 469(i)(3)(F)(iii) is amended by striking ``and 
        222'' and inserting ``222, and 223''.
  (d) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following new items:

                              ``Sec. 223. Premiums on qualified long-
                                        term care insurance contracts.
                              ``Sec. 224. Cross reference.''.

  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 3. ADDITIONAL PERSONAL EXEMPTION FOR DEPENDENTS WITH LONG-TERM 
                    CARE NEEDS IN TAXPAYER'S HOME.

  (a) In General.--Section 151 (relating to allowance of deductions for 
personal exemptions) is amended by redesignating subsections (d) and 
(e) as subsections (e) and (f), respectively, and by inserting after 
subsection (c) the following new subsection:
  ``(d) Additional Exemption for Dependents With Long-Term Care Needs 
in Taxpayer's Home.--
          ``(1) In general.--Except as provided in paragraph (2), an 
        exemption of the exemption amount for each qualified family 
        member of the taxpayer.
          ``(2) Phase-in.--In the case of taxable years beginning in 
        calendar years before 2012, the amount of the exemption 
        provided under paragraph (1) shall not exceed the applicable 
        limitation amount determined in accordance with the following 
        table:

``For taxable years beginning                               The 
                                            applicable
  in calendar year--                                    limitation 
                                            amount is--
    2003 and 2004.................................                $500 
    2005 and 2006.................................               1,000 
    2007 and 2008.................................               1,500 
    2009 and 2010.................................               2,000 
    2011..........................................               2,500.

          ``(3) Qualified family member.--For purposes of this 
        subsection, the term `qualified family member' means, with 
        respect to any taxable year, any individual--
                  ``(A) who is--
                          ``(i) the spouse of the taxpayer, or
                          ``(ii) a dependent of the taxpayer with 
                        respect to whom the taxpayer is entitled to an 
                        exemption under subsection (c),
                  ``(B) who is an individual with long-term care needs 
                during any portion of the taxable year, and
                  ``(C) other than an individual described in section 
                152(a)(9), who, for more than half of such year, has as 
                such individual's principal place of abode the home of 
                the taxpayer and is a member of the taxpayer's 
                household.
          ``(4) Individuals with long-term care needs.--For purposes of 
        this subsection, the term `individual with long-term care 
        needs' means, with respect to any taxable year, an individual 
        who has been certified, during the 39\1/2\-month period ending 
        on the due date (without extensions) for filing the return of 
        tax for the taxable year (or such other period as the Secretary 
        prescribes), by a physician (as defined in section 1861(r)(1) 
        of the Social Security Act) as being, for a period which is at 
        least 180 consecutive days--
                  ``(A) an individual who is unable to perform (without 
                substantial assistance from another individual) at 
                least 2 activities of daily living (as defined in 
                section 7702B(c)(2)(B)) due to a loss of functional 
                capacity, or
                  ``(B) an individual who requires substantial 
                supervision to protect such individual from threats to 
                health and safety due to severe cognitive impairment 
                and is unable to perform, without reminding or cuing 
                assistance, at least 1 activity of daily living (as so 
                defined) or to the extent provided in regulations 
                prescribed by the Secretary (in consultation with the 
                Secretary of Health and Human Services), is unable to 
                engage in age appropriate activities.
          ``(5) Identification requirement.--No exemption shall be 
        allowed under this subsection to a taxpayer with respect to any 
        qualified family member unless the taxpayer includes, on the 
        return of tax for the taxable year, the name and taxpayer 
        identification of the physician certifying such member. In the 
        case of a failure to provide the information required under the 
        preceding sentence, the preceding sentence shall not apply if 
        it is shown that the taxpayer exercised due diligence in 
        attempting to provide the information so required.
          ``(6) Special rules.--Rules similar to the rules of 
        paragraphs (2), (3), and (4) of section 21(e) shall apply for 
        purposes of this subsection.''.
  (b) Conforming Amendments.--
          (1) Section 1(f)(6)(A) is amended by striking ``151(d)(4)'' 
        and inserting ``151(e)(4)''.
          (2) Section 1(f)(6)(B) is amended by striking 
        ``151(d)(4)(A)'' and inserting ``151(e)(4)(A)''.
          (3) Section 3402(f)(1)(A) is amended by striking 
        ``151(d)(2)'' and inserting ``151(e)(2)''.
          (4) Section 3402(r)(2)(B) is amended by striking ``151(d)'' 
        and inserting ``151(e)''.
          (5) Section 6012(a)(1)(D)(ii) is amended--
                  (A) by striking ``151(d)'' and inserting ``151(e)'', 
                and
                  (B) by striking ``151(d)(2)'' and inserting 
                ``151(e)(2)''.
          (6) Section 6013(b)(3)(A) is amended by striking ``151(d)'' 
        and inserting ``151(e)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2002.

SEC. 4. EXPANSION OF HUMAN CLINICAL TRIALS QUALIFYING FOR ORPHAN DRUG 
                    CREDIT.

  (a) In General.--Paragraph (2) of section 45C(b) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                  ``(C) Treatment of certain expenses incurred before 
                designation.--For purposes of subparagraph (A)(ii)(I), 
                if a drug is designated under section 526 of the 
                Federal Food, Drug, and Cosmetic Act not later than the 
                due date (including extensions) for filing the return 
                of tax under this subtitle for the taxable year in 
                which the application for such designation of such drug 
                was filed, such drug shall be treated as having been 
                designated on the date that such application was 
                filed.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to expenses incurred after the date of the enactment of this Act.

SEC. 5. VACCINE TAX TO APPLY TO HEPATITIS A VACCINE.

  (a) In General.--Paragraph (1) of section 4132(a) (defining taxable 
vaccine) is amended by redesignating subparagraphs (I), (J), (K), and 
(L) as subparagraphs (J), (K), (L), and (M), respectively, and by 
inserting after subparagraph (H) the following new subparagraph:
                  ``(I) Any vaccine against hepatitis A.''
  (b) Effective Date.--
          (1) Sales, etc.--The amendments made by subsection (a) shall 
        apply to sales and uses on or after the first day of the first 
        month which begins more than 4 weeks after the date of the 
        enactment of this Act.
          (2) Deliveries.--For purposes of paragraph (1) and section 
        4131 of the Internal Revenue Code of 1986, in the case of sales 
        on or before the effective date described in such paragraph for 
        which delivery is made after such date, the delivery date shall 
        be considered the sale date.

SEC. 6. ADJUSTMENT OF EMPLOYER CONTRIBUTIONS TO COMBINED BENEFIT FUND 
                    TO REFLECT MEDICARE PRESCRIPTION DRUG SUBSIDY 
                    PAYMENTS.

  (a) In General.--Section 9704(b) of the Internal Revenue Code of 1986 
(relating to health benefit premium) is amended by adding at the end 
the following new paragraph:
          ``(4) Adjustments for medicare prescription drug subsidies.--
        The trustees of the Combined Fund shall decrease the per 
        beneficiary premium for each plan year in which a subsidy 
        payment is provided to it under section 1860H of the Social 
        Security Act by the amount which would place the Combined Fund 
        in the same financial position as if such subsidy payment had 
        not been received.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to plan years beginning after the date of the enactment of the Medicare 
Modernization and Prescription Drug Act of 2002.

SEC. 7. ELIGIBILITY FOR ARCHER MSA'S EXTENDED TO ACCOUNT HOLDERS OF 
                    MEDICARE+CHOICE MSA'S.

  (a) In General.--Subparagraph (B) of section 220(c)(2) of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new clause:
                          ``(iii) Medicare+choice msa's.--In the case 
                        of an individual who is covered under an MSA 
                        plan (as defined in section 1859(b)(3) of the 
                        Social Security Act) which such individual 
                        elected under section 1851(a)(2)(B) of such 
                        Act--
                                  ``(I) such plan shall be treated as a 
                                high deductible health plan for 
                                purposes of this section,
                                  ``(II) subsection (b)(2)(A) shall be 
                                applied by substituting `100 percent' 
                                for `65 percent' with respect to such 
                                individual,
                                  ``(III) with respect to such 
                                individual, the limitation under 
                                subsection (d)(1)(A)(ii) shall be 100 
                                percent of the highest annual 
                                deductible limitation under section 
                                1859(b)(3)(B) of the Social Security 
                                Act,
                                  ``(IV) paragraphs (4), (5), and (7) 
                                of subsection (b) and paragraph 
                                (1)(A)(iii) of this subsection shall 
                                not apply with respect to such 
                                individual, and
                                  ``(V) the limitation which would (but 
                                for this subclause) apply under 
                                subsection (b)(1) with respect to such 
                                individual for any taxable year shall 
                                be reduced (but not below zero) by the 
                                amount which would (but for subsection 
                                106(b)) be includible in such 
                                individual's gross income for the 
                                taxable year.''.
  (b) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2002.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 4946, as amended (the ``Improving Access to 
Long-Term Care Act of 2002'') provides tax relief to assist 
individuals in meeting the long-term care needs of themselves, 
their spouse, and their dependents.
    The bill provides an above-the-line deduction for 
individuals with certain income levels for the purchase of 
long-term care insurance. In addition, the bill provides a 
phased-in additional personal exemption for taxpayers who care 
for dependents with long-term care needs in their home.
    The bill also expands human clinical trials that qualify 
for the orphan drug credit, adds hepatitis A vaccine to the 
list of taxable vaccines, makes a conforming change to the coal 
industry health provisions to reflect the Committee's actions 
relating to prescription drug benefits under Medicare, and 
allows individuals enrolled in Medicare+Choice MSA plans to 
contribute to Archer MSAs.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
for tax relief to assist individuals in meeting their long-term 
care needs. The provisions also address other health care 
matters.

                         C. Legislative History


                            COMMITTEE ACTION

    The Committee on Ways and Means marked up the provisions of 
the bill on June 19, 2002, and approved the provisions, as 
amended, on June 19, 2002, by a rollcall vote of 29 yeas to 6 
nays (with a quorum being present).

                      II. EXPLANATION OF THE BILL


A. Above-the-Line Deduction for Long-Term Care Insurance Premiums (sec. 
              2 of the bill and new sec. 223 of the Code)


                              PRESENT LAW

    Under present law, the Federal income tax treatment of 
qualified long-term care insurance expenses is similar to the 
treatment of health insurance expenses.\1\ As is the case with 
health insurance expenses, the Federal income tax treatment of 
qualified long-term care insurance expenses depends on the 
individual's circumstances.
---------------------------------------------------------------------------
    \1\ The main difference between the tax treatment of qualified 
long-term care insurance and medical insurance is that long-term care 
insurance canot be offered under a cafeteria plan.
---------------------------------------------------------------------------
    Individuals who purchase their own qualified long-term care 
insurance may claim an itemized deduction for the premiums, but 
only to the extent that eligible qualified long-term care 
insurance premiums, together with the individual's medical 
expenses exceed 7.5 percent of adjusted gross income.\2\ The 
amount of qualified long-term care insurance premiums that may 
be taken into account in determining the amount allowed as an 
itemized deduction is limited as follows (for 2002) based on 
the case of the covered individual: $240 in the case of an 
individual 40 years old or less; $450 in the case of an 
individual who is more than 40 but not more than 50; $900 in 
the case of an individual who is more than 50 but not more than 
60; $2,390 in the case of an individual who is more than 60 but 
not more than 70; and $2,990 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.
---------------------------------------------------------------------------
    \2\ Sec. 213(d).
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    Self-employed individuals may deduct a portion of qualified 
long-term care insurance premiums for the individual and his or 
her spouse and dependents. The deductible percentage of such 
premiums is 70 percent in 2002 and 100 percent in 2003 and 
thereafter.\3\ The deduction applies to qualified long-term 
care insurance premiums, subject to the same dollar limits that 
apply for purposes of the itemized deduction, described above.
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    \3\ The deduction for long-term care insurance expenses of self-
employed individuals 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.
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    Employees can exclude from income 100 percent of qualified 
long-term care insurance paid for by the employee's employer. 
There is no dollar limit on this exclusion.\4\ Payments made 
under a qualified long-term care insurance contract are 
excludable from gross income, subject to a dollar limitation in 
the case of contracts that provide for payment on a per diem or 
similar basis.
---------------------------------------------------------------------------
    \4\ Unlike health insurance, long-term care insurance cannot be 
provided under a cafeteria plan.
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    In order for a long-term care insurance contract to be a 
qualified long-term care insurance contract: (1) the contract 
must be guaranteed renewable; (2) the contract generally cannot 
provide for a cash surrender value or other money that can be 
paid, assigned, or pledged as a loan or borrowed; (3) all 
refunds of premiums, and all policyholder dividends or similar 
amounts, under the contract are to be applied as a reduction in 
future premiums or to increase future benefits; and (4) the 
contract must meet certain consumer protection standards.\5\ 
Contracts that provide for per diem or similar payments are 
subject to additional requirements.
---------------------------------------------------------------------------
    \5\ Sec. 7702B.
---------------------------------------------------------------------------
    The consumer protection provisions applicable to qualified 
long-term care insurance contracts require that (1) such 
contracts meet certain provisions under the model long-term 
care insurance act and regulations promulgated by the National 
Association of Insurance Commissioners, (2) the issuer of the 
contract discloses that the contract is intended to be a 
qualified policy, and (3) the issuer offer the policyholder a 
nonforfeiture provision meeting certain requirements.

                           REASONS FOR CHANGE

    Present law provides favorable tax treatment for the 
purchase of qualified long-term care insurance. The present-law 
provisions were enacted to provide incentives for individuals 
to take financial responsibility for the long-term care needs 
of themselves and their dependents. The Committee believes that 
further incentives and tax relief are appropriate to encourage 
individuals to purchase qualified long-term care insurance.

                        EXPLANATION OF PROVISION

    The provision provides an above-the-line deduction for a 
percentage of qualified long-term care insurance premiums up to 
the present-law dollar limitations that apply under the 
itemized deduction.\6\ The deduction is not available to an 
individual for any month in which the individual is covered 
under a long-term care insurance contract 50 percent or more of 
the cost of which is paid or incurred by the individual's 
employer (or the employer of the individual's spouse). In 
determining whether the 50-percent threshold is met, all plans 
of related employers providing long-term care insurance in 
which the individual participates are treated as a single plan.
---------------------------------------------------------------------------
    \6\ The deduction only applies to premiums on qualified long-term 
care insurance contracts; it does not apply to long-term care expenses.
---------------------------------------------------------------------------
    The otherwise allowable deduction is phased out for 
taxpayers with modified adjusted gross income between $20,000 
and $40,000 ($40,000 and $80,000 in the case of married 
taxpayers filing a joint return).\7\ The $20,000 and $40,000 
starting points for the phase-out range are indexed for 
inflation, rounded to the nearest $1,000.
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    \7\ Modified adjusted gross income means adjusted gross income 
determined without regard to the deduction provided by the provision 
and the exclusion for certain foreign earned income (sec. 911), income 
from Guam, American Samoa, or the Northern Mariana Islands (sec. 931), 
and income from Puerto Rico (sec. 933). Modified adjusted gross income 
is calculated after the determination of the amount of Social Security 
benefits includible in gross income (sec. 86), the exclusion for 
certain interest on education savings bonds (sec. 135), the exclusion 
for adoption assistance (sec. 137), the deduction for contributions to 
individual retirement arrangements (sec. 219), the deduction for 
student loan interest (sec. 221), the deduction for certain education 
expenses (sec. 222), and the deduction for passive activity losses 
(sec. 469).
---------------------------------------------------------------------------
    The deductible percentage of qualified long-term care 
insurance premiums is 25 percent in 2003, 2004, and 2005, 30 
percent in 2006 and 2007, 35 percent in 2008 and 2009, 40 
percent in 2010 and 2011, and 50 percent in 2012 and 
thereafter.
    No amount taken into account in computing the deduction may 
be taken into account in determining the deduction for health 
insurance expenses of self-employed individuals or the itemized 
deduction for medical expenses. Married taxpayers are required 
to file a joint return in order to claim the deduction.\8\ The 
Secretary is authorized to prescribe such regulations as may be 
appropriate to carry out the provision, including appropriate 
reporting requirements for employers.
---------------------------------------------------------------------------
    \8\ The rules of sec. 7703 would apply in determining married 
status for this purpose.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002.

   B. Provide an Additional Personal Exemption to Home Caregivers of 
      Family Members (sec. 3 of the bill and sec. 151 of the Code)


                              PRESENT LAW

    In determining taxable income, taxpayers are entitled to a 
personal exemption deduction for the taxpayer, his or her 
spouse, and each dependent. To qualify as a dependent under 
present law, an individual must: (1) be (a) a specified 
relative or (b) have as his or her principal place of abode for 
the taxable year the home of the taxpayer and be a member of 
the taxpayer's household; \9\ (2) be a citizen or resident of 
the U.S. or resident of Canada or Mexico; (3) not be required 
to file a joint tax return with his or her spouse; (4) have 
gross income below the personal exemption amount if not the 
taxpayer's child; and (5) receive over half of his or her 
support from the taxpayer.\10\
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    \9\ For purposes of this rule, the taxpayer must maintain the 
household in which the taxpayer and the individual reside. The taxpayer 
is considered to maintain the household if over one-half of the support 
of the household is provided by the taxpayer (or, if married, the 
taxpayer and his or her spouse).
    \10\ If no one person contributes over half the support of an 
individual, the taxpayer is treated as meeting the support requirement 
if: (a) over half the support is received from persons each of whom, 
but for the fact that he or she did not provide over half such support, 
could claim the individual as a dependent; (b) the taxpayer contributes 
over 10 percent of such support; and (c) the other caregivers who 
provide over 10 percent of the support file written declarations 
stating that they will not claim the individual as a dependent.
---------------------------------------------------------------------------
    The personal exemption amount for 2002 is $3,000. Personal 
exemptions are phased-out by two percentage points for each 
$2,500 ($1,250 if married filed separately) or fraction thereof 
by which adjusted gross income exceeds certain thresholds based 
on filing status. For 2002, the thresholds are $137,300 for 
single filers, $206,000 for joint filers, $171,650 for heads of 
household, and $103,000 for married taxpayers filing separate 
returns.\11\ The exemption amount and the dollar thresholds for 
the phase-out are indexed for inflation.
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    \11\ For taxable years beginning in 2006 and 2007, the otherwise 
applicable personal exemption phase-out is reduced by one-third and for 
taxable years beginning in 2008 and 2009, the otherwise applicable 
phase-out is reduced by two-thirds. The personal exemption phaseout is 
repealed for taxable years beginning after December 31, 2009, and 
reinstated for taxable years beginning after December 31, 2010.
---------------------------------------------------------------------------
    Present law provides favorable tax treatment for the 
purchase of qualified long-term care insurance and for 
individuals with qualified long-term care expenses.

                           REASONS FOR CHANGE

    Present law provides favorable tax treatment for long-term 
care insurance and expenditures on long-term care services, but 
does not provide similar tax relief for in-home care, i.e., for 
individuals who care for family members or other dependents in 
their home. The Committee understands that in-home care may be 
preferable in some cases, and that individuals who care for 
family members or other dependents with special needs often 
incur additional household expenses. The Committee believes it 
appropriate to provide additional tax relief in such cases.

                        EXPLANATION OF PROVISION

    The provision allows a phased-in additional personal 
exemption for each qualified family member with long-term care 
needs. The exemption amount is limited to $500 for 2003 and 
2004, $1,000 for 2005 and 2006, $1,500 for 2007 and 2008, and 
$2,000 for 2009 and 2010, $2,500 for 2011, and is equal to the 
regularly applicable exemption amount for 2012 and thereafter.
    A qualified family member means an individual with long-
term care needs who (1) is the spouse of the taxpayer or a 
dependent of the taxpayer or the taxpayer's spouse with respect 
to whom the taxpayer is allowed to claim a personal exemption, 
and (2) satisfies a residency requirement. In the case of an 
individual who is a dependent by reason of living in the 
taxpayer's household for the entire taxable year, the residency 
requirement is the same as that under the dependency exemption. 
In the case of other dependents, the residency requirement is 
satisfied if, for more than one half of the taxable year, the 
individual has as his or her principal place of abode the home 
of the taxpayer and is a member of the taxpayer's household. As 
under present law, a taxpayer would be treated as maintaining a 
household for a period only if the taxpayer (or, if married, 
the taxpayer and his or her spouse) furnishes more than one-
half the cost of maintaining the household for the entire year.
    An individual is considered to have long-term care needs if 
he or she has been certified by a licensed physician as being 
unable, for a period of at least 180 consecutive days, \12\ to 
perform at least two activities of daily living (``ADLs'') \13\ 
without substantial assistance from another individual due to a 
loss of functional capacity. Substantial assistance includes 
both hands-on assistance (that is, the physical assistance of 
another person without which the individual would be unable to 
perform the ADL) and stand-by assistance (that is, the presence 
of another person within arm's reach of the individual that is 
necessary to prevent, by physical intervention, injury to the 
individual when performing the ADL).
---------------------------------------------------------------------------
    \12\ Some portion of the period must be within the taxable year.
    \13\ As under the present-law rules relating to long-term care, 
ADLs are defined as eating, toileting, transferring, bathing, dressing, 
and continence.
---------------------------------------------------------------------------
    As an alternative to the two-ADL test described above, an 
individual is considered to have long-term care needs if he or 
she has been certified by a licensed physician as, for at least 
180 consecutive days: (1) requiring substantial supervision to 
be protected from threats to health and safety due to severe 
cognitive impairment and (2) being unable to perform at least 
one ADL or to engage in age appropriate activities as 
determined under regulations prescribed by the Secretary of the 
Treasury in consultation with the Secretary of Health and Human 
Services.
    In all cases, the required certification must be made 
during the 39\1/2\ month period ending on the due date (without 
extensions) for filing the return for the taxable year (or such 
other period as the Secretary of the Treasury may prescribe).
    Married couples may not claim the additional personal 
exemption unless they file a joint return. An individual who is 
legally separated from his or her spouse is not considered 
married. In addition, married individuals who live apart during 
the last six months of the year are not considered married if 
certain requirements are satisfied.
    The taxpayer is required to provide a correct physician 
identification number (e.g., the Unique Physician 
Identification Number that is currently required for Medicare 
billing) for the certifying physician. Failure to provide 
correct physician identification numbers is subject to the 
mathematical error rule. Under that rule, the IRS may summarily 
assess additional tax due without sending the individual a 
notice of deficiency and giving the taxpayer an opportunity to 
petition the Tax Court.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002.

C. Expand Human Clinical Trials Expenses Qualifying for the Orphan Drug 
        Tax Credit (sec. 4 of the bill and sec. 45C of the Code)


                              PRESENT LAW

    Taxpayers may claim a 50-percent credit for expenses 
related to human clinical testing of drugs for the treatment of 
certain rare diseases and conditions, generally those that 
afflict less than 200,000 persons in the United States. 
Qualifying expenses are those paid or incurred by the taxpayer 
after the date on which the drug is designated as a potential 
treatment for a rare disease or disorder by the Food and Drug 
Administration (``FDA'') in accordance with section 526 of the 
Federal Food, Drug, and Cosmetic Act.

                           REASONS FOR CHANGE

    The Committee understands that approval for human clinical 
testing and designation as a potential treatment for a rare 
disease or disorder require separate reviews within the FDA. As 
a result, in some cases, a taxpayer may be permitted to begin 
human clinical testing prior to a drug being designated as a 
potential treatment for a rare disease or disorder. If the 
taxpayer delays human clinical testing in order to obtain the 
benefits of the orphan drug tax credit, which currently may be 
claimed only for expenses incurred after the drug is designated 
as a potential treatment for a rare disease or disorder, 
valuable time will have been lost and Congress's original 
intent in enacting the orphan drug tax credit will have been 
partially thwarted. Because taxpayers generally seek 
designation of a potential drug as a treatment for a rare 
disease or disorder at the time they seek approval to 
clinically test such drugs, the Committee believes it is 
appropriate to make such expenses related to human clinical 
testing that the taxpayer incurs prior to FDA designation 
eligible for the orphan drug tax credit to help speed cures to 
such insidious diseases.

                        EXPLANATION OF PROVISION

    The bill expands qualifying expenses to include those 
expenses related to human clinical testing incurred after the 
date on which the taxpayer files an application with the FDA 
for designation of the drug under section 526 of the Federal 
Food, Drug, and Cosmetic Act as a potential treatment for a 
rare disease or disorder. As under present law, the credit may 
only be claimed for such expenses related to drugs designated 
as a potential treatment for a rare disease or disorder by the 
FDA in accordance with section 526 of such Act.

                             EFFECTIVE DATE

    The provision is effective for expenditures paid or 
incurred after the date of enactment.

  D. Add Vaccines Against Hepatitis A to the List of Taxable Vaccines 
             (sec. 5 of the bill and sec. 4131 of the Code)


                              PRESENT LAW

    A manufacturer's excise tax is imposed at the rate of 75 
cents per dose (sec. 4131) on the following vaccines routinely 
recommended for administration to children: diphtheria, 
pertussis, tetanus, measles, mumps, rubella, polio, HIB 
(haemophilus influenza type B), hepatitis B, varicella (chicken 
pox), rotavirus gastroenteritis, and streptococcus pneumoniae. 
The tax applied to any vaccine that is a combination of vaccine 
components equals 75 cents times the number of components in 
the combined vaccine.
    Amounts equal to net revenues from this excise tax are 
deposited in the Vaccine Injury Compensation Trust Fund to 
finance compensation awards under the Federal Vaccine Injury 
Compensation Program for individuals who suffer certain 
injuries following administration of the taxable vaccines. This 
program provides a substitute Federal, ``no fault'' insurance 
system for the State-law tort and private liability insurance 
systems otherwise applicable to vaccine manufacturers. All 
persons immunized after September 30, 1988, with covered 
vaccines must pursue compensation under this Federal program 
before bringing civil tort actions under State law.

                           REASONS FOR CHANGE

    The Committee is aware that the Centers for Disease Control 
and Prevention have recommended that children in 17 highly 
endemic States be inoculated with a hepatitis A vaccine. The 
population of children in the affected States exceeds 20 
million. Several of the affected States mandate childhood 
vaccination against hepatitis A. The Committee is aware that 
the Advisory Commission on Childhood Vaccines has recommended 
that the vaccine excise tax be extended to cover vaccines 
against hepatitis A. For these reasons, the Committee believes 
it is appropriate to include vaccines against hepatitis A as 
part of the Vaccine Injury Compensation Program. Making the 
hepatitis A vaccine taxable is a first step.\14\ In the 
unfortunate event of an injury related to this vaccine, 
families of injured children would be eligible for the no-fault 
arbitration system established under the Vaccine Injury 
Compensation Program rather than going to Federal Court to seek 
compensatory redress.
---------------------------------------------------------------------------
    \14\ The Committee recognizes that, to become covered under the 
Vaccine Injury Compensation Program, the Secretary of Health and Human 
Services also must list the hepatitis A vaccine on the Vaccine Injury 
Table.
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The committee bill adds any vaccine against hepatitis A to 
the list of taxable vaccines.

                             EFFECTIVE DATE

    The provision is effective for vaccines sold beginning on 
the first day of the first month beginning more than four weeks 
after the date of enactment.

  E. Adjustment of Employer Contributions to Combined Benefit Fund to 
Reflect Medicare Prescription Drug Benefit (sec. 6 of the bill and sec. 
                           9704 of the Code)


                              PRESENT LAW

    Under present law, certain persons are required to pay 
premiums to the United Mine Workers of America Combined Benefit 
Fund (the ``Combined Fund'') established to provide health 
benefits for certain coal industry workers.

                           REASONS FOR CHANGE

    The Committee believes it appropriate to modify the premium 
requirements under the Combined Fund to reflect the Medicare 
prescription drug benefits adopted by the Committee in H.R. 
4954, the ``Medicare Modernization and Prescription Drug Act of 
2002'' on June 18, 2002.

                        EXPLANATION OF PROVISION

    The provision provides that the trustees of the Combined 
Fund are to decrease otherwise provided premiums for each year 
in which a subsidy payment is provided in the Medicare 
Modernization and Prescription Drug Act of 2002 in order to 
place the Fund in the same financial position as if the subsidy 
payment had not been received.

                             EFFECTIVE DATE

    The provision applies to plan years beginning after the 
date of enactment of the Medicare Modernization and 
Prescription Drug Act of 2002.

 F. Modifications to Medicare+Choice MSAs (sec. 7 of the bill and sec. 
                            220 of the Code)


                              PRESENT LAW

In general

    Present law provides for favorable tax treatment for Archer 
medical savings accounts (``MSAs'') and Medicare+Choice 
MSAs.\15\
---------------------------------------------------------------------------
    \15\ In general, an MSA is a trust or custodial account created 
exclusively for the benefit of the account holder and that meets 
certain other requirements. The trustee of an MSA can be a bank, 
insurance company, or other person as specified by the Secretary of the 
Treasury.
---------------------------------------------------------------------------

Archer MSAs

    Within limits, contributions to an Archer MSA are 
deductible in determining adjusted gross income if made by an 
eligible individual and are excludable from gross income and 
wages for employment tax purposes if made by the employer of an 
eligible individual. In general, eligible individuals are self-
employed individuals covered by a high deductible health plan 
\16\ and employees covered under a high deductible health plan 
of a small employer.\17\ The maximum contribution that can be 
made to an Archer 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. An eligible individual or the employer 
of an eligible individual may contribute to an Archer MSA, but 
not both.
---------------------------------------------------------------------------
    \16\ A high deductible health plan is a plan that meets certain 
requirements with respect to the amount of the annual deductible and 
out-of-pocket limitations.
    \17\ In order to be eligible for an MSA, the individual generally 
cannot be covered under a health plan other than the high deductible 
health plan.
---------------------------------------------------------------------------
    Earnings on amounts in an Archer MSA are not currently 
includible in income. Distributions from an Archer MSA for 
medical expenses of the MSA account holder and his or her 
spouse or dependents are not includible in income. For this 
purpose, medical expenses are defined as under the itemized 
deduction for medical expenses, except that medical expenses do 
not include any insurance premiums other than premiums for 
long-term care insurance, continuation coverage (``COBRA 
coverage''), or premiums for coverage while an individual is 
receiving unemployment compensation. Distributions not used for 
medical expenses are subject to an additional 15-percent tax 
unless the distribution is made after age 65, death, or 
disability.
    Individuals who are covered by Medicare are not eligible 
for an Archer MSA, but may be eligible for a Medicare+Choice 
MSA as described below.
    The number of Archer MSAs that may be established is 
limited. In general, no new Archer MSAs can be established 
after 2003.

Medicare+Choice MSAs

    Under present law, the Medicare program includes a variety 
of health plan options called Medicare+Choice. One of the 
Medicare+Choice options is a test program called the 
Medicare+Choice medical savings account (``MSA'') plan. The 
Medicare+Choice MSA plan consists of two parts, a 
Medicare+Choice health policy and a Medicare+Choice MSA.
    Individuals who elect the Medicare+Choice MSA plan select a 
policy from a commercial insurer. The policy must be designed 
to work as part of the Medicare+Choice MSA plan and must be 
approved by Medicare. The premium for the policy is paid for by 
Medicare.
    In addition, individuals who elect the Medicare+Choice MSA 
plan establish a Medicare+Choice MSA with a bank or other 
institution that is registered with Medicare to set up 
Medicare+Choice MSAs. The Secretary of Health and Human 
Services makes a specified contribution directly into a 
Medicare+Choice MSA designated by such individual based on the 
policy the individual is covered by and certain other factors. 
Only contributions by the Secretary of Health and Human 
Services can be made to a Medicare+Choice MSA. Such 
contributions are not included in the taxable income of 
Medicare+Choice MSA holder.
    Income earned on amounts held in a Medicare+Choice MSA is 
not currently includible in taxable income. Withdrawals from a 
Medicare+Choice MSA are excludable from taxable income if used 
for the qualified medical expenses of the account holder. 
Withdrawals that are not used for the qualified medical 
expenses of the account holder are includible in income and may 
be subject to an additional tax (described below).
    Distributions from a Medicare+Choice MSA that are used to 
pay the qualified medical expenses of the account holder are 
excludable from taxable income regardless of whether the 
account holder is enrolled in the Medicare+Choice MSA plan at 
the time of the distribution. Qualified medical expenses of the 
account holder are generally defined as under the rules 
relating to the itemized deductions for medical expenses. 
However, for this purpose, qualified medical expenses do not 
include any insurance premiums other than premiums for long-
term care insurance, COBRA coverage, or premium for coverage 
while an individual is receiving unemployment compensation. In 
addition, expenses of the taxpayer's spouse and dependents are 
not qualified medical expenses.
    Distributions for purposes other than qualified medical 
expenses are includible in taxable income. An additional tax of 
50 percent applies to the extent the total distributions for 
purposes other than qualified medical expenses in a taxable 
year exceed the amount by which the value of Medicare+Choice 
MSA as of December 31 of the preceding taxable year exceeds 60 
percent of the deductible of the plan under which the 
individual is covered. The additional tax does not apply to 
distributions on account of the disability or death of the 
account holder.

                           REASONS FOR CHANGE

    The Committee believes it appropriate to increase the 
attractiveness of the Medicare+Choice MSA program by allowing 
individuals in such program to be eligible for Archer MSAs.

                        EXPLANATION OF PROVISION

    The provision treats policies selected as part of the 
Medicare+Choice MSA plan as high deductible plans for purposes 
of Archer MSAs. Thus, individuals who have a Medicare+Choice 
MSA plan also are eligible individuals for Archer MSA purposes 
(such individuals are referred to as ``Medicare-eligible 
individuals''). The maximum deductible contribution that may be 
made to an Archer MSA with respect to a Medicare-eligible 
individual is 100 percent of the deductible under the 
Medicare+Choice MSA policy.
    The proposal also allows employers or former employers of 
Medicare-eligible individuals to make contributions to an 
Archer MSA on behalf of such individuals. Total contributions 
can not exceed the deductible amount.
    The cap on Archer MSAs does not apply to MSAs established 
by persons in Medicare+Choice. As under present law, the Archer 
MSA program, including the program as applied to Medicare-
eligible individuals, expires at the end of 2003.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2002.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4946.

                       Motion To Report the Bill

    The bill, H.R. 4946, as amended, was ordered favorably 
reported by a rollcall vote of 29 yeas to 6 nays (with a quorum 
being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          Votes on Amendments

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. McCrery, which would provide retirees 
with additional flexibility in obtaining health care for 
retirees and their families by allowing employers or former 
employers to make contributions to an Archer MSA on behalf of a 
Medicare eligible individual, was agreed to by a roll call vote 
of 23 yeas to 12 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........  ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------


                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 4946 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2007:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority (as detailed 
in the statement by the Congressional Budget Office (``CBO''); 
see Part IV.C., below). The Committee further states that the 
revenue reducing income tax provisions involve increased tax 
expenditures. (See amounts in table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 25, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4946, the 
Improving Access to Long-Term Care Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Andrew Shaw 
(for federal revenues), and Alexis Ahlstrom (for federal 
spending).
            Sincerely,
                                        Steven M. Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

H.R. 4946--Improving Access to Long-Term Care Act of 2002

    Summary: H.R. 4946 would provide an above-the-line 
deduction for a percentage of premiums for eligible long-term 
care insurance contracts. The deduction would be available for 
eligible long-term care insurance that covers the taxpayer, the 
taxpayer's spouse or the taxpayer's dependents and for which 
the taxpayer pays at least 50 percent of the cost of coverage. 
The deduction would phase out for single taxpayers with 
adjusted gross income (AGI) between $20,000 and $40,000 a year 
and for married taxpayers filing jointly with AGI between 
$40,000 and $80,000.
    H.R. 4946 would also allow an additional personal exemption 
for taxpayers who provide home care to dependents with long-
term care needs. This additional exemption would be phased in 
starting at $500 in 2003 and 2004, increasing in $500 
increments every other year thereafter until it reaches $2,500 
in 2011. Starting in 2012, a full personal exemption would 
apply.
    In addition, the bill would add vaccines against Hepatitis 
A to the list of taxable vaccines, expand human clinical trial 
expenses qualifying for the orphan drug tax credit, and adjust 
employer contributions to the Combined Benefit Fund to reflect 
Medicare payments for prescription drug subsidies.
    The Joint Committee on Taxation (JCT) and CBO estimate that 
enacting H.R. 4946 would reduce revenues by $106 million in 
2003, $1.5 billion over the 2003-2007 period, and $5.5 billion 
over the 2003-2012 period. CBO estimates that the bill would 
increase direct spending by $5 million in 2003, $34 million 
over the 2003-2007 period, and $70 million over the 2003-2012 
period. Because the bill would affect revenues and direct 
spending, pay-as-you-go procedures would apply. JCT and CBO 
have determined that the bill contains no intergovernmental or 
private-sector mandates as defined in the Unfunded Mandates 
Reform Act (UMRA), and would not affect the budgets of state, 
local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4946 is shown in the following table.

----------------------------------------------------------------------------------------------------------------
                                                                   By fiscal year, in millions of dollars--
                                                             ---------------------------------------------------
                                                               2002    2003     2004     2005     2006     2007
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated Revenues..........................................      0     -106     -250     -329     -359     -455

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority..................................      0        5        7        7        7        7
Estimated Outlays...........................................      0        5        7        7        7        7
----------------------------------------------------------------------------------------------------------------

Basis of estimate

            Revenues
    All revenue estimates for H.R. 4946 were provided by JCT 
except for the provision adjusting employer contributions to 
the Combined Benefit Fund to reflect Medicare prescription drug 
subsidy payments. CBO estimates the revenue effect of that 
provision, by itself, would be zero because Medicare does not 
have an outpatient prescription drug benefit under current law. 
However, H.R. 4946, if enacted concurrently with or after the 
establishment of a Medicare prescription drug benefit, would 
decrease revenues in the form of health care premiums paid to 
the Combined Benefit Fund by certain coal companies.
    The Combined Benefit Fund was created in 1992 to provide 
health benefits to retired coal industry workers. Under current 
law, the premiums coal companies pay to the fund on behalf of 
retired workers can be increased in the event that Medicare 
reduces its benefits to ensure that the same level of benefits 
is maintained. In contrast, there is not mechanism to decrease 
premiums if Medicare adds benefits. This provision would 
require the fund to reduce the premiums that coal companies pay 
to the fund by the amount the fund would receive from Medicare 
for the prescription drug benefit. The estimate assumes that 
the fund would make arrangements with Medicare to enroll all 
Medicare-eligible fund participants in the drug benefit and 
that the fund would pay the premiums and cost-sharing 
associated with participation in that plan.
    CBO estimates the cost of implementing this provision in 
conjunction with the prescription drug benefit specified in 
H.R. 4954 (as ordered reported by the Committee on Ways and 
Means on June 19) would be $35 million over the 2003-2007 
period and $92 million over the 2003-2012 period. (Those 
estimates are not included in the above table, which provides 
estimated changes in revenues relative to current law only.)
            Direct Spending
    The Hepatitis A vaccine tax provision would require vaccine 
buyers to pay an excise tax on each dose purchased. Medicaid is 
a major purchaser of vaccines through the Vaccines for Children 
program, administered through the Centers for Disease Control 
and Prevention (CDC). CBO assumes that Medicaid purchases 
approximately half of the Hepatitis A vaccines sold annually. 
Based on estimates provided by JCT, CBO expects that 
implementing H.R. 4946 would cost the Medicaid program about $3 
million in 2003 and $48 million over the 2003-2012 period.
    Receipts from the tax would go to the Vaccine Injury 
Compensation Fund (VICF), which is administered by the Health 
Resources and Services Administration (HRSA). The fund uses tax 
revenues to pay compensation to claimants injured by vaccines. 
Once a vaccine becomes taxable, injuries attributed to its use 
become compensable through this fund. Based on information 
provided by HRSA and CDC, we assume there will be few 
compensable claims related to the Hepatitis A vaccine. CBO 
estimates the provision would increase outlays from the VICF by 
$2 million in 2003 and $22 million over the 2003-2012 period.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
For the purposes of enforcing pay-as-you-go procedures, only 
the effects through 2006 are counted.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    By fiscal year, in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                        2002    2003     2004     2005     2006     2007     2008     2009     2010     2011      2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts..................................      0     -106     -250     -329     -359     -455     -498     -607     -662     -923     -1,297
Changes in outlays...................................      0        5        7        7        7        7        7        7        7        7          8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: JCT and CBO 
have determined that the bill contains no intergovernmental or 
private-sector mandates as defined in UMRA and would not affect 
the budgets of state, local, or tribal governments.
    Estimate prepared by: Federal revenues: Andrew Shaw; 
Federal outlays: Alexis Ahlstrom; impact on state, local, and 
tribal governments: Susan Sieg Tompkins; impact on the private 
sector: Stuart Hagan.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.
    Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on individual 
taxpayers and tax-related health issues that the Committee 
concluded that it is appropriate and timely to enact the 
revenue provisions included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power to lay and collect Taxes, Duties, Imposts and 
Excises . . . ''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, and tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of Treasury) to provide a 
tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


                       Subtitle A--Income Taxes

           *       *       *       *       *       *       *


                   CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


              Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


                      PART I--TAX ON INDIVIDUALS

           *       *       *       *       *       *       *



SEC. 1. TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Adjustments in Tax Tables so that Inflation Will Not 
Result in Tax Increases.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Rounding.--
                  (A) In general.--If any increase determined 
                under paragraph (2)(A), section 63(c)(4), 
                section 68(b)(2) or section [151(d)(4)] 
                151(e)(4) is not a multiple of $50, such 
                increase shall be rounded to the next lowest 
                multiple of $50.
                  (B) Table for married individuals filing 
                separately.--In the case of a married 
                individual filing a separate return, 
                subparagraph (A) (other than with respect to 
                sections 63(c)(4) and [151(d)(4)(A)] 
                151(e)(4)(A)) shall be applied by substituting 
                ``$25'' for ``$50'' each place it appears.

           *       *       *       *       *       *       *


                      PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



                 Subpart D--Business Related Credits

           *       *       *       *       *       *       *



SEC. 45C. CLINICAL TESTING EXPENSES FOR CERTAIN DRUGS FOR RARE DISEASES 
                    OR CONDITIONS.

  (a) * * *
  (b) Qualified Clinical Testing Expenses.--For purposes of 
this section--
          (1) * * *
          (2) Clinical testing.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Treatment of certain expenses incurred 
                before designation.--For purposes of 
                subparagraph (A)(ii)(I), if a drug is 
                designated under section 526 of the Federal 
                Food, Drug, and Cosmetic Act not later than the 
                due date (including extensions) for filing the 
                return of tax under this subtitle for the 
                taxable year in which the application for such 
                designation of such drug was filed, such drug 
                shall be treated as having been designated on 
                the date that such application was filed.

           *       *       *       *       *       *       *


              Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


  PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE 
                             INCOME, ETC.

           *       *       *       *       *       *       *


SEC. 62. ADJUSTED GROSS INCOME DEFINED.

  (a) General Rule.--For purposes of this subtitle, the term 
``adjusted gross income'' means, in the case of an individual, 
gross income minus the following deductions:
          (1) * * *

           *       *       *       *       *       *       *

          (19) Premiums on qualified long-term care insurance 
        contracts.--The deduction allowed by section 223.

           *       *       *       *       *       *       *


         PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


SEC. 86. SOCIAL SECURITY AND TIER 1 RAILROAD RETIREMENT BENEFITS.

  (a) * * *
  (b) Taxpayers to Whom Subsection (a) Applies.--
          (1) * * *
          (2) Modified adjusted gross income.--For purposes of 
        this subsection, the term ``modified adjusted gross 
        income'' means adjusted gross income--
                  (A) determined without regard to this section 
                and sections 135, 137, 221, 222, 223, 911, 931, 
                and 933, and

           *       *       *       *       *       *       *


        PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 135. INCOME FROM UNITED STATES SAVINGS BONDS USED TO PAY HIGHER 
                    EDUCATION TUITION AND FEES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Modified adjusted gross income.--The term 
        ``modified adjusted gross income'' means the adjusted 
        gross income of the taxpayer for the taxable year 
        determined--
                  (A) without regard to this section and 
                sections 137, 221, 222, 223, 911, 931, and 933, 
                and

           *       *       *       *       *       *       *


SEC. 137. ADOPTION ASSISTANCE PROGRAMS.

  (a) * * *
  (b) Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Determination of adjusted gross income.--For 
        purposes of paragraph (2), adjusted gross income shall 
        be determined--
                  (A) without regard to this section and 
                sections 221, 222, 223, 911, 931, and 933, and

           *       *       *       *       *       *       *


               PART V--DEDUCTIONS FOR PERSONAL EXEMPTIONS

           *       *       *       *       *       *       *


SEC. 151. ALLOWANCE OF DEDUCTIONS FOR PERSONAL EXEMPTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Additional Exemption for Dependents With Long-Term Care 
Needs in Taxpayer's Home.--
          (1) In general.--Except as provided in paragraph (2), 
        an exemption of the exemption amount for each qualified 
        family member of the taxpayer.
          (2) Phase-in.--In the case of taxable years beginning 
        in calendar years before 2012, the amount of the 
        exemption provided under paragraph (1) shall not exceed 
        the applicable limitation amount determined in 
        accordance with the following table:

For taxable years be              The applicable
  in calendar year--          limitation amount is--
    2003 and 2004.............................................     $500 
    2005 and 2006.............................................    1,000 
    2007 and 2008.............................................    1,500 
    2009 and 2010.............................................    2,000 
    2011......................................................    2,500.

          (3) Qualified family member.--For purposes of this 
        subsection, the term ``qualified family member'' means, 
        with respect to any taxable year, any individual--
                  (A) who is--
                          (i) the spouse of the taxpayer, or
                          (ii) a dependent of the taxpayer with 
                        respect to whom the taxpayer is 
                        entitled to an exemption under 
                        subsection (c),
                  (B) who is an individual with long-term care 
                needs during any portion of the taxable year, 
                and
                  (C) other than an individual described in 
                section 152(a)(9), who, for more than half of 
                such year, has as such individual's principal 
                place of abode the home of the taxpayer and is 
                a member of the taxpayer's household.
          (4) Individuals with long-term care needs.--For 
        purposes of this subsection, the term ``individual with 
        long-term care needs'' means, with respect to any 
        taxable year, an individual who has been certified, 
        during the 39\1/2\-month period ending on the due date 
        (without extensions) for filing the return of tax for 
        the taxable year (or such other period as the Secretary 
        prescribes), by a physician (as defined in section 
        1861(r)(1) of the Social Security Act) as being, for a 
        period which is at least 180 consecutive days--
                  (A) an individual who is unable to perform 
                (without substantial assistance from another 
                individual) at least 2 activities of daily 
                living (as defined in section 7702B(c)(2)(B)) 
                due to a loss of functional capacity, or
                  (B) an individual who requires substantial 
                supervision to protect such individual from 
                threats to health and safety due to severe 
                cognitive impairment and is unable to perform, 
                without reminding or cuing assistance, at least 
                1 activity of daily living (as so defined) or 
                to the extent provided in regulations 
                prescribed by the Secretary (in consultation 
                with the Secretary of Health and Human 
                Services), is unable to engage in age 
                appropriate activities.
          (5) Identification requirement.--No exemption shall 
        be allowed under this subsection to a taxpayer with 
        respect to any qualified family member unless the 
        taxpayer includes, on the return of tax for the taxable 
        year, the name and taxpayer identification of the 
        physician certifying such member. In the case of a 
        failure to provide the information required under the 
        preceding sentence, the preceding sentence shall not 
        apply if it is shown that the taxpayer exercised due 
        diligence in attempting to provide the information so 
        required.
          (6) Special rules.--Rules similar to the rules of 
        paragraphs (2), (3), and (4) of section 21(e) shall 
        apply for purposes of this subsection.
  [(d)] (e) Exception Amount.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

  [(e)] (f) Identifying Information Required.--No exemption 
shall be allowed under this section with respect to any 
individual unless the TIN of such individual is included on the 
return claiming the exemption.

           *       *       *       *       *       *       *


        PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

        Sec. 211. Allowance of deductions.
     * * * * * * *
        [Sec. 223. Cross reference.]
        Sec. 223. Premiums on qualified long-term care insurance 
                  contracts.
        Sec. 224. Cross reference.

           *       *       *       *       *       *       *


SEC. 219. RETIREMENT SAVINGS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation on Deduction for Active Participants in 
Certain Pension Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Adjusted gross income; applicable dollar 
        amount.--For purposes of this subsection--
                  (A) Adjusted gross income.--Adjusted gross 
                income of any taxpayer shall be determined--
                          (i) * * *
                          (ii) without regard to sections 135, 
                        137, 221, 222, 223, and 911 or the 
                        deduction allowable under this section.

           *       *       *       *       *       *       *


SEC. 220. ARCHER MSAS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          (1) * * *
          (2) High deductible health plan.--
                  (A) * * *
                  (B) Special rules.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Medicare+choice msa's.--In the 
                        case of an individual who is covered 
                        under an MSA plan (as defined in 
                        section 1859(b)(3) of the Social 
                        Security Act) which such individual 
                        elected under section 1851(a)(2)(B) of 
                        such Act--
                                  (I) such plan shall be 
                                treated as a high deductible 
                                health plan for purposes of 
                                this section,
                                  (II) subsection (b)(2)(A) 
                                shall be applied by 
                                substituting ``100 percent'' 
                                for ``65 percent'' with respect 
                                to such individual,
                                  (III) with respect to such 
                                individual, the limitation 
                                under subsection (d)(1)(A)(ii) 
                                shall be 100 percent of the 
                                highest annual deductible 
                                limitation under section 
                                1859(b)(3)(B) of the Social 
                                Security Act,
                                  (IV) paragraphs (4), (5), and 
                                (7) of subsection (b) and 
                                paragraph (1)(A)(iii) of this 
                                subsection shall not apply with 
                                respect to such individual, and
                                  (V) the limitation which 
                                would (but for this subclause) 
                                apply under subsection (b)(1) 
                                with respect to such individual 
                                for any taxable year shall be 
                                reduced (but not below zero) by 
                                the amount which would (but for 
                                subsection 106(b)) be 
                                includible in such individual's 
                                gross income for the taxable 
                                year.

           *       *       *       *       *       *       *


SEC. 221. INTEREST ON EDUCATION LOANS.

  (a) * * *
  (b) Maximum Deduction.--
          (1) * * *
          (2) Limitation based on modified adjusted gross 
        income.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Modified adjusted gross income.--The term 
                ``modified adjusted gross income'' means 
                adjusted gross income determined--
                          (i) without regard to this section 
                        and sections 222, 223, 911, 931, and 
                        933, and

           *       *       *       *       *       *       *


SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

  (a) * * *
  (b) Dollar Limitations.--
          (1) * * *
          (2) Applicable dollar limit.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income shall be 
                determined--
                          (i) without regard to this section 
                        and sections 223, 911, 931, and 933, 
                        and

           *       *       *       *       *       *       *


SEC. 223. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

  (a) In General.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to the applicable 
percentage of eligible long-term care premiums (as defined in 
section 213(d)(10)) paid during the taxable year by the 
taxpayer for coverage for the taxpayer and the spouse and 
dependents of the taxpayer.
  (b) Applicable Percentage.--For purposes of subsection (a), 
the applicable percentage shall be determined in accordance 
with the following table:

For taxable years be                The applicable
  in calendar year--                percentage is--
    2003, 2004, and 2005......................................       25 
    2006 and 2007.............................................       30 
    2008 and 2009.............................................       35 
    2010 and 2011.............................................       40 
    2012 and thereafter.......................................       50.

  (c) Limitation Based on Modified Adjusted Gross Income.--
          (1) In general.--If the modified adjusted gross 
        income of the taxpayer for the taxable year exceeds 
        $20,000 (twice the preceding dollar amount, as adjusted 
        under paragraph (2), in the case of a joint return) the 
        amount which would (but for this subsection) be allowed 
        as a deduction under subsection (a) shall be reduced 
        (but not below zero) by the amount which bears the same 
        ratio to the amount which would be so allowed as such 
        excess bears to $20,000 ($40,000 in the case of a joint 
        return).
          (2) Adjustments for inflation.--
                  (A) In general.--In the case of a taxable 
                year beginning after December 31, 2003, the 
                first $20,000 amount contained in paragraph (1) 
                shall be increased by an amount equal to--
                          (i) such dollar amount, multiplied by
                          (ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for 
                        the calendar year in which the taxable 
                        year begins, determined by substituting 
                        ``calendar year 2002'' for ``calendar 
                        year 1992'' in subparagraph (B) 
                        thereof.
                  (B) Rounding.--If any amount as adjusted 
                under subparagraph (A) is not a multiple of 
                $1,000, such amount shall be rounded to the 
                nearest multiple of $1,000 (or if such amount 
                is a multiple of $500, such amount shall be 
                rounded to the next highest multiple of $500).
          (3) Modified adjusted gross income.--For purposes of 
        paragraph (1), the term ``modified adjusted gross 
        income'' means adjusted gross income determined--
                  (A) without regard to this section and 
                sections 911, 931, and 933, and
                  (B) after application of sections 86, 135, 
                137, 219, 221, 222, and 469.
  (d) Limitation Based on Subsidized Coverage.--
          (1) In general.--Subsection (a) shall not apply to 
        premiums paid for coverage of any individual for any 
        calendar month if--
                  (A) for such month such individual is covered 
                by any insurance which is advertised, marketed, 
                or offered as long-term care insurance under 
                any health plan maintained by any employer of 
                the taxpayer or of the taxpayer's spouse, and
                  (B) 50 percent or more of the cost of any 
                such coverage (determined under section 4980B) 
                for such month is paid or incurred by the 
                employer.
          (2) Plans maintained by certain employers.--A health 
        plan which is not otherwise described in paragraph 
        (1)(A) shall be treated as described in such paragraph 
        if such plan would be so described if all health plans 
        of persons treated as a single employer under 
        subsection (b), (c), (m), or (o) of section 414 were 
        treated as one health plan.
  (e) Coordination With Other Deductions.--Any amount taken 
into account under subsection (a) shall not be taken into 
account in computing the amount allowable as a deduction under 
section 162(l) or 213(a).
  (f) Married Couples Must File Joint Return.--
          (1) In general.--If the taxpayer is married at the 
        close of the taxable year, the deduction shall be 
        allowed under subsection (a) only if the taxpayer and 
        the taxpayer's spouse file a joint return for the 
        taxable year.
          (2) Marital status.--For purposes of paragraph (1), 
        marital status shall be determined in accordance with 
        section 7703.
  (g) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations requiring employers to report to their 
employees and the Secretary such information as the Secretary 
determines to be appropriate.

SEC. [223.] 224. CROSS REFERENCE.

  For deductions in respect of a decedent, see section 691.

           *       *       *       *       *       *       *


Subchapter E--Accounting periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *


SEC. 469. PASSIVE ACTIVITY LOSSES AND CREDITS LIMITED.

  (a) * * *

           *       *       *       *       *       *       *

  (i) $25,000 Offset for Rental Real Estate Activities.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Phase-out of exemption.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) Adjusted gross income.--For purposes of 
                this paragraph, adjusted gross income shall be 
                determined without regard to--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) the amounts allowable as a 
                        deduction under sections 219, 221, [and 
                        222] 222, and 223, and

           *       *       *       *       *       *       *


Subtitle C--Employment Taxes

           *       *       *       *       *       *       *


        CHAPTER 24--COLLECTION OF INCOME TAX AT SOURCE ON WAGES

Subchapter A--Withholding from Wages

           *       *       *       *       *       *       *


SEC. 3402. INCOME TAX COLLECTED AT SOURCE.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Withholding Exemptions.--
          (1) In general.--An employee receiving wages shall on 
        any day be entitled to the following withholding 
        exemptions:
                  (A) an exemption for himself unless he is an 
                individual described in section [151(d)(2)] 
                151(e)(2);

           *       *       *       *       *       *       *

  (r) Extension of Withholding to Certain Taxable Payments of 
Indian Casino Profits.--
          (1) * * *
          (2) Exception.--The tax imposed by paragraph (1) 
        shall not apply to any payment to the extent that the 
        payment, when annualized, does not exceed an amount 
        equal to the sum of--
                  (A) the basic standard deduction (as defined 
                in section 63(c)) for an individual to whom 
                section 63(c)(2)(C) applies, and
                  (B) the exemption amount (as defined in 
                section [151(d)] 151(e)).

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 32--MANUFACTURERS EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter C--Certain Vaccines

           *       *       *       *       *       *       *


SEC. 4132. DEFINITIONS AND SPECIAL RULES.

  (a) Definitions Relating to Taxable Vaccines.--For purposes 
of this subchapter--
          (1) Taxable vaccine.--The term ``taxable vaccine'' 
        means any of the following vaccines which are 
        manufactured or produced in the United States or 
        entered into the United States for consumption, use, or 
        warehousing:
                  (A) * * *

           *       *       *       *       *       *       *

                  (I) Any vaccine against hepatitis A.
                  [(I)] (J) Any vaccine against hepatitis B.
                  [(J)] (K) Any vaccine against chicken pox.
                  [(K)] (L) Any vaccine against rotavirus 
                gastroenteritis.
                  [(L)] (M) Any conjugate vaccine against 
                streptococcus pneumoniae.

           *       *       *       *       *       *       *


Subtitle F--Procedure and Aministration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART II--TAX RETURNS OR STATEMENTS

           *       *       *       *       *       *       *


Subpart B--Income Tax Returns

           *       *       *       *       *       *       *


SEC. 6012. PERSONS REQUIRED TO MAKE RETURNS OF INCOME.

  (a) General Rule.--Returns with respect to income taxes under 
subtitle A shall be made by the following:
          (1)(A) * * *

           *       *       *       *       *       *       *

          (D) For purposes of this subsection--
                  (i) * * *
                  (ii) The term ``exemption amount'' has the 
                meaning given such term by section [151(d)] 
                151(e). In the case of an individual described 
                in section [151(d)(2)] 151(e)(2), the exemption 
                amount shall be zero.

           *       *       *       *       *       *       *


SEC. 6013. JOINT RETURNS OF INCOME TAX BY HUSBAND AND WIFE.

  (a) * * *
  (b) Joint Return After Filing Separate Return.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) When return deemed filed.--
                  (A) Assessment and collection.--For purposes 
                of section 6501 (relating to periods of 
                limitations on assessment and collection), and 
                for purposes of section 6651 (relating to 
                delinquent returns), a joint return made under 
                this subsection shall be deemed to have been 
                filed--
                          (i) * * *

           *       *       *       *       *       *       *

For purposes of this subparagraph, the term ``exemption 
amount'' has the meaning given to such term by section [151(d)] 
151(e). For purposes of clauses (ii) and (iii), if the spouse 
whose gross income is being compared to the exemption amount is 
65 or over, such clauses shall be applied by substituting ``the 
sum of the exemption amount and the additional standard 
deduction under section 63(c)(2) by reason of section 
63(f)(1)(A)'' for ``the exemption amount''.

           *       *       *       *       *       *       *


Subtitle J--Coal Industry Health Benefits

           *       *       *       *       *       *       *


CHAPTER 99--COAL INDUSTRY HEALTH BENEFITS

           *       *       *       *       *       *       *


Subchapter B--Combined Benefit Fund

           *       *       *       *       *       *       *


PART II--FINANCING

           *       *       *       *       *       *       *


SEC. 9704. LIABILITY OF ASSIGNED OPERATORS.

  (a) * * *
  (b) Health Benefit premium.--For purposes of this chapter--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Adjustments for medicare prescription drug 
        subsidies.--The trustees of the Combined Fund shall 
        decrease the per beneficiary premium for each plan year 
        in which a subsidy payment is provided to it under 
        section 1860H of the Social Security Act by the amount 
        which would place the Combined Fund in the same 
        financial position as if such subsidy payment had not 
        been received.

           *       *       *       *       *       *       *


                                  
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