[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4769 Introduced in House (IH)]
103d CONGRESS
2d Session
H. R. 4769
To amend the Internal Revenue Code of 1986 to provide for the treatment
of long-term care insurance, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 14, 1994
Ms. Snowe introduced the following bill; which was referred jointly to
the Committees on Ways and Means and Energy and Commerce
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for the treatment
of long-term care insurance, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. TABLE OF CONTENTS.
The table of contents of this Act is as follows:
Section 1. Short title; table of contents.
TITLE I--TAX TREATMENT OF LONG-TERM CARE INSURANCE
Sec. 101. Treatment of long-term care insurance or plans.
Sec. 102. Exclusion for benefits provided under long-term care
insurance; inclusion of employer-provided
coverage.
Sec. 103. Credit for qualified long-term care premiums.
Sec. 104. Qualified long-term services treated as medical care.
Sec. 105. Tax reserve treatment of long-term care insurance contracts.
Sec. 106. Exclusion from gross income for amounts withdrawn from
individual retirement plans or 401(k) plans
for long-term care insurance.
Sec. 107. Tax treatment of accelerated death benefits under life
insurance contracts.
Sec. 108. Tax treatment of companies issuing qualified accelerated
death benefit riders.
Sec. 109. Qualified long-term care insurance contracts permitted to be
offered in cafeteria plans.
Sec. 110. Effective date.
TITLE II--ESTABLISHMENT OF FEDERAL STANDARDS FOR LONG-TERM CARE
INSURANCE
Sec. 201. Establishment of Federal standards for long-term care
insurance.
TITLE III--DEDUCTION FOR CERTAIN EXPENSES FOR DEPENDENTS WITH
ALZHEIMER'S DISEASE OR RELATED ORGANIC BRAIN DISORDERS
Sec. 301. Deduction allowance for home health care and adult day and
respite care expenses of individuals for
dependents with alzheimer's disease or
related organic brain disorders.
TITLE IV--DEPENDENT CARE CREDIT EXPANDED AND MADE REFUNDABLE
Sec. 401. Dependent care tax credit expanded and made refundable.
TITLE I--TAX TREATMENT OF LONG-TERM CARE INSURANCE
SEC. 101. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.
(a) General Rule.--Subpart E of part I of subchapter L of chapter 1
of the Internal Revenue Code of 1986 is amended by inserting after
section 818 the following new section:
``SEC. 818A. TREATMENT OF LONG-TERM CARE INSURANCE OR PLANS.
``(a) General Rule.--For purposes of this title--
``(1) a long-term care insurance contract shall be treated
as an accident or health insurance contract,
``(2) amounts received under such a contract with respect
to qualified long-term care services shall be treated as
amounts received for personal injuries or sickness, and
``(3) any plan of an employer providing qualified long-term
care services shall be treated as an accident or health plan.
``(b) Long-Term Care Insurance Contract.--
``(1) In general.--For purposes of this part, the term
`long-term care insurance contract' means any insurance
contract issued if--
``(A) the only insurance protection provided under
such contract is coverage of qualified long-term care
services and benefits incidental to such coverage,
``(B) the maximum benefit under the policy (or
certificate for a group long-term care insurance
policy) for expenses incurred for any day does not
exceed $200.00,
``(C) such contract does not cover expenses
incurred for services or items to the extent that such
expenses are reimbursable under title XVIII of the
Social Security Act or would be so reimbursable but for
the application of a deductible or coinsurance amount,
``(D) such contract is guaranteed renewable,
``(E) such contract does not have any cash
surrender value, and
``(F) all refunds of premiums, and all policyholder
dividends or similar amounts, under such contract are
to be applied as a reduction in future premiums or to
increase future benefits.
``(2) Special rules.--
``(A) Contract may cover medicare reimbursable
expenses where medicare is secondary payor.--Paragraph
(1)(C) shall not apply to expenses which are
reimbursable under title XVIII of the Social Security
Act only as a secondary payor.
``(B) Refunds of premiums.--Paragraph (1)(F) shall
not apply to any refund of premiums on surrender or
cancellation of the contract.
``(C) Per diem, etc. payments permitted.--A
contract shall not fail to be treated as described in
paragraph (1)(A) by reason of payments being made on a
per diem or other periodic basis without regard to the
expenses incurred or services rendered during the
period to which the payments relate.
``(c) Qualified Long-Term Care Services.--For purposes of this
section:
``(1) In general.--The term `qualified long-term care
services' means--
``(A) necessary diagnostic, preventive,
therapeutic, and rehabilitative services, and
maintenance or personal care services, which--
``(i) are required by a chronically ill
individual in a qualified facility, and
``(ii) are provided pursuant to a plan of
care prescribed by a licensed health care
practitioner; or
``(B) payments made on a per diem or other periodic
basis without regard to the expenses incurred or
services rendered during the period to which the
payments relate and which are payable to a chronically
ill individual in a qualified facility who is receiving
treatment pursuant to a plan of care prescribed by a
licensed health care practitioner.
``(2) Chronically ill individual.--
``(A) In general.--The term `chronically ill
individual' means any individual who has been certified
by a licensed health care practitioner as--
``(i)(I) being unable to perform (without
substantial assistance from another individual)
at least 2 activities of daily living (as
defined in subparagraph (B)) for a period of at
least 90 days due to a loss of functional
capacity, or
``(II) having a level of disability similar
(as determined by the Secretary in consultation
with the Secretary of Health and Human
Services) to the level of disability described
in subclause (I), or
``(ii) having a similar level of disability
due to cognitive impairment.
``(B) Activities of daily living.--For purposes of
subparagraph (A), each of the following is an activity
of daily living:
``(i) Mobility.--The process of walking or
wheeling on a level surface which may include
the use of an assistive device such as a cane,
walker, wheelchair, or brace.
``(ii) Dressing.--The overall complex
behavior of getting clothes from closets and
drawers and then getting dressed.
``(iii) Toileting.--The act of going to the
toilet room for bowel and bladder function,
transferring on and off the toilet, cleaning
after elimination, and arranging clothes or the
ability to voluntarily control bowel and
bladder function, or in the event of
incontinence, the ability to maintain a
reasonable level of personal hygiene.
``(iv) Transfer.--The process of getting in
and out of bed or in and out of a chair or
wheelchair.
``(v) Eating.--The process of getting food
from a plate or its equivalent into the mouth.
``(3) Qualified facility.--The term `qualified facility'
means--
``(A) a nursing, rehabilitative, hospice, or adult
day care facility (including a hospital, retirement
home, nursing home, skilled nursing facility,
intermediate care facility, or similar institution)--
``(i) which is licensed under State law, or
``(ii) which is a certified facility for
purposes of title XVIII or XIX of the Social
Security Act, or
``(B) an individual's home if a licensed health
care practitioner certifies that without home care the
individual would have to be cared for in a facility
described in subparagraph (A).
``(4) Maintenance or personal care services.--The term
`maintenance or personal care services' means any care the
primary purpose of which is to provide needed assistance with
any of the activities of daily living described in paragraph
(2)(B).
``(5) Licensed health care practitioner.--The term
`licensed health care practitioner' means any physician (as
defined in section 1861(r) of the Social Security Act) and any
registered professional nurse, licensed social worker, or other
individual who meets such requirements as may be prescribed by
the Secretary.
``(d) Continuation Coverage Excise Tax Not To Apply.--This section
shall not apply in determining whether section 4980B (relating to
failure to satisfy continuation coverage requirements of group health
plans) applies.
``(e) Inflation Adjustment of $200 Benefit Limit.--
``(1) In general.--In the case of a calendar year after
1995, the $200 amount contained in subsection (b)(1)(B) shall
be increased for such calendar year by the medical care cost
adjustment for such calendar year or 5 percent per year,
whichever is greater. If any increase determined under the
preceding sentence is not a multiple of $10, such increase
shall be rounded to the nearest multiple of $10.
``(2) Medical care cost adjustment.--For purposes of
paragraph (1), the medical care cost adjustment for any
calendar year is the percentage (if any) by which--
``(A) the medical care component of the Consumer
Price Index (as defined in section 1(f)(5)) for August
of the preceding calendar year, exceeds
``(B) such component for August of 1994.''
(b) Clerical Amendment.--The table of sections for such subpart E
is amended by inserting after the item relating to section 818 the
following new item:
``Sec. 818A. Treatment of long-term care
insurance or plans.''
SEC. 102. EXCLUSION FOR BENEFITS PROVIDED UNDER LONG-TERM CARE
INSURANCE; INCLUSION OF EMPLOYER-PROVIDED COVERAGE.
(a) In General.--Subsection (a) of section 104 of the Internal
Revenue Code of 1986 (relating to compensation for injuries or
sickness) is amended by striking ``and'' at the end of paragraph (4),
by striking the period at the end of paragraph (5) and inserting ``,
and'', and by inserting after paragraph (4) the following new
paragraph:
``(6) benefits under a long-term care insurance contract
(as defined in section 818A(b)).''
(b) Inclusion of Employer-Provided Coverage.--Section 106 of such
Code (relating to contributions by employer to accident and health
plans) is amended by adding at the end thereof the following sentence:
``The preceding sentence shall not apply to any plan providing coverage
for qualified long-term care services.''
SEC. 103. CREDIT FOR QUALIFIED LONG-TERM CARE PREMIUMS.
(a) General Rule.--Subpart C of part IV of subchapter A of chapter
1 of the Internal Revenue Code of 1986 (relating to refundable credits)
is amended by redesignating section 35 as section 36 and by inserting
after section 34 the following new section:
``SEC. 35. LONG-TERM CARE INSURANCE CREDIT.
``(a) General Rule.--In the case of an individual, there shall be
allowed as a credit against the tax imposed by this subtitle for the
taxable year an amount equal to the applicable percentage of the
eligible long-term care premiums paid during such taxable year for such
individual or the spouse of such individual.
``(b) Applicable Percentage.--
``(1) In general.--For purposes of this section, the term
`applicable percentage' means 31 percent reduced (but not below
zero) by 1 percentage point for each $1,000 (or fraction
thereof) by which the taxpayer's adjusted gross income for the
taxable year exceeds the base amount.
``(2) Base amount.--For purposes of paragraph (1), the term
`base amount' means--
``(A) except as otherwise provided in this
paragraph, $25,000,
``(B) $40,000 in the case of joint return, and
``(C) zero in the case of a taxpayer who--
``(i) is married at the close of the
taxable year (within the meaning of section
7703) but does not file a joint return for such
taxable year, and
``(ii) does not live apart from his or her
spouse at all times during the taxable year.
``(c) Eligible Long-Term Care Premiums.--
``(1) In general.--For purposes of this section, the term
`eligible long-term care premiums' means the amount paid during
a taxable year for any long-term care insurance contract (as
defined in section 818A) covering an individual, to the extent
such amount does not exceed the limitation determined under the
following table:
``In the case of an individual
with an attained age before the
The limitation
close of the taxable year of:
is:
40 or less................................... $200
More than 40 but not more than 50............ 375
More than 50 but not more than 60............ 750
More than 60 but not more than 70............ 1,600
More than 70................................. 2,000.
``(2) Indexing.--
``(A) In general.--In the case of any taxable year
beginning in a calendar year after 1995, each dollar
amount contained in paragraph (1) shall be increased by
the medical care cost adjustment of such amount for
such calendar year. If any increase determined under
the preceding sentence is not a multiple of $10, such
increase shall be rounded to the nearest multiple of
$10.
``(B) Medical care cost adjustment.--For purposes
of subparagraph (A), the medical care cost adjustment
for any calendar year is the percentage (if any) by
which--
``(i) the medical care component of the
Consumer Price Index (as defined in section
1(f)(5)) for August of the preceding calendar
year, exceeds
``(ii) such component for August of 1994.
``(d) Coordination With Medical Expense Deduction.--Any amount
allowed as a credit under this section shall not be taken into account
under section 213.''
(b) Clerical Amendment.--The table of sections for subpart C of
part IV of subchapter A of chapter 1 of such Code is amended by
striking the item relating to section 35 and inserting the following:
``Sec. 35. Long-term care insurance
credit.
``Sec. 36. Overpayments of tax.''
SEC. 104. QUALIFIED LONG-TERM SERVICES TREATED AS MEDICAL CARE.
(a) General Rule.--Paragraph (1) of section 213(d) of the Internal
Revenue Code of 1986 (defining medical care) is amended by striking
``or'' at the end of subparagraph (B), by redesignating subparagraph
(C) as subparagraph (D), and by inserting after subparagraph (B) the
following new subparagraph:
``(C) for qualified long-term care services (as
defined in section 818A(c)), or''
(b) Deduction for Long-Term Care Expenses for Parent or
Grandparent.--Section 213 of such Code (relating to deduction for
medical expenses) is amended by adding at the end the following new
subsection:
``(g) Special Rule for Certain Long-Term Care Expenses.--For
purposes of subsection (a), the term `dependent' shall include any
parent or grandparent of the taxpayer for whom the taxpayer has
expenses for long-term care services described in section 818A(c), but
only to the extent of such expenses.''
(c) Technical Amendments.--
(1) Subparagraph (D) of section 213(d)(1) of such Code (as
redesignated by subsection (a)) is amended by striking
``subparagraphs (A) and (B)'' and inserting ``subparagraphs
(A), (B), and (C)''.
(2) Paragraph (1) of section 213(d) of such Code is amended
by adding at the end thereof the following new flush sentence:
``In the case of a long-term care insurance contract (as
defined in section 818A), only eligible long-term care premiums
(as defined in section 35(c)) shall be taken into account under
subparagraph (D).''
(3) Paragraph (6) of section 213(d) of such Code is
amended--
(A) by striking ``subparagraphs (A) and (B)'' and
inserting ``subparagraphs (A), (B), and (C)'', and
(B) by striking ``paragraph (1)(C)'' in
subparagraph (A) and inserting ``paragraph (1)(D)''.
(4) Paragraph (7) of section 213(d) of such Code is amended
by striking ``subparagraphs (A) and (B)'' and inserting
``subparagraphs (A), (B), and (C)''.
SEC. 105. TAX RESERVE TREATMENT OF LONG-TERM CARE INSURANCE CONTRACTS.
(a) In General.--Subparagraph (A) of section 807(d)(3) of the
Internal Revenue Code of 1986 (relating to tax reserve method) is
amended--
(1) by redesignating clause (iv) as clause (v),
(2) by striking ``or (iii)'' each place it appears in
clause (v) (as so redesignated) and inserting ``(iii), or (iv),
and
(3) by inserting after clause (iii) the following new
clause:
``(iv) Long-term care insurance
contracts.--In the case of any long-term care
insurance contract, a one-year full preliminary
term method.''
(b) Technical Amendment.--Clause (iii) of section 807(d)(3)(A) of
such Code is amended by inserting ``other than a long-term care
insurance contract,'' after ``contract,''.
SEC. 106. EXCLUSION FROM GROSS INCOME FOR AMOUNTS WITHDRAWN FROM
INDIVIDUAL RETIREMENT PLANS OR 401(k) PLANS FOR LONG-TERM
CARE INSURANCE.
(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to items specifically excluded
from gross income) is amended by redesignating section 137 as section
138 and by inserting after section 136 the following new section:
``SEC. 137. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS AND
SECTION 401(k) PLANS FOR LONG-TERM CARE INSURANCE.
``(a) General Rule.--The amount includible in the gross income of
an individual for the taxable year by reason of qualified distributions
during such taxable year shall not exceed the excess of--
``(1) the amount which would (but for this section) be so
includible by reason of such distributions, over
``(2) the aggregate premiums paid by such individual during
such taxable year for any long-term care insurance contract (as
defined in section 818A) for the benefit of such individual or
the spouse of such individual.
``(b) Qualified Distribution.--For purposes of this section, the
term `qualified distribution' means any distribution to an individual
from an individual retirement account or a section 401(k) plan if such
individual has attained age 59\1/2\ on or before the date of the
distribution (and, in the case of a distribution used to pay premiums
for the benefit of the spouse of such individual, such spouse has
attained age 59\1/2\ on or before the date of the distribution).
``(c) Definitions.--For purposes of this section:
``(1) Individual retirement account.--The term `individual
retirement account' has the meaning given such term by section
408(a).
``(2) Section 401(k) plan.--The term `section 401(k) plan'
means any employer plan which meets the requirements of section
401(a) and which includes a qualified cash or deferred
arrangement (as defined in section 401(k)).
``(d) Special Rules for Section 401(k) Plans.--
``(1) Withdrawals cannot exceed elective contributions
under qualified cash or deferred arrangement.--This section
shall not apply to any distribution from a section 401(k) plan
to the extent the aggregate amount of such distributions for
the use described in subsection (a) exceeds the aggregate
employer contributions made pursuant to the employee's election
under section 401(k)(2).
``(2) Withdrawals not to cause disqualification.--A plan
shall not be treated as failing to satisfy the requirements of
section 401, and an arrangement shall not be treated as failing
to be a qualified cash or deferred arrangement (as defined in
section 401(k)(2)), merely because under the plan or
arrangement distributions are permitted which are excludable
from gross income by reason of this section.''
(b) Conforming Amendments.--
(1) Section 401(k) of such Code is amended by adding at the
end the following new paragraph:
``(11) Cross reference.--
``For provision permitting tax-free
withdrawals for payment of long-term care premiums, see section 137.''
(2) Section 408(d) of such Code is amended by adding at the
end the following new paragraph:
``(8) Cross reference.--
``For provision permitting tax-free
withdrawals from individual retirement accounts for payment of long-
term care premiums, see section 137.''
(3) The table of sections for such part III is amended by
striking the last item and inserting the following new items:
``Sec. 137. Distributions from individual
retirement accounts and section
401(k) plans for long-term care
insurance.
``Sec. 138. Cross references to other
Acts.''
SEC. 107. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE
INSURANCE CONTRACTS.
Section 101 of the Internal Revenue Code of 1986 (relating to
certain death benefits) is amended by adding at the end thereof the
following new subsection:
``(g) Treatment of Certain Accelerated Death Benefits.--
``(1) In general.--For purposes of this section, any amount
paid or advanced to an individual under a life insurance
contract on the life of an insured--
``(A) who is a terminally ill individual, or
``(B) who is a chronically ill individual (as
defined in section 818A(c)(2)) who is confined to a
qualified facility (as defined in section
818A(c)(3)(A)),
shall be treated as an amount paid by reason of the death of
such insured.
``(2) Terminally ill individual.--For purposes of this
subsection, the term `terminally ill individual' means an
individual who has been certified by a physician as having an
illness or physical condition which can reasonably be expected
to result in death in 12 months or fewer.
``(3) Physician.--For purposes of this subsection, the term
`physician' has the meaning given to such term by section
213(d)(4).''
SEC. 108. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED
DEATH BENEFIT RIDERS.
(a) Qualified Accelerated Death Benefit Riders Treated as Life
Insurance.--Section 818 of the Internal Revenue Code of 1986 (relating
to other definitions and special rules) is amended by adding at the end
thereof the following new subsection:
``(g) Qualified Accelerated Death Benefit Riders Treated as Life
Insurance.--For purposes of this part:
``(1) In general.--Any reference to a life insurance
contract shall be treated as including a reference to a
qualified accelerated death benefit rider on such contract.
``(2) Qualified accelerated death benefit riders.--For
purposes of this subsection, the term `qualified accelerated
death benefit rider' means any rider or addendum on, or other
provision of a life insurance contract which provides for
payments to an individual on the life of an insured upon such
insured--
``(A) becoming a terminally ill individual (as
defined in section 101(g)(2)), or
``(B) becoming a chronically ill individual (as
defined in section 818A(c)(2)) who is confined to a
qualified facility (as defined in section
818A(c)(3)(A)).''
(b) Definitions of Life Insurance and Modified Endowment
Contracts.--
(1) Rider treated as qualified additional benefit.--
Paragraph (5)(A) of section 7702(f) of such Code is amended by
striking ``or'' at the end of clause (iv), by redesignating
clause (v) as clause (vi), and by inserting after clause (iv)
the following new clause:
``(v) any qualified accelerated death
benefit rider (as defined in section 818(g)(2))
or any long-term care insurance contract rider
which reduces the death benefit, or''.
(2) Transitional rule.--For purposes of applying section
7702 or 7702A of the Internal Revenue Code of 1986 to any
contract (or determining whether either such section applies to
such contract), the issuance of a rider or addendum on, or
other provision of, a life insurance contract permitting the
acceleration of death benefits (as described in section 101(g)
of such Code) or payments for qualified long-term care services
(as defined in section 818A of such Code) shall not be treated
as a modification or material change of such contract.
SEC. 109. QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS PERMITTED TO BE
OFFERED IN CAFETERIA PLANS.
(a) In General.--Paragraph (2) of section 125(d) of the Internal
Revenue Code of 1986 (relating to exclusion of deferred compensation)
is amended by adding at the end thereof the following new subparagraph:
``(D) Exception for long-term care insurance
contracts.--For purposes of subparagraph (A), a plan
shall not be treated as providing deferred compensation
by reason of providing any long-term care insurance
contract (as defined in section 818A(b)) if--
``(i) the employee may elect to continue
the insurance upon cessation of participation
in the plan, and
``(ii) the amount paid or incurred during
any taxable year for such insurance does not
exceed the premium which would have been
payable for such year under a level premium
structure.''
SEC. 110. EFFECTIVE DATE.
The amendments made by this title shall apply to taxable years
beginning after December 31, 1994.
TITLE II--ESTABLISHMENT OF FEDERAL STANDARDS FOR LONG-TERM CARE
INSURANCE
SEC. 201. ESTABLISHMENT OF FEDERAL STANDARDS FOR LONG-TERM CARE
INSURANCE.
(a) In General.--The Public Health Service Act is amended--
(1) by redesignating title XXVII (42 U.S.C. 300cc et seq.)
as title XXVIII; and
(2) by inserting after title XXVI the following new title:
``TITLE XXVII--LONG-TERM CARE INSURANCE STANDARDS
``Part A--Promulgation of Standards and Model Benefits
``SEC. 2701. STANDARDS.
``(a) Application of Standards.--
``(1) NAIC.--The Secretary shall request that the National
Association of Insurance Commissioners (hereinafter in this
title referred to as the `NAIC')--
``(A) develop specific standards that incorporate
the requirements of this title; and
``(B) report to the Secretary on such standards,
by not later than 12 months after enactment of this title. If
the NAIC develops such model standards that incorporate the
requirements of this title within such period and the Secretary
finds that such standards implement the requirements of this
title, such standards shall be the standards applied under this
title.
``(2) Default.--If the NAIC does not promulgate the model
standards under paragraph (1) by the deadline established in
that paragraph, the Secretary shall promulgate, within 12
months after such deadline, a regulation that provides
standards that incorporate the requirements of this title and
such standards shall apply as provided for in this title.
``(3) Relation to state law.--Nothing in this title shall
be construed as preventing a State from applying standards that
provide greater protection to policyholders of long-term care
insurance policies than the standards promulgated under this
title, except that such State standards may not be inconsistent
or in conflict with any of the requirements of this title.
``(b) Deadline for Application of Standards.--
``(1) In general.--Subject to paragraph (2), the date
specified in this subsection for a State is--
``(A) the date the State adopts the standards
established under subsection (a)(1); or
``(B) the date that is 1 year after the first day
of the first regular legislative session that begins
after the date such standards are first established
under subsection (a)(2);
whichever is earlier.
``(2) State requiring legislation.--In the case of a State
which the Secretary identifies, in consultation with the NAIC,
as--
``(A) requiring State legislation (other than
legislation appropriating funds) in order for the
standards established under subsection (a) to be
applied; but
``(B) having a legislature which is not scheduled
to meet within 1 year following the beginning of the
next regular legislative session in which such
legislation may be considered;
the date specified in this subsection is the first day of the
first calendar quarter beginning after the close of the first
legislative session of the State legislature that begins on or
after January 1, 1994. For purposes of the previous sentence,
in the case of a State that has a 2-year legislative session,
each year of such session shall be deemed to be a separate
regular session of the State legislature.
``(c) Items Included in Standards.--The standards promulgated under
subsection (a) shall include--
``(1) minimum Federal standards for long-term care
insurance consistent with the provisions of this title;
``(2) standards for the enhanced protection of consumers
with long-term care insurance;
``(3) procedures for the modification of the standards
established under paragraph (1) in a manner consistent with
future laws to expand existing Federal or State long-term care
benefits or establish a comprehensive Federal or State long-
term care benefit program; and
``(4) other activities determined appropriate by Congress.
``(d) Consultation.--In establishing standards and models of
benefits under this section, the Secretary shall provide for and
consult with an advisory committee to be chosen by the Secretary, and
composed of--
``(1) three individuals who are representatives of
carriers;
``(2) three individuals who are representatives of consumer
groups;
``(3) three individuals who are representatives of
providers of long-term care services;
``(4) three other individuals who are not representatives
of carriers or of providers of long-term care services and who
have expertise in the delivery and financing of such services;
and
``(5) the Secretary of Veterans Affairs.
``(e) Duties.--The advisory committee established under subsection
(d) shall--
``(1) recommend the appropriate inflationary index to be
used with respect to the inflation protection benefit portion
of the standards;
``(2) recommend the uniform needs assessment mechanism to
be used in determining the eligibility of individuals for
benefits under a policy;
``(3) recommend appropriate standards for benefits under
section 2715(c); and
``(4) perform such other activities as determined
appropriate by the Secretary.
``(f) Administrative Provisions.--The following provisions of
section 1886(e)(6) of the Social Security Act shall apply to the
advisory committee chosen under subsection (d) in the same manner as
such provisions apply under such section:
``(1) Subparagraph (C) (relating to staffing and
administration).
``(2) Subparagraph (D) (relating to compensation of
members).
``(3) Subparagraph (F) (relating to access to information).
``(4) Subparagraph (G) (relating to use of funds).
``(5) Subparagraph (H) (relating to periodic GAO audits).
``(6) Subparagraph (J) (relating to requests for
appropriations).
``Part B--Establishment and Implementation of Long-Term Care Insurance
Policy Standards
``SEC. 2711. IMPLEMENTATION OF POLICY STANDARDS.
``(a) In General.--
``(1) Regulatory program.--No long-term care policy (as
defined in section (2721)) may be issued, sold, or offered for
sale as a long-term care insurance policy in a State on or
after the date specified in section 2701(b) unless--
``(A) the Secretary determines that the State has
established a regulatory program that--
``(i) provides for the application and
enforcement of the standards established under
section 2701(a); and
``(ii) complies with the requirements of
subsection (b);
by the date specified in section 2701(b), and the
policy has been approved by the State commissioner or
superintendent of insurance under such program; or
``(B) if the State has not established such a
program, or if the State's regulatory program has been
decertified, the policy has been certified by the
Secretary (in accordance with such procedures as the
Secretary may establish) as meeting the standards
established under section 2701(a) by the date specified
in section 2701(b).
For purposes of this subsection, the advertising or soliciting
with respect to a policy, directly or indirectly, shall be
deemed the offering for sale of the policy.
``(2) Review of state regulatory programs.--The Secretary
periodically shall review regulatory programs described in
paragraph (1)(A) to determine if they continue to provide for
the application and enforcement of the standards and procedures
established under section 2701 (a) and (b). If the Secretary
determines that a State regulatory program no longer meets such
standards and requirements, before making a final
determination, the Secretary shall provide the State an
opportunity to adopt such a plan of correction as would permit
the program to continue to meet such standards and
requirements. If the Secretary makes a final determination that
the State regulatory program, after such an opportunity, fails
to meet such standards and requirements, the Secretary shall
assume responsibility under paragraph (1)(B) with respect to
certifying policies in the State and shall exercise full
authority under section 2701 for carriers, agents, or
associations or its subsidiary in the State plans in the State.
``(b) Additional Requirements for Approval of State Regulatory
Programs.--For purposes of subsection (a)(1)(A)(ii), the requirements
of this subsection for a State regulatory program are as follows:
``(1) Enforcement.--The enforcement under the program--
``(A) shall be designed in a manner so as to secure
compliance with the standards within 30 days after the
date of a finding of noncompliance with such standards;
and
``(B) shall provide for notice in the annual report
required under paragraph (5) to the Secretary of cases
where such compliance is not secured within such 30-day
period.
``(2) Process.--The enforcement process under each State
regulatory program shall provide for--
``(A) procedures for individuals and entities to
file written, signed complaints respecting alleged
violations of the standards;
``(B) responding on a timely basis to such
complaints;
``(C) the investigation of--
``(i) those complaints which have a
reasonable probability of validity, and
``(ii) such other alleged violations of the
standards as the program finds appropriate; and
``(D) the imposition of appropriate sanctions
(which include, in appropriate cases, the imposition of
a civil money penalty as provided for in section 2718)
in the case of a carrier, agent, or association or its
subsidiary determined to have violated the standards.
``(3) Consumer access to compliance information.--
``(A) In general.--A State regulatory program must
provide for consumer access to complaints filed with
the State commissioner or superintendent of insurance
with respect to long-term care insurance policies.
``(B) Confidentiality.--The access provided under
subparagraph (A) shall be limited to the extent
required to protect the confidentiality of the identity
of individual policyholders.
``(4) Process for approval of premiums.--
``(A) In general.--Each State regulatory program
shall--
``(i) provide for a process for approving
or disapproving proposed premium increases or
decreases with respect to long-term care
insurance policies; and
``(ii) establish a policy for receipt and
consideration of public comments before
approving such a premium increase or decrease.
``(B) Conditions for approval.--No premium increase
shall be approved (or deemed approved) under
subparagraph (A) unless the proposed increase is
accompanied by an actuarial memorandum which--
``(i) includes a description of the
assumptions that justify the increase;
``(ii) contains such information as may be
required under the Standards; and
``(iii) is made available to the public.
``(C) Application.--Except as provided in
subparagraph (D), this paragraph shall not apply to a
group long-term care insurance policy issued to a group
described in section 4(E)(1) of the NAIC Long Term Care
Insurance Model Act (effective January 1991), except
that such group policy shall, pursuant to guidelines
developed by the NAIC, provide notice to policyholders
and certificate holders of any premium change under
such group policy.
``(D) Exception.--Subparagraph (C) shall not apply
to--
``(i) group conversion policies;
``(ii) the group continuation feature of a
group policy if the insurer separately rates
employee and continuation coverages; and
``(iii) group policies where the function
of the employer is limited solely to collecting
premiums (through payroll deductions or dues
checkoff) and remitting them to the insurer.
``(E) Construction.--Nothing in this paragraph
shall be construed as preventing the NAIC from
promulgating standards, or a State from enacting and
enforcing laws, with respect to premium rates or loss
ratios for all, including group, long-term care
insurance policies.
``(5) Annual reports.--Each State regulatory program shall
provide for annual reports to be submitted to the Secretary on
the implementation and enforcement of the standards in the
State, including information concerning violations in excess of
30 days.
``(6) Access to other information.--The State regulatory
program must provide for consumer access to actuarial memoranda
provided under paragraph (4).
``(7) Default.--In the case of a State without a regulatory
program approved under subsection (a), the Secretary shall
provide for the enforcement activities described in subsection
(c).
``(c) Secretarial Enforcement Authority.--
``(1) In general.--The Secretary shall exercise authority
under this section in the case of a State that does not have a
regulatory program approved under this section.
``(2) Complaints and investigations.--The Secretary shall
establish procedures--
``(A) for individuals and entities to file written,
signed complaints respecting alleged violations of the
requirements of this title;
``(B) for responding on a timely basis to such
complaints; and
``(C) for the investigation of--
``(i) those complaints that have a
reasonable probability of validity; and
``(ii) such other alleged violations of the
requirements of this title as the Secretary
determines to be appropriate.
In conducting investigations under this subsection, agents of
the Secretary shall have reasonable access necessary to enable
such agents to examine evidence of any carrier, agent, or
association or its subsidiary being investigated.
``(3) Hearings.--
``(A) In general.--Prior to imposing an order
described in paragraph (4) against a carrier, agent, or
association or its subsidiary under this section for a
violation of the requirements of this title, the
Secretary shall provide the carrier, agent, association
or subsidiary with notice and, upon request made within
a reasonable time (of not less than 30 days, as
established by the Secretary by regulation) of the date
of the notice, a hearing respecting the violation.
``(B) Conduct of hearing.--Any hearing requested
under subparagraph (A) shall be conducted before an
administrative law judge. If no hearing is so
requested, the Secretary's imposition of the order
shall constitute a final and unappealable order.
``(C) Authority in hearings.--In conducting
hearings under this paragraph--
``(i) agents of the Secretary and
administrative law judges shall have reasonable
access necessary to enable such agents and
judges to examine evidence of any carrier,
agent, or association or its subsidiary being
investigated; and
``(ii) administrative law judges may, if
necessary, compel by subpoena the attendance of
witnesses and the production of evidence at any
designated place or hearing.
In case of contumacy or refusal to obey a subpoena
lawfully issued under this subparagraph and upon
application of the Secretary, an appropriate district
court of the United States may issue an order requiring
compliance with such subpoena and any failure to obey
such order may be punished by such court as a contempt
thereof.
``(D) Issuance of orders.--If an administrative law
judge determines in a hearing under this paragraph,
upon the preponderance of the evidence received, that a
carrier, agent, or association or its subsidiary named
in the complaint has violated the requirements of this
title, the administrative law judge shall state the
findings of fact and issue and cause to be served on
such carrier, agent, association, or subsidiary an
order described in paragraph (4).
``(4) Cease and desist order with civil money penalty.--
``(A) In general.--Subject to the provisions of
subparagraphs (B) through (F), an order under this
paragraph--
``(i) shall require the agent, association
or its subsidiary, or a carrier--
``(I) to cease and desist from such
violations; and
``(II) to pay a civil penalty in an
amount not to exceed $15,000 in the
case of each agent, and not to exceed
$25,000 for each association or its
subsidiary or a carrier for each such
violation; and
``(ii) may require the agent, association
or its subsidiary, or a carrier to take such
other remedial action as is appropriate.
``(B) Corrections within 30 days.--No order shall
be imposed under this paragraph by reason of any
violation if the carrier, agent, or association or its
subsidiary establishes to the satisfaction of the
Secretary that--
``(i) such violation was due to reasonable
cause and was not intentional and was not due
to willful neglect; and
``(ii) such violation is corrected within
the 30-day period beginning on the earliest
date the carrier, agent, association, or
subsidiary knew, or exercising reasonable
diligence could have known, that such a
violation was occurring.
``(C) Waiver by secretary.--In the case of a
violation under this title that is due to reasonable
cause and not to willful neglect, the Secretary may
waive part or all of the civil money penalty imposed
under subparagraph (A)(i)(II) to the extent that
payment of such penalty would be grossly excessive
relative to the violation involved and to the need for
deterrence of violations.
``(D) Administrative appellate review.--The
decision and order of an administrative law judge under
this paragraph shall become the final agency decision
and order of the Secretary unless, within 30 days, the
Secretary modifies or vacates the decision and order,
in which case the decision and order of the Secretary
shall become a final order under this paragraph.
``(E) Judicial review.--A carrier, agent, or
association or its subsidiary or any other individual
adversely affected by a final order issued under this
paragraph may, within 45 days after the date the final
order is issued, file a petition in the Court of
Appeals for the appropriate circuit for review of the
order.
``(F) Enforcement of orders.--If a carrier, agent,
or association or its subsidiary fails to comply with a
final order issued under this paragraph against the
carrier, agent, association or subsidiary after
opportunity for judicial review under subparagraph (E),
the Secretary shall file a suit to seek compliance with
the order in any appropriate district court of the
United States. In any such suit, the validity and
appropriateness of the final order shall not be subject
to review.
``(d) Demonstration Grant Program.--
``(1) In general.--The Secretary may award grants to States
for the establishment of demonstration programs to improve the
enforcement within such States of long-term care insurance
standards applicable under this title.
``(2) Application.--To be eligible to receive a grant under
paragraph (1), a State shall prepare and submit to the
Secretary an application at such time, in such manner, and
containing such information as the Secretary may require,
including a description of the program for which the State
intends to use the amounts provided under the grant.
``(3) Minimum amount of grants.--The amount of a grant
awarded under this subsection shall not be less than $100,000.
``(4) Evaluation.--A State that receives a grant under this
subsection shall comply with such evaluation procedures as the
Secretary shall by regulation establish. The Secretary shall
utilize such evaluations to conduct an overall evaluation of
the results of the demonstration programs established under
this section.
``(5) Authorization of appropriations.--There are
authorized to be appropriated to carry out this subsection,
$5,000,000 for each of the fiscal years 1993 through 1997.
``SEC. 2712. REGULATION OF SALES PRACTICES.
``(a) Duty of Good Faith and Fair Dealing.--
``(1) In general.--Each agent (as defined in section 2733)
or association that is selling or offering for sale a long-term
care insurance policy has the duty of good faith and fair
dealing to the purchaser or potential purchaser of such a
policy.
``(2) Prohibited practices.--An agent or association is
considered to have violated paragraph (1) if the agent or
association engages in any of the following practices:
``(A) Twisting.--
``(i) In general.--Knowingly making any
misleading representation (including the
inaccurate completion of medical histories) or
incomplete or fraudulent comparison of any
long-term care insurance policy or insurers for
the purpose of inducing, or tending to induce,
any person to retain or effect a change with
respect to a long-term care insurance policy.
``(ii) Policy replacement form.--With
respect to any person who elects to replace or
effect a change in a long-term care insurance
policy, the individual that is selling such
policy shall ensure that such person completes
a policy replacement form developed by the
NAIC. A copy of such form shall be provided to
such person and additional copies shall be
delivered by the selling individual to the old
policy issuer and the new issuer and kept on
file for inspection by the State regulatory
agency.
``(B) High pressure tactics.--Employing any method
of marketing having the effect of, or intending to,
induce the purchase of long-term care insurance policy
through force, fright, threat or undue pressure,
whether explicit or implicit.
``(C) Cold lead advertising.--Making use directly
or indirectly of any method of marketing which fails to
disclose in a conspicuous manner that a purpose of the
method of marketing is solicitation of insurance and
that contact will be made by an insurance agent or
insurance company.
``(D) Others.--Engaging in such other practices
determined inappropriate under guidelines issued by the
NAIC.
``(b) Financial Standards.--The NAIC shall develop recommended
financial minimum standards (including both income and asset criteria)
for the purpose of advising individuals considering the purchase of a
long-term care insurance policy.
``(c) Prohibition of Sale or Issuance to Medicaid Beneficiaries.--
An agent, an association, or a carrier may not knowingly sell or issue
a long-term care insurance policy to an individual who is eligible for
medical assistance under title XIX of the Social Security Act.
``(d) Prohibition of Sale or Issuance of Duplicate Service Benefit
Policies.--An agent, association or its subsidiary, or a carrier may
not sell or issue a service-benefit long-term care insurance policy to
an individual--
``(1) knowing that the policy provides for coverage that
duplicates coverage already provided in another service-benefit
long-term care insurance policy held by such individual (unless
the policy is intended to replace such other policy); or
``(2) for the benefit of an individual unless the
individual (or a representative of the individual) provides a
written statement to the effect that the coverage--
``(A) does not duplicate other coverage in effect
under a service-benefit long-term care insurance
policy; or
``(B) will replace another service-benefit long-
term care insurance policy.
In this subsection, the term `service-benefit long-term care insurance
policy' means a long-term care insurance policy which provides for
benefits based on the type and amount of services furnished.
``(e) Prohibition Based on Eligibility for Other Benefits.--A
carrier may not sell or issue a long-term care insurance policy that
reduces, limits or coordinates the benefits provided under the policy
on the basis that the policyholder has or is eligible for other long-
term care insurance coverage or benefits.
``(f) Provision of Outline of Coverage.--No agent, association or
its subsidiary, or carrier may sell or offer for a sale a long-term
care insurance policy (or for a certificate under a group long-term
care insurance policy) without providing to the purchaser or potential
purchaser (or representative) an outline of coverage that complies with
the standards established under section 2701(a).
``(g) Penalties.--Any agent who sells, offers for sale, or issues a
long-term care insurance policy in violation of this section may be
imprisoned not more than 5 years, or fined in accordance with title 18,
United States Code, and, in addition, is subject to a civil money
penalty of not to exceed $15,000 for each such violation. Any
association or its subsidiary or carrier that sells, offers for sale,
or issues a long-term care insurance policy in violation of this
section may be fined in accordance with title 18, United States Code,
and in addition, is subject to a civil money penalty of not to exceed
$25,000 for each violation.
``(h) Agent Training and Certification Requirements.--The NAIC
shall establish requirements for long-term care insurance agent
training and certification that--
``(1) specify requirements for training insurance agents
who desire to sell or offer for sale long-term care insurance
policies; and
``(2) specify procedures for certifying agents who have
completed such training and who are as qualified to sell or
offer for sale long-term care insurance policies.
``SEC. 2713. ADDITIONAL RESPONSIBILITIES FOR CARRIERS.
``(a) Refund of Premiums.--If an application for a long-term care
insurance policy (or for a certificate under a group long-term care
insurance policy) is denied or an applicant returns a policy or
certificate within 30 days of the date of its issuance pursuant to
subsection 2717, the carrier shall refund directly to the applicant, or
in the case of an employer to whomever remits the premium, and not by
delivery by the agent, not later than 30 days after the date of the
denial or return, any premiums paid with respect to such a policy (or
certificate).
``(b) Mailing of Policy.--If an application for a long-term care
insurance policy (or for a certificate under a group long-term care
insurance policy) is approved, the carrier shall provide the applicant,
or in the case of a group plan the employer, the policy (or
certificate) of insurance not later than 30 days after the date of the
approval.
``(c) Information on Denials of Claims.--If a claim under a long-
term care insurance policy is denied, the carrier shall, within 30 days
of the date of a written request by the policyholder or certificate
holder (or representative)--
``(1) provide a written explanation of the reasons for the
denial; and
``(2) make available all medical and patient records
directly relating to such denial.
Except as provided in subsection (e) of section 2715, no claim under
such a policy may be denied on the basis of a failure to disclose a
condition at the time of issuance of the policy if the application for
the policy failed to request information respecting the condition.
``(d) Reporting of Information.--A carrier that issues one or more
long-term care insurance policies shall periodically (not less often
than annually) report, in a form and in a manner determined by the
NAIC, to the Commissioner, superintendent or director of insurance of
each State in which the policy is delivered, and shall make available
to the Secretary, upon request, information in a form and manner
determined by the NAIC concerning--
``(1) the long-term care insurance policies of the carrier
that are in force;
``(2) the most recent premiums for such policies and the
premiums imposed for such policies since their initial
issuance;
``(3) the lapse rate, replacement rate, and rescission
rates by policy;
``(4) the names of that 10 percent of its agents that--
``(A) have the greatest lapse and replacement rate;
and
``(B) have produced at least $50,000 of long-term
care insurance sales in the previous year; and
``(5) the claims denied (expressed as a number and as a
percentage of claims submitted) by policy.
Information required under this subsection shall be reported in a
format specified in the standards established under section 2701(a).
For purposes of paragraph (3), there shall be included (but reported
separately) data concerning lapses due to the death of the
policyholder. For purposes of paragraph (4), there shall not be
included as a claim any claim that is denied solely because of the
failure to meet a deductible, waiting period, or exclusionary period.
``SEC. 2714. RENEWABILITY STANDARDS FOR ISSUANCE, AND BASIS FOR
CANCELLATION OF POLICIES.
``(a) In General.--No long-term care insurance policy may be
canceled or nonrenewed for any reason other than nonpayment of premium,
material misrepresentation or fraud.
``(b) Continuation and Conversion Rights for Group Policies.--
``(1) In general.--Each group long-term care insurance
policy shall provide covered individuals with a basis for
continuation or conversion in accordance with this subsection.
``(2) Basis for continuation.--For purposes of paragraph
(1), a policy provides a basis for continuation of coverage if
the policy maintains coverage under the existing group policy
when such coverage would otherwise terminate and which is
subject only to the continued timely payment of premium when
due. A group policy which restricts provision of benefits and
services to or contains incentives to use certain providers or
facility, may provide continuation benefits which are
substantially equivalent to the benefits of the existing group
policy.
``(3) Basis for conversion.--For purposes of paragraph (1),
a policy provides a basis for conversion of coverage if the
policy entitles each individual--
``(A) whose coverage under the group policy would
otherwise be terminated for any reason; and
``(B) who has been continuously insured under the
policy (or group policy which was replaced) for at
least 6 months before the date of the termination;
to issuance of a policy providing benefits identical to,
substantially equivalent to, or in excess of, those of the
policy being terminated, without evidence of insurability.
``(4) Treatment of substantial equivalence.--In determining
under this subsection whether benefits are substantially
equivalent, consideration should be given to the difference
between managed care and non-managed care plans.
``(5) Group replacement of policies.--If a group long-term
care insurance policy is replaced by another long-term care
insurance policy purchased by the same policyholder, the
succeeding issuer shall offer coverage to all persons covered
under the old group policy on its date of termination. Coverage
under the new group policy shall not result in any exclusion
for preexisting conditions that would have been covered under
the group policy being replaced.
``(c) Standards for Issuance.--
``(1) In general.--
``(A) Guarantee.--An agent, association or carrier
that sells or issues long-term care insurance policies
shall guarantee that such policies shall be sold or
issued to an individual, or eligible individual in the
case of a group plan, if such individual meets the
minimum medical underwriting requirements of such
policy.
``(B) Premium for converted policy.--If a group
policy from which conversion is made is a replacement
for a previous group policy, the premium for the
converted policy shall be calculated on the basis of
the insured's age at the inception of coverage under
the group policy from which conversion is made. Where
the group policy from which conversion is made replaced
previous group coverage, the premium for the converted
policy shall be calculated on the basis of the
insured's age at inception of coverage under the group
policy replaced.
``(2) Upgrade for current policies.--The NAIC shall
establish standards, including those providing guidance on
medical underwriting and age rating, with respect to the access
of individuals to policies offering upgraded benefits.
``(d) Effect of Incapacitation.--
``(1) In general.--
``(A) Prohibition.--Except as provided in paragraph
(2), a long-term care insurance policy in effect as of
the effective date of the standards established under
section 2701(a) may not be canceled for nonpayment if
the policy holder is determined by a long-term care
provider, physician or other health care provider,
independent of the issuer of the policy, to be
cognitively or mentally incapacitated so as to not make
payments in a timely manner.
``(B) Reinstatement.--A long-term care policy shall
include a provision that provides for the reinstatement
of such coverage, in the event of lapse, if the insurer
is provided with proof of cognitive or mental
incapacitation. Such reinstatement option shall remain
available for a period of not less than 5 months after
termination and shall allow for the collection of past
due premium.
``(2) Permitted cancellation.--A long-term care insurance
policy may be canceled under paragraph (1) for nonpayment if--
``(A) the period of such nonpayment is in excess of
30 days; and
``(B) notice of intent to cancel is provided to the
policyholder or designated representative of the policy
holder not less than 30 days prior to such
cancellation, except that notice may not be provided
until the expiration of 30 days after a premium is due
and unpaid.
Notice under this paragraph shall be deemed to have been given
as of 5 days after the mailing date.
``SEC. 2715. BENEFIT STANDARDS.
``(a) Use of Standard Definitions and Terminology, Uniform Format,
and Standard Benefits.--Each long-term care insurance policy shall,
with respect to services, providers or facilities, pursuant to
standards established under section 2701(a)--
``(1) use uniform language and definitions, except that
such language and definitions may take into account the
differences between States with respect to definitions and
terminology used for long-term care services and providers;
``(2) use a uniform format for presenting the outline of
coverage under such a policy; and
``(3) provide coverage for at least one standard benefits
package (of those developed by the NAIC) that shall include the
limitations on the amount of payments per day and the lengths
of covered stays for nursing facility and home health care
services;
as prescribed under guidelines issued by the NAIC and periodically
updated.
``(b) Disclosure.--
``(1) Outline of coverage.--
``(A) Requirement.--Each carrier that sells or
offers for sale a long-term care insurance policy shall
provide an outline of coverage under such policy that
meets the applicable standards established pursuant to
section 2701(a), complies with the requirements of
subparagraph (B), and is in a uniform format as
prescribed in guidelines issued by the NAIC and
periodically updated.
``(B) Contents.--The outline of coverage for each
long-term care insurance policy shall include at least
the following:
``(i) A description of the principal
benefits and coverage under the policy.
``(ii) A statement of the principal
exclusions, reductions, and limitations
contained in the policy.
``(iii) A statement of the terms under
which the policy (or certificate) may be
continued in force or discontinued, the terms
for continuation or conversion, and any
reservation in the policy of a right to change
premiums.
``(iv) A statement, in bold face type on
the face of the document in language that is
understandable to an average individual, that
the outline of coverage is a summary only, not
a contract of insurance, and that the policy
(or master policy) contains the contractual
provisions that govern, except that such
summary shall substantially and accurately
reflect the contents of the policy or the
master policy.
``(v) A description of the terms, specified
in section 2717, under which a policy or
certificate may be returned and premium
refunded.
``(vi) Information on national average
costs for nursing facility and home health care
and information (in graphic form) on the
relationship of the value of the benefits
provided under the policy to such national
average costs and State average costs, where
available.
``(vii) A statement of the percentage limit
on annual premium increases that is provided
under the policy pursuant to this section.
``(2) Certificates.--A certificate issued pursuant to a
group long-term care insurance policy shall include--
``(A) a description of the principal benefits and
coverage provided in the policy;
``(B) a statement of the principal exclusions,
reductions, and limitations contained in the policy;
and
``(C) a statement that the group master policy
determines governing contractual provisions.
``(3) Long-term care as part of life insurance.--In the
case of a long-term care insurance policy issued as a part of,
or a rider on, a life insurance policy, at the time of policy
delivery there shall be provided a policy summary that
includes--
``(A) an explanation of how the long-term care
benefits interact with other components of the policy
(including deductions from death benefits);
``(B) an illustration of the amount of benefits,
the length of benefit, and the guaranteed lifetime
benefits (if any) for each covered person; and
``(C) any exclusions, reductions, and limitations
on benefits of long-term care.
``(4) Additional information.--The NAIC shall develop
recommendations with respect to informing consumers of the
long-term economic viability of carriers issuing long-term care
insurance policies.
``(c) Limiting Conditions on Benefits; Minimum Benefits.--
``(1) In general.--A long-term care insurance policy may
not condition or limit eligibility--
``(A) for benefits for a type of services to the
need for or receipt of any other services;
``(B) for any benefit on the medical necessity for
such benefit;
``(C) for benefits furnished by licensed or
certified providers in compliance with conditions which
are in addition to those required for licensure or
certification under State law, except that if no State
licensure or certification laws exists, in compliance
with qualifications developed by the NAIC; or
``(D) for residential care (if covered under the
policy) only--
``(i) to care provided in facilities which
provide a higher level of care; or
``(ii) to care provided in facilities which
provide for 24-hour or other nursing care not
required in order to be licensed by the State.
``(2) Home health care or community-based services.--If a
long-term care insurance policy provides benefits for the
payment of specified home health care or community-based
services, the policy--
``(A) may not limit such benefits to services
provided by registered nurses or licensed practical
nurses;
``(B) may not require benefits for such services to
be provided by a nurse or therapist that can be
provided by a home health aide or licensed or certified
home care worker, except that if no State licensure or
certification laws exists, in compliance with
qualifications developed by the NAIC;
``(C) may not limit such benefits to services
provided by agencies or providers certified under title
XVIII of the Social Security Act; and
``(D) must provide, at a minimum, benefits for
personal care services (including home health aide and
home care worker services as defined by the NAIC) home
health services, adult day care, and respite care in an
individual's home or in another setting in the
community, or any of these benefits on a respite care
basis.
``(3) Nursing facility services.--If a long-term care
insurance policy provides benefits for the payment of specified
nursing facility services, the policy must provide such
benefits with respect to all nursing facilities (as defined in
section 1919(a) of the Social Security Act or until such time
as subsequently provided for by the NAIC in establishing
uniform language and definitions under section 2715(a)(1)) in
the State.
``(4) Per diem policies.--
``(A) Definition.--For purposes of this title, the
term `per diem long-term care insurance policy' means a
long-term care insurance policy (or certificate under a
group long-term care insurance policy) that provides
for benefit payments on a periodic basis due to
cognitive impairment or loss of functional capacity
without regard to the expenses incurred or services
rendered during the period to which the payments
relate.
``(B) Limitation.--No per diem long-term care
insurance policy (or certificate) may condition or
otherwise exclude benefit payments based on the receipt
of any type of nursing facility, home health care or
community-based services.
``(d) Prohibition of Discrimination.--A long-term care insurance
policy may not treat benefits under the policy in the case of an
individual with Alzheimer's disease, with any related progressive
degenerative dementia of an organic origin, with any organic or
inorganic mental illness, or with mental retardation or any other
cognitive or mental impairment differently from an individual having
another medical condition for which benefits may be made available.
``(e) Limitation on Use of Preexisting Condition Limits.--
``(1) Initial issuance.--
``(A) In general.--Subject to subparagraph (B), a
long-term care insurance policy may not exclude or
condition benefits based on a medical condition for
which the policyholder received treatment or was
otherwise diagnosed before the issuance of the policy.
``(B) 6-month limit.--
``(i) In general.--No long-term care
insurance policy or certificate issued under
this title shall utilize a definition of
`preexisting condition' that is more
restrictive than the following: The term
`preexisting condition' means a condition for
which medical advice or treatment was
recommended by, or received from a provider of
health care services, within 6 months preceding
the effective date of coverage of an insured
individual.
``(ii) Prohibition on exclusion of
coverage.--No long-term care insurance policy
or certificate may exclude coverage for a loss
or confinement that is the result of a
preexisting condition unless such loss or
confinement begins within 6 months following
the effective date of the coverage of the
insured individual.
``(2) Replacement policies.--If a long-term care insurance
policy replaces another long-term care insurance policy, the
issuer of the replacing policy shall waive any time periods
applicable to preexisting conditions, waiting period,
elimination periods and probationary periods in the new policy
for similar benefits to the extent such time was spent under
the original policy.
``(f) Eligibility for Benefits.--
``(1) Long-term care policies.--Each long-term care
insurance policy shall--
``(A) describe the level of benefits available
under the policy; and
``(B) specify in clear, understandable terms, the
level (or levels) of physical, cognitive, or mental
impairment required in order to receive benefits under
the policy.
``(2) Functional assessment.--In order to submit a claim
under any long-term care insurance policy, each claimant shall
have a professional functional assessment of his or her
physical, cognitive, and mental abilities. Such initial
assessment shall be conducted by an individual or entity,
meeting the qualifications established by the NAIC to assure
the professional competence and credibility of such individual
or entity and that such individual meets any applicable State
licensure and certification requirements. The individual or
entity conducting such assessment may not control, or be
controlled by, the issuer of the policy. For purposes of this
paragraph and paragraph (4), the term `control' means the
direct or indirect possession of the power to direct the
management and policies of a person. Control is presumed to
exist, if any person directly or indirectly, owns, controls,
holds with the power to vote, or holds proxies representing 10
percent of the voting securities of another person.
``(3) Claims review.--Except as provided in paragraph (4),
each long-term care insurance policy shall be subject to final
claims review by the carrier pursuant to the terms of the long-
term care insurance policy.
``(4) Appeals process.--
``(A) In general.--Each long-term care insurance
policy shall provide for a timely and independent
appeals process, meeting standards established by the
NAIC, for individuals who dispute the results of the
claims review, conducted under paragraph (3), of the
claimant's functional assessment, conducted under
paragraph (2).
``(B) Independent assessment.--An appeals process
under this paragraph shall include, at the request of
the claimant, an independent assessment of the
claimant's physical, cognitive or mental abilities.
``(C) Conduct.--An independent assessment under
subparagraph (B) shall be conducted by an individual or
entity meeting the qualifications established by the
NAIC to assure the professional competence and
credibility of such individual or entity and any
applicable State licensure and certification
requirements and may not be conducted--
``(i) by an individual who has a direct or
indirect significant or controlling interest
in, or direct affiliation or relationship with,
the issuer of the policy;
``(ii) by an entity that provides services
to the policyholder or certificateholder for
which benefits are available under the long-
term care insurance policy; or
``(iii) by an individual or entity in
control of, or controlled by, the issuer of the
policy.
``(5) Standard assessments.--Not later than 2 years after
the date of enactment of this title, the advisory committee
established under section 2701(d) shall recommend uniform needs
assessment mechanisms for the determination of eligibility for
benefits under such assessments.
``(g) Inflation Protection.--
``(1) Option to purchase.--A carrier may not offer a long-
term care insurance policy unless the carrier also offers to
the proposed policyholder, including each group policyholder,
the option to purchase a policy that provides for increases in
benefit levels, with benefit maximums or reasonable durations
that are meaningful, to account for reasonably anticipated
increases in the costs of long-term care services covered by
the policy. A carrier may not offer to a policyholder an
inflation protection feature that is less favorable to the
policyholder than one of the following:
``(A) With respect to policies that provide for
automatic periodic increases in benefits, the policy
provides for an annual increase in benefits in a manner
so that such increases are computed annually at a rate
of not less than 5 percent.
``(B) With respect to policies that provide for
periodic opportunities to elect an increase in
benefits, the policy guarantees that the insured
individual will have the right to periodically increase
the benefit levels under the policy without providing
evidence of insurability or health status so long as
the option for the previous period was not declined.
The amount of any such additional benefit may not be
less than the difference between--
``(i) the existing policy benefit; and
``(ii) such existing benefit compounded
annually at a rate of at least 5 percent for
the period beginning on the date on which the
existing benefit is purchased and extending
until the year in which the offer of increase
is made.
``(C) With respect to service benefit policies, the
policy covers a specified percentage of the actual or
reasonable charges and does not include a maximum
specified indemnity amount or limit.
``(2) Exception.--The requirements of paragraph (1) shall
not apply to life insurance policies or riders containing
accelerated long-term care benefits.
``(3) Required information.--Carriers shall include the
following information in or together with the outline of
coverage provided under this title:
``(A) A graphic comparison of the benefit levels of
a policy that increases benefits over the policy period
with a policy that does not increase benefits. Such
comparison shall show benefit levels over not less than
a 20-year period.
``(B) Any expected premium increases or additional
premiums required to pay for any automatic or optional
benefit increases, whether the individual who purchases
the policy obtains the inflation protection initially
or whether such individual delays purchasing such
protection until a future time.
``(4) Continuation of protection.--Inflation protection
benefit increases under this subsection under a policy that
contains such protection shall continue without regard to an
insured's age, claim status or claim history, or the length of
time the individual has been insured under the policy.
``(5) Constant premium.--An offer of inflation protection
under this subsection that provides for automatic benefit
increases shall include an offer of a premium that the carrier
expects to remain constant. Such offer shall disclose in a
conspicuous manner that the premium may change in the future
unless the premium is guaranteed to remain constant.
``(6) Rejection.--Inflation protection under this
subsection shall be included in a long-term care insurance
policy unless a carrier obtains a written rejection of such
protection signed by the policyholder.
``SEC. 2716. NONFORFEITURE.
``(a) In General.--Each long-term care insurance policy (or
certificate) may provide that if the policy lapses after the policy has
been in effect for a minimum period (specified under the standards
under section 2701(a)), the policy will provide, without payment of any
additional premiums, nonforfeiture benefits as determined appropriate
by the NAIC.
``(b) Establishment of Standards.--The standards under section
2701(a) shall provide that the percentage or amount of benefits under
subsection (a) must increase based upon the policyholder's equity in
the policy. Such standards shall apply only to policies which provide
nonforfeiture benefits.
``SEC. 2717. LIMIT OF PERIOD OF CONTESTABILITY AND RIGHT TO RETURN.
``(a) Contestability.--A carrier may not cancel or renew a long-
term care insurance policy or deny a claim under the policy based on
fraud or material misrepresentation relating to the issuance of the
policy unless notice of such fraud or material misrepresentation is
provided within a time period to be determined by the NAIC.
``(b) Right To Return.--Each applicant for a long-term care
insurance policy shall have the right to return the policy (or
certificates) within 30 days of the date of its delivery (and to have
the premium refunded) if, after examination of the policy or
certificate, the applicant is not satisfied for any reason.
``SEC. 2718. CIVIL MONEY PENALTY.
``(a) Carrier.--Any carrier, association or its subsidiary that
sells or offers for sale a long-term care insurance policy and that--
``(1) fails to make a refund in accordance with section
2713(a);
``(2) fails to transmit a policy in accordance with section
2713(b);
``(3) fails to provide, make available, or report
information in accordance with subsections (c) or (d) of
section 2713;
``(4) provides a commission or compensation in violation of
section 2713(e);
``(5) fails to provide an outline of coverage in violation
of section 2715(b)(1); or
``(6) issues a policy without obtaining certain information
in violation of section 2715(f);
is subject to a civil money penalty of not to exceed $25,000 for each
such violation.
``(b) Agents.--Any agent that sells or offers for sale a long-term
care insurance policy and that--
``(1) fails to make a refund in accordance with section
2713(a);
``(2) fails to transmit a policy in accordance with section
2713(b);
``(3) fails to provide, make available, or report
information in accordance with subsections (c) or (d) of
section 2713;
``(4) fails to provide an outline of coverage in violation
of section 2715(b)(1); or
``(5) issues a policy without obtaining certain information
in violation of section 2715(f);
is subject to a civil money penalty of not to exceed $15,000 for each
such violation.
``Part C--Long-Term Care Insurance Policies, Definition and
Endorsements
``SEC. 2721. LONG-TERM CARE INSURANCE POLICY DEFINED.
``(a) In General.--As used in this section, the term `long-term
care insurance policy' means any insurance policy, rider or certificate
advertised, marketed, offered or designed to provide coverage for not
less than 12 consecutive months for each covered person on an expense
incurred, indemnity prepaid or other basis, for one or more necessary
diagnostic, preventive, therapeutic, rehabilitative, maintenance or
personal care services, provided in a setting other than an acute care
unit of a hospital. Such term includes--
``(1) group and individual annuities and life insurance
policies, riders or certificates that provide directly, or that
supplement long-term care insurance; and
``(2) a policy, rider or certificates that provides for
payment of benefits based on cognitive impairment or the loss
of functional capacity.
``(b) Issuance.--Long-term care insurance policies may be issued
by--
``(1) carriers;
``(2) fraternal benefit societies;
``(3) nonprofit health, hospital, and medical service
corporations;
``(4) prepaid health plans;
``(5) health maintenance organizations; or
``(6) any similar organization to the extent they are
otherwise authorized to issue life or health insurance.
``(c) Policies Excluded.--The term `long-term care insurance
policy' shall not include any insurance policy, rider or certificate
that is offered primarily to provide basic Medicare supplement
coverage, basic hospital expense coverage, basic medical-surgical
expense coverage, hospital confinement indemnity coverage, major
medical expense coverage, disability income or related asset-protection
coverage, accident only coverage, specified disease or specified
accident coverage, or limited benefit health coverage. With respect to
life insurance, such term shall not include life insurance policies,
riders or certificates that accelerate the death benefit specifically
for one or more of the qualifying events of terminal illness, medical
conditions requiring extraordinary medical intervention, or permanent
institutional confinement, and that provide the option of a lump-sum
payment for those benefits and in which neither the benefits nor the
eligibility for the benefits is conditioned upon the receipt of long-
term care.
``(d) Applications.--Notwithstanding any other provision of this
title, this title shall apply to any product advertised, marketed or
offered as a long-term insurance policy, rider or certificate.
``SEC. 2722. CODE OF CONDUCT WITH RESPECT TO ENDORSEMENTS.
``Not later than 1 year after the date of enactment of this title
the NAIC shall issue guidelines that shall apply to organizations and
associations, other than employers and labor organizations that do not
accept compensation, and their subsidiaries that provide endorsements
of long-term care insurance policies, or that permit such policies to
be offered for sale through the organization or association. Such
guidelines shall include at minimum the following:
``(1) In endorsing or selling long-term care insurance
policies, the primary responsibility of an organization or
association shall be to educate their members concerning such
policies and assist such members in making informed decisions.
Such organizations and associations may not function primarily
as sales agents for insurance companies.
``(2) Organizations and associations shall provide
objective information regarding long-term care insurance
policies sold or endorsed by such organizations and
associations to ensure that members of such organizations and
associations have a balanced and complete understanding of both
the strengths and weaknesses of the policies that are being
endorsed or sold.
``(3) Organizations and associations selling or endorsing
long-term care insurance policies shall disclose in marketing
literature provided to their members concerning such policies
the manner in which such policies and the insurance company
issuing such policies were selected. If the organization or
association and the insurance company have interlocking
directorates, the organization or association shall disclose
such fact to their members.
``(4) Organizations and associations selling or endorsing
long-term care insurance policies shall disclose in marketing
literature provided to their members concerning such policies
the nature and amount of the compensation arrangements
(including all fees, commissions, administrative fees and other
forms of financial support that the organization or association
receives) from the endorsement or sale of the policy to its
members.
``(5) The Boards of Directors of organizations and
associations selling or endorsing long-term care insurance
policies, if such organizations and associations have a Board
of Directors, shall review and approve such insurance policies,
the compensation arrangements and the marketing materials used
to promote sales of such policies.
``Part D--Miscellaneous Provisions
``SEC. 2731. FUNDING FOR LONG-TERM CARE INSURANCE INFORMATION,
COUNSELING, AND ASSISTANCE.
``(a) In General.--The Secretary, acting through the Public Health
Service, may award grants to States, and national organizations with
demonstrated experience in long-term care insurance, for the
establishment of programs to provide information, counseling, and
assistance relating to the procurement of adequate and appropriate
long-term care insurance.
``(b) Application.--To be eligible to receive a grant under
subsection (a), a State or national organization shall prepare and
submit to the Secretary an application at such time, in such manner,
and containing such information as the Secretary may require, including
a description of the program for which the State or organization
intends to use the amounts provided under the grant.
``(c) Authorization of Appropriations.--
``(1) In general.--There are authorized to be appropriate
for grants to States under subsection (a), $10,000,000 for each
of the fiscal years 1994 through 1996.
``(2) National organizations.--There are authorized to be
appropriate for grants to national organizations under
subsection (a), $1,000,000 for each of the fiscal years 1994
through 1996.
``SEC. 2732. DEFINITIONS.
``As used in this title:
``(1) Agent.--The term `agent' means--
``(A) prior to 2 years after the date of enactment
of this Act, an individual who sells or offers for sale
a long-term care insurance policy subject to the
requirements of this title and is licensed or required
to be licensed under State law for such purpose; and
``(B) after the date referred to in subparagraph
(A), an individual who meets the training and
certification requirements established under section
2712(f).
``(2) Association.--The term `association' includes the
association and its subsidiaries.
``(3) Carrier.--The term `carrier' means any person that
offers a health benefit plan, whether through insurance or
otherwise, including a licensed insurance company, a prepaid
hospital or medical service plan, a health maintenance
organization, a self-insured carrier, a reinsurance carrier,
and a multiple employer welfare arrangement (a combination of
employers associated for the purpose of providing health
benefit plan coverage for their employees).''.
(b) Conforming Amendments.--
(1) Sections 2701 through 2714 of the Public Health Service
Act (42 U.S.C. 300cc through 300cc-15) are redesignated as
sections 2801 through 2814, respectively.
(2) Sections 465(f) and 497 of such Act (42 U.S.C. 286(f)
and 289(f)) are amended by striking out ``2701'' each place
that such appears and inserting in lieu thereof ``2801''.
TITLE III--DEDUCTION FOR CERTAIN EXPENSES FOR DEPENDENTS WITH
ALZHEIMER'S DISEASE OR RELATED ORGANIC BRAIN DISORDERS
SEC. 301. DEDUCTION ALLOWANCE FOR HOME HEALTH CARE AND ADULT DAY AND
RESPITE CARE EXPENSES OF INDIVIDUALS FOR DEPENDENTS WITH
ALZHEIMER'S DISEASE OR RELATED ORGANIC BRAIN DISORDERS.
(a) In General.--Part VII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to additional itemized
deductions for individuals) is amended by redesignating section 220 as
section 221 and by inserting after section 219 the following new
section:
``SEC. 220. HOME HEALTH CARE AND ADULT DAY AND RESPITE CARE EXPENSES
FOR DEPENDENTS WITH ALZHEIMER'S DISEASE OR RELATED
ORGANIC BRAIN DISORDERS.
``(a) Deduction Allowed.--In the case of an individual who
maintains a household which includes a qualified dependent of such
individual, there shall be allowed as a deduction the qualified home
health care and adult day respite care expenses of such individual with
respect to such dependent.
``(b) Definitions.--For purposes of this section:
``(1) Qualified dependent.--The term `qualified dependent'
means any individual (including the spouse of the taxpayer but
not including the taxpayer) who--
``(A) has as his principal place of abode the
principal residence of the taxpayer, and is a member of
the taxpayer's household, for more than 180 days of the
calendar year during which the taxable year of the
taxpayer begins,
``(B) is a dependent of the taxpayer (within the
meaning given to such term by subsection (a) of section
152 other than paragraph (9) of such subsection) for
such calendar year, and
``(C) at the close of such calendar year, suffers
from Alzheimer's disease (or a related organic brain
disorder) and is physically or mentally incapable of
caring for himself, as determined by a physician.
``(2) Qualified home health care and adult day and respite
care expenses.--The term `qualified home health care and adult
day and respite care expenses' means the excess of--
``(A) the reasonable and necessary expenses paid or
incurred by the taxpayer for--
``(i) household services for a qualified
dependent, and
``(ii) the care (including respite care) of
such dependent in the home or in an adult day
care center, over
``(B) the reasonable and necessary expenses such
taxpayer would have paid or incurred for household
services for, and the care of, such qualified dependent
if such dependent had been capable of caring for
himself.
``(3) Physician.--The term `physician' has the meaning
given to such term by section 1861(r) of the Social Security
Act (42 U.S.C. 1395x(r)).
``(c) Special Rules.--For purposes of this section:
``(1) Maintaining a household.--An individual shall be
treated as maintaining a household for any period only if over
half the cost of maintaining the household for such period is
furnished by such individual (or, if the individual is married,
by the individual and his spouse).
``(2) Married couple must file joint return.--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 his spouse file a joint return under section 6013
for the taxable year.
``(d) Certification of Diagnosis by Physician.--Any determination
by a physician that--
``(1) an individual suffers from Alzheimer's disease or a
related organic brain disorder, and
``(2) such individual is mentally or physically incapable
of caring for himself,
shall be certified by the physician to the Secretary at such time and
in such manner as the Secretary shall by regulation prescribe.
``(e) Coordination With Sections 36 and 213.--If any amount
allowable as a deduction under this section would (but for this
subsection) also be taken into account for purposes of determining the
amount of any credit allowable under section 21 (relating to expenses
for household and dependent care services necessary for gainful
employment) or any deduction allowable under section 213 (relating to
medical, dental, etc. expenses), this section shall apply only if the
taxpayer elects its application. If this section is elected with
respect to any amount, such amount shall not be taken into account
under section 36 or 213. Such election shall be made at such time and
in such manner as the Secretary shall by regulation prescribe.''
(b) Deduction Allowed in Arriving at Adjusted Gross Income.--
Section 62(a) of such Code (defining adjusted gross income) is amended
by inserting after paragraph (13) the following new paragraph:
``(14) Qualified home health care and adult day and respite
care expenses.--The deduction allowed by section 220.''
(c) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 of such Code is amended by striking the last
item and inserting the following new items:
``Sec. 220. Home health care and adult
day and respite care expenses
for dependents with Alzheimer's
disease or related organic
brain disorders.
``Sec. 221. Cross reference.''
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1994.
TITLE IV--DEPENDENT CARE CREDIT EXPANDED AND MADE REFUNDABLE
SEC. 401. DEPENDENT CARE TAX CREDIT EXPANDED AND MADE REFUNDABLE.
(a) Dependent Care Services.--Subpart C of part IV of subchapter A
of chapter 1 of the Internal Revenue Code of 1986 (relating to
refundable credits) is amended by redesignating section 36 as section
37 and by inserting after section 35 the following new section:
``SEC. 36. DEPENDENT CARE SERVICES.
``(a) Allowance of Credit.--
``(1) In general.--In the case of an individual who
maintains a household which includes as a member 1 or more
qualifying individuals, there shall be allowed as a credit
against the tax imposed by this subtitle for the taxable year
an amount equal to the applicable percentage of the sum of--
``(A) the employment-related expenses paid by such
individual during the taxable year, plus
``(B) the respite care expenses paid by such
individual during the taxable year.
``(2) Applicable percentage defined.--
``(A) In general.--For purposes of paragraph (1),
the term `applicable percentage' means 50 percent
reduced (but not below 20 percent) by 1 percentage
point for each full $1,000 amount by which the
taxpayer's adjusted gross income for the taxable year
exceeds $15,000.
``(B) Cost-of-living adjustment.--
``(i) In general.--In the case of a taxable
year beginning in a calendar year after 1995,
subparagraph (A) shall be applied by increasing
the $15,000 amount contained therein by the
cost-of-living adjustment (as defined in
section 1(f)(3)) for such calendar year
determined by substituting ``1994'' for
``1992'' in subparagraph (B) of section
1(f)(3).
``(ii) Rounding.--If any increase
determined under clause (i) is not a multiple
of $10, such increase shall be rounded to the
nearest multiple of $10 (or if such increase is
a multiple of $15, such increase shall be
increased to the next highest multiple of $10).
``(b) Employment-Related Expenses.--For purposes of this section:
``(1) Determination of eligible expenses.--
``(A) In general.--The term `employment-related
expenses' means amounts paid for the following
expenses, but only if such expenses are incurred to
enable the taxpayer to be gainfully employed for any
period for which there are 1 or more qualifying
individuals with respect to the taxpayer:
``(i) expenses for household services, and
``(ii) expenses for the care of a
qualifying individual.
Such term shall not include any amount paid for
services outside the taxpayer's household at a camp
where the qualifying individual stays overnight and
shall not include any respite care expense taken into
account under subsection (a).
``(B) Exception.--Employment-related expenses
described in subparagraph (A) which are incurred for
services outside the taxpayer's household shall be
taken into account only if incurred for the care of--
``(i) a qualifying individual described in
subsection (d)(1), or
``(ii) a qualifying individual (not
described in subsection (d)(1)) who regularly
spends at least 8 hours each day in the
taxpayer's household.
``(C) Dependent care centers.--Employment-related
expenses described in subparagraph (A) which are
incurred for services provided outside the taxpayer's
household by a dependent care center (as defined in
subparagraph (D)) shall be taken into account only if--
``(i) such center complies with all
applicable laws and regulations of a State or
unit of local government, and
``(ii) the requirements of subparagraph (B)
are met.
``(D) Dependent care center defined.--For purposes
of this paragraph, the term `dependent care center'
means any facility which--
``(i) provides care for more than 6
individuals (other than individuals who reside
at the facility), and
``(ii) receives a fee, payment, or grant
for providing services for any of the
individuals (regardless of whether such
facility is operated for profit).
``(2) Dollar limit on amount creditable.--
``(A) In general.--The amount of the employment-
related expenses incurred during any taxable year which
may be taken into account under subsection (a) shall
not exceed--
``(i) $2,400 if there is 1 qualifying
individual with respect to the taxpayer for
such taxable year, or
``(ii) $4,800 if there are 2 or more
qualifying individuals with respect to the
taxpayer for such taxable year.
The amount determined under clause (i) or (ii)
(whichever is applicable) shall be reduced by the
aggregate amount excludable from gross income under
section 129 for the taxable year.
``(B) Reduction in limit for amount of respite care
expenses.--The limitation of subparagraph (A) shall be
reduced by the amount of the respite care expenses
taken into account by the taxpayer under subsection (a)
for the taxable year.
``(3) Earned income limitation.--
``(A) In general.--Except as otherwise provided in
this paragraph, the amount of the employment-related
expenses incurred during any taxable year which may be
taken into account under subsection (a) shall not
exceed--
``(i) in the case of an individual who is
not married at the close of such year, such
individual's earned income for such year, or
``(ii) in the case of an individual who is
married at the close of such year, the lesser
of such individual's earned income or the
earned income of his spouse for such year.
``(B) Special rule for spouse who is a student or
incapable of caring for himself.--In the case of a
spouse who is a student or a qualified individual
described in subsection (d)(3), for purposes of
subparagraph (A), such spouse shall be deemed for each
month during which such spouse is a full-time student
at an educational institution, or is such a qualifying
individual, to be gainfully employed and to have earned
income of not less than--
``(i) $200 if paragraph (2)(A)(i) applies
for the taxable year, or
``(ii) $400 if paragraph (2)(A)(ii) applies
for the taxable year.
In the case of any husband and wife, this subparagraph
shall apply with respect to only one spouse for any one
month.
``(c) Respite Care Expenses.--For purposes of this section:
``(1) In general.--The term `respite care expenses' means
expenses paid (whether or not to enable the taxpayer to be
gainfully employed) for--
``(A) the care of a qualifying individual--
``(i) who has attained the age of 13, or
``(ii) who is under the age of 13 but has a
physical or mental impairment which results in
the individual being incapable of caring for
himself,
during any period when such individual regularly spends
at least 8 hours each day in the taxpayer's household,
or
``(B) care (for not more than 14 days during the
calendar year) of a qualifying individual described in
subparagraph (A) during any period during which the
individual does not regularly spend at least 8 hours
each day in the taxpayer's household.
``(2) Dollar limit.--The amount of the respite care
expenses incurred during any taxable year which may be taken
into account under subsection (a) shall not exceed--
``(A) $1,200 if such expenses are incurred with
respect to only 1 qualifying individual for the taxable
year, or
``(B) $2,400 if such expenses are incurred for 2 or
more qualifying individuals for such taxable year.
``(d) Qualifying Individual.--For purposes of this section, the
term `qualifying individual' means--
``(1) a dependent of the taxpayer who is under the age of
13 and with respect to whom the taxpayer is entitled to a
deduction under section 151(e),
``(2) a dependent of the taxpayer who is physically or
mentally incapable of caring for himself, or
``(3) the spouse of the taxpayer, if he is physically or
mentally incapable of caring for himself.
``(e) Special Rules.--For purposes of this section:
``(1) Maintaining household.--An individual shall be
treated as maintaining a household for any period only if over
half the cost of maintaining the household for such period is
furnished by such individual (or, if such individual is married
during such period, is furnished by such individual and his
spouse).
``(2) Married couples must file joint return.--If the
taxpayer is married at the close of the taxable year, the
credit shall be allowed under subsection (a) only if the
taxpayer and his spouse file a joint return for the taxable
year.
``(3) Marital status.--An individual legally separated from
his spouse under a decree of divorce or of separate maintenance
shall not be considered as married.
``(4) Certain married individuals living apart.--If--
``(A) an individual who is married and who files a
separate return--
``(i) maintains as his home a household
which constitutes for more than one-half of the
taxable year the principal place of abode of a
qualifying individual, and
``(ii) furnishes over half the cost of
maintaining such household during the taxable
year, and
``(B) during the last 6 months of such taxable year
such individual's spouse is not a member of such
household,
such individual shall not be considered as married.
``(5) Special dependency test in case of divorced parents,
etc.--If--
``(A) paragraph (2) or (4) of section 152(e)
applies to any child with respect to any calendar year,
and
``(B) such child is under the age of 13 or is
physically or mentally incapable of caring for himself,
in the case of any taxable year beginning in such calendar
year, such child shall be treated as a qualifying individual
with respect to the custodial parent (within the meaning of
section 152(e)(1)), and shall not be treated as a qualifying
individual with respect to the noncustodial parent.
``(6) Payments to related individuals.--No credit shall be
allowed under subsection (a) for any amount paid by the
taxpayer to an individual--
``(A) with respect to whom, for the taxable year, a
deduction under section 151(e) (relating to deduction
for personal exemptions for dependents) is allowable
either to the taxpayer or his spouse, or
``(B) who is a child of the taxpayer (within the
meaning of section 151(e)(3)) who has not attained the
age of 19 at the close of the taxable year.
For purposes of this paragraph, the term `taxable year' means
the taxable year of the taxpayer in which the service is
performed.
``(7) Student.--The term `student' means an individual who
during each of 5 calendar months during the taxable year is a
full-time student at an educational organization.
``(8) Educational organization.--The term `educational
organization' means an educational organization described in
section 170(b)(1)(A)(ii).
``(9) Identifying information required with respect to
service provider.--No credit shall be allowed under subsection
(a) for any amount paid to any person unless--
``(A) the name, address, and taxpayer
identification number of such person are included on
the return claiming the credit, or
``(B) if such person is an organization described
in section 501(c)(3) and exempt from tax under section
501(a), the name and address of such person are
included on the return claiming the credit.
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.
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be necessary to carry out the purposes of this section.''
(b) Conforming Amendments.--
(1) Section 21 of such Code is hereby repealed.
(2) Paragraph (2) of section 129(b) of such Code is amended
by striking out ``section 21(d)(2)'' and inserting in lieu
thereof ``section 35(b)(3)(B)''.
(3) Subsection (e) of section 213 of such Code is amended
by striking out ``section 21'' and inserting in lieu thereof
``section 35''.
(c) Technical Amendments.--
(1) The table of sections for subpart C of part IV of
subchapter A of chapter 1 of such Code is amended by striking
out the item relating to section 35 and inserting in lieu
thereof the following:
``Sec. 35. Dependent care services.
``Sec. 36. Overpayments of tax.''
(2) The table of sections for subpart A of such part IV is
amended by striking out the item relating to section 21.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1994.
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