[104th Congress Public Law 191]
[From the U.S. Government Printing Office]
<DOC>
[DOCID: f:publ191.104]
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
Public Law 104-191
104th Congress
An Act
To amend the Internal Revenue Code of 1986 to improve portability and
continuity of health insurance coverage in the group and individual
markets, to combat waste, fraud, and abuse in health insurance and
health care delivery, to promote the use of medical savings accounts, to
improve access to long-term care services and coverage, to simplify the
administration of health insurance, and for other purposes. <<NOTE: Aug.
21, 1996 - [H.R. 3103]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in <<NOTE: Health Insurance Portability and
Accountability Act of 1996.>> Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF <<NOTE: 42 USC 201 note.>> CONTENTS.
(a) Short Title.--This Act may be cited as the ``Health Insurance
Portability and Accountability Act of 1996''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
Subtitle A--Group Market Rules
Part 1--Portability, Access, and Renewability Requirements
Sec. 101. Through the Employee Retirement Income Security Act of 1974.
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``Sec. 701. Increased portability through limitation on
preexisting condition exclusions.
``Sec. 702. Prohibiting discrimination against individual
participants and beneficiaries based on
health status.
``Sec. 703. Guaranteed renewability in multiemployer plans and
multiple employer welfare arrangements.
``Sec. 704. Preemption; State flexibility; construction.
``Sec. 705. Special rules relating to group health plans.
``Sec. 706. Definitions.
``Sec. 707. Regulations.''.
Sec. 102. Through the Public Health Service Act.
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
HEALTH INSURANCE COVERAGE
``Part A--Group Market Reforms
``Subpart 1--Portability, Access, and Renewability Requirements
``Sec. 2701. Increased portability through limitation on
preexisting condition exclusions.
``Sec. 2702. Prohibiting discrimination against individual
participants and beneficiaries based on
health status.
``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
``Sec. 2711. Guaranteed availability of coverage for employers
in the group market.
``Sec. 2712. Guaranteed renewability of coverage for employers
in the group market.
``Sec. 2713. Disclosure of information.
``Subpart 3--Exclusion of Plans; Enforcement; Preemption
``Sec. 2721. Exclusion of certain plans.
``Sec. 2722. Enforcement.
``Sec. 2723. Preemption; State flexibility; construction.
``Part C--Definitions; Miscellaneous Provisions
``Sec. 2791. Definitions.
``Sec. 2792. Regulations.''.
Sec. 103. Reference to implementation through the Internal Revenue Code
of 1986.
Sec. 104. Assuring coordination.
Subtitle B--Individual Market Rules
Sec. 111. Amendment to Public Health Service Act.
``Part B--Individual Market Rules
``Sec. 2741. Guaranteed availability of individual health
insurance coverage to certain individuals
with prior group coverage.
``Sec. 2742. Guaranteed renewability of individual health
insurance coverage.
``Sec. 2743. Certification of coverage.
``Sec. 2744. State flexibility in individual market reforms.
``Sec. 2745. Enforcement.
``Sec. 2746. Preemption.
``Sec. 2747. General exceptions.''.
Subtitle C--General and Miscellaneous Provisions
Sec. 191. Health coverage availability studies.
Sec. 192. Report on Medicare reimbursement of telemedicine.
Sec. 193. Allowing federally-qualified HMOs to offer high deductible
plans.
Sec. 194. Volunteer services provided by health professionals at free
clinics.
Sec. 195. Findings; severability.
TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
SIMPLIFICATION; MEDICAL LIABILITY REFORM
Sec. 200. References in title.
Subtitle A--Fraud and Abuse Control Program
Sec. 201. Fraud and abuse control program.
Sec. 202. Medicare integrity program.
Sec. 203. Beneficiary incentive programs.
Sec. 204. Application of certain health antifraud and abuse sanctions to
fraud and abuse against Federal health care programs.
Sec. 205. Guidance regarding application of health care fraud and abuse
sanctions.
Subtitle B--Revisions to Current Sanctions for Fraud and Abuse
Sec. 211. Mandatory exclusion from participation in Medicare and State
health care programs.
Sec. 212. Establishment of minimum period of exclusion for certain
individuals and entities subject to permissive exclusion from
Medicare and State health care programs.
Sec. 213. Permissive exclusion of individuals with ownership or control
interest in sanctioned entities.
Sec. 214. Sanctions against practitioners and persons for failure to
comply with statutory obligations.
Sec. 215. Intermediate sanctions for Medicare health maintenance
organizations.
Sec. 216. Additional exception to anti-kickback penalties for risk-
sharing arrangements.
Sec. 217. Criminal penalty for fraudulent disposition of assets in order
to obtain medicaid benefits.
Sec. 218. Effective date.
Subtitle C--Data Collection
Sec. 221. Establishment of the health care fraud and abuse data
collection
program.
Subtitle D--Civil Monetary Penalties
Sec. 231. Social Security Act civil monetary penalties.
Sec. 232. Penalty for false certification for home health services.
Subtitle E--Revisions to Criminal Law
Sec. 241. Definitions relating to Federal health care offense.
Sec. 242. Health care fraud.
Sec. 243. Theft or embezzlement.
Sec. 244. False statements.
Sec. 245. Obstruction of criminal investigations of health care
offenses.
Sec. 246. Laundering of monetary instruments.
Sec. 247. Injunctive relief relating to health care offenses.
Sec. 248. Authorized investigative demand procedures.
Sec. 249. Forfeitures for Federal health care offenses.
Sec. 250. Relation to ERISA authority.
Subtitle F--Administrative Simplification
Sec. 261. Purpose.
Sec. 262. Administrative simplification.
``Part C--Administrative Simplification
``Sec. 1171. Definitions.
``Sec. 1172. General requirements for adoption of standards.
``Sec. 1173. Standards for information transactions and data
elements.
``Sec. 1174. Timetables for adoption of standards.
``Sec. 1175. Requirements.
``Sec. 1176. General penalty for failure to comply with
requirements and standards.
``Sec. 1177. Wrongful disclosure of individually identifiable
health information.
``Sec. 1178. Effect on State law.
``Sec. 1179. Processing payment transactions.''.
Sec. 263. Changes in membership and duties of National Committee on
Vital and Health Statistics.
Sec. 264. Recommendations with respect to privacy of certain health
information.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
Sec. 271. Duplication and coordination of Medicare-related plans.
TITLE III--TAX-RELATED HEALTH PROVISIONS
Sec. 300. Amendment of 1986 Code.
Subtitle A--Medical Savings Accounts
Sec. 301. Medical savings accounts.
Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
Employed Individuals
Sec. 311. Increase in deduction for health insurance costs of self-
employed indi-
viduals.
Subtitle C--Long-Term Care Services and Contracts
Part I--General Provisions
Sec. 321. Treatment of long-term care insurance.
Sec. 322. Qualified long-term care services treated as medical care.
Sec. 323. Reporting requirements.
Part II--Consumer Protection Provisions
Sec. 325. Policy requirements.
Sec. 326. Requirements for issuers of qualified long-term care insurance
contracts.
Sec. 327. Effective dates.
Subtitle D--Treatment of Accelerated Death Benefits
Sec. 331. Treatment of accelerated death benefits by recipient.
Sec. 332. Tax treatment of companies issuing qualified accelerated death
benefit riders.
Subtitle E--State Insurance Pools
Sec. 341. Exemption from income tax for State-sponsored organizations
providing health coverage for high-risk individuals.
Sec. 342. Exemption from income tax for State-sponsored workmen's
compensation reinsurance organizations.
Subtitle F--Organizations Subject to Section 833
Sec. 351. Organizations subject to section 833.
Subtitle G--IRA Distributions to the Unemployed
Sec. 361. Distributions from certain plans may be used without
additional tax to pay financially devastating medical
expenses.
Subtitle H--Organ and Tissue Donation Information Included With Income
Tax Refund Payments
Sec. 371. Organ and tissue donation information included with income tax
refund payments.
TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS
Subtitle A--Application and Enforcement of Group Health Plan
Requirements
Sec. 401. Group health plan portability, access, and renewability
requirements.
Sec. 402. Penalty on failure to meet certain group health plan
requirements.
Subtitle B--Clarification of Certain Continuation Coverage Requirements
Sec. 421. COBRA clarifications.
TITLE V--REVENUE OFFSETS
Sec. 500. Amendment of 1986 Code.
Subtitle A--Company-Owned Life Insurance
Sec. 501. Denial of deduction for interest on loans with respect to
company-owned life insurance.
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
Sec. 511. Revision of income, estate, and gift taxes on individuals who
lose United States citizenship.
Sec. 512. Information on individuals losing United States citizenship.
Sec. 513. Report on tax compliance by United States citizens and
residents living abroad.
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
Allocation Rules
Sec. 521. Repeal of financial institution transition rule to interest
allocation rules.
TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
Subtitle A--Group Market Rules
Part 1--Portability, Access, and Renewability Requirements
SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
(a) In General.--Subtitle B of title I of the Employee Retirement
Income Security Act of 1974 is amended by adding at the end the
following new part:
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``SEC. 701. INCREASED <<NOTE: 29 USC 1181.>> PORTABILITY THROUGH
LIMITATION ON PREEXISTING CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan, and a health insurance issuer offering group health
insurance coverage, may, with respect to a participant or beneficiary,
impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether
physical or mental), regardless of the cause of the condition,
for which medical advice, diagnosis, care, or treatment was
recommended or received within the 6-month period ending on the
enrollment date;
``(2) such exclusion extends for a period of not more than
12 months (or 18 months in the case of a late enrollee) after
the enrollment date; and
``(3) the period of any such preexisting condition exclusion
is reduced by the aggregate of the periods of creditable
coverage (if any, as defined in subsection (c)(1)) applicable to
the participant or beneficiary as of the enrollment date.
``(b) Definitions.--For purposes of this part--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation
or exclusion of benefits relating to a condition based
on the fact that the condition was present before the
date of enrollment for such coverage, whether or not any
medical advice, diagnosis, care, or treatment was
recommended or received before such date.
``(B) Treatment of genetic information.--Genetic
information shall not be treated as a condition
described in subsection (a)(1) in the absence of a
diagnosis of the condition related to such information.
``(2) Enrollment date.--The term `enrollment date' means,
with respect to an individual covered under a group health plan
or health insurance coverage, the date of enrollment of the
individual in the plan or coverage or, if earlier, the first day
of the waiting period for such enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is
eligible to enroll under the plan, or
``(B) a special enrollment period under subsection
(f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a
potential participant or beneficiary in the plan, the period
that must pass with respect to the individual before the
individual is eligible to be covered for benefits under the
terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this
part, the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the
following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other
than coverage consisting solely of benefits under
section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health
Service or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of
title 5, United States Code.
``(I) A public health plan (as defined in
regulations).
``(J) A health benefit plan under section 5(e) of
the Peace Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of
coverage of excepted benefits (as defined in section 706(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage
shall not be counted, with respect to enrollment of an
individual under a group health plan, if, after such
period and before the enrollment date, there was a 63-
day period during all of which the individual was not
covered under any creditable coverage.
``(B) Waiting period not treated as a break in
coverage.--For purposes of subparagraph (A) and
subsection (d)(4), any period that an individual is in a
waiting period for any coverage under a group health
plan (or for group health insurance coverage) or is in
an affiliation period (as defined in subsection (g)(2))
shall not be taken into account in determining the
continuous period under subparagraph (A).
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided
under subparagraph (B), for purposes of applying
subsection (a)(3), a group health plan, and a health
insurance issuer offering group health insurance
coverage, shall count a period of creditable coverage
without regard to the specific benefits covered during
the period.
``(B) Election of alternative method.--A group
health plan, or a health insurance issuer offering group
health insurance coverage, may elect to apply subsection
(a)(3) based on coverage of benefits within each of
several classes or categories of benefits specified in
regulations rather than as provided under subparagraph
(A). Such election shall be made on a uniform basis for
all participants and beneficiaries. Under such election
a group health plan or issuer shall count a period of
creditable coverage with respect to any class or
category of benefits if any level of benefits is covered
within such class or category.
``(C) Plan notice.--In the case of an election with
respect to a group health plan under subparagraph (B)
(whether or not health insurance coverage is provided in
connection with such plan), the plan shall--
``(i) prominently state in any disclosure
statements concerning the plan, and state to each
enrollee at the time of enrollment under the plan,
that the plan has made such election, and
``(ii) include in such statements a
description of the effect of this election.
``(4) Establishment of period.--Periods of creditable
coverage with respect to an individual shall be established
through presentation of certifications described in subsection
(e) or in such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject
to paragraph (4), a group health plan, and a health insurance
issuer offering group health insurance coverage, may not impose
any preexisting condition exclusion in the case of an individual
who, as of the last day of the 30-day period beginning with the
date of birth, is covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted
children.--Subject to paragraph (4), a group health plan, and a
health insurance issuer offering group health insurance
coverage, may not impose any preexisting condition exclusion in
the case of a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-
day period beginning on the date of the adoption or placement
for adoption, is covered under creditable coverage. The previous
sentence shall not apply to coverage before the date of such
adoption or placement for adoption.
``(3) Exclusion not applicable to pregnancy.--A group health
plan, and health insurance issuer offering group health
insurance coverage, may not impose any preexisting condition
exclusion relating to pregnancy as a preexisting condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2)
shall no longer apply to an individual after the end of the
first 63-day period during all of which the individual was not
covered under any creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of creditable
coverage.--
``(A) In general.--A group health plan, and a health
insurance issuer offering group health insurance
coverage, shall provide the certification described in subparagraph
(B)--
``(i) at the time an individual ceases to be
covered under the plan or otherwise becomes
covered under a COBRA continuation provision,
``(ii) in the case of an individual becoming
covered under such a provision, at the time the
individual ceases to be covered under such
provision, and
``(iii) on the request on behalf of an
individual made not later than 24 months after the
date of cessation of the coverage described in
clause (i) or (ii), whichever is later.
The certification under clause (i) may be provided, to
the extent practicable, at a time consistent with
notices required under any applicable COBRA continuation
provision.
``(B) Certification.--The certification described in
this subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage (if
any) under such COBRA continuation provision, and
``(ii) the waiting period (if any) (and
affiliation period, if applicable) imposed with
respect to the individual for any coverage under
such plan.
``(C) Issuer compliance.--To the extent that medical
care under a group health plan consists of group health
insurance coverage, the plan is deemed to have satisfied
the certification requirement under this paragraph if
the health insurance issuer offering the coverage
provides for such certification in accordance with this
paragraph.
``(2) Disclosure of information on previous benefits.--In
the case of an election described in subsection (c)(3)(B) by a
group health plan or health insurance issuer, if the plan or
issuer enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the
individual under paragraph (1)--
``(A) upon request of such plan or issuer, the
entity which issued the certification provided by the
individual shall promptly disclose to such requesting
plan or issuer information on coverage of classes and
categories of health benefits available under such
entity's plan or coverage, and
``(B) such entity may charge the requesting plan or
issuer for the reasonable cost of disclosing such
information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under
paragraph (1) or (2) with respect to previous coverage of an
individual from adversely affecting any subsequent coverage of
the individual under another group health plan or health
insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health
plan, and a health insurance issuer offering group health
insurance coverage in connection with a group health plan, shall
permit an employee who is eligible, but not enrolled, for
coverage under the terms of the plan (or a dependent of such an
employee if the dependent is eligible, but not enrolled, for
coverage under such terms) to enroll for coverage under the
terms of the plan if each of the following conditions is met:
``(A) The employee or dependent was covered under a
group health plan or had health insurance coverage at
the time coverage was previously offered to the employee
or dependent.
``(B) The employee stated in writing at such time
that coverage under a group health plan or health
insurance coverage was the reason for declining
enrollment, but only if the plan sponsor or issuer (if
applicable) required such a statement at such time and
provided the employee with notice of such requirement
(and the consequences of such requirement) at such time.
``(C) The employee's or dependent's coverage
described in subparagraph (A)--
``(i) was under a COBRA continuation provision
and the coverage under such provision was
exhausted; or
``(ii) was not under such a provision and
either the coverage was terminated as a result of
loss of eligibility for the coverage (including as
a result of legal separation, divorce, death,
termination of employment, or reduction in the
number of hours of employment) or employer
contributions toward such coverage were
terminated.
``(D) Under the terms of the plan, the employee
requests such enrollment not later than 30 days after
the date of exhaustion of coverage described in
subparagraph (C)(i) or termination of coverage or
employer contribution described in subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage
available with respect to a dependent of an
individual,
``(ii) the individual is a participant under
the plan (or has met any waiting period applicable
to becoming a participant under the plan and is
eligible to be enrolled under the plan but for a
failure to enroll during a previous enrollment
period), and
``(iii) a person becomes such a dependent of
the individual through marriage, birth, or
adoption or placement for adoption,
the group health plan shall provide for a dependent
special enrollment period described in subparagraph (B)
during which the person (or, if not otherwise enrolled,
the individual) may be enrolled under the plan as a
dependent of the individual, and in the case of the
birth or adoption of a child, the spouse of the
individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for
coverage.
``(B) Dependent special enrollment period.--A
dependent special enrollment period under this
subparagraph shall be a period of not less than 30 days
and shall begin on the later of--
``(i) the date dependent coverage is made
available, or
``(ii) the date of the marriage, birth, or
adoption or placement for adoption (as the case
may be) described in subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks to
enroll a dependent during the first 30 days of such a
dependent special enrollment period, the coverage of the
dependent shall become effective--
``(i) in the case of marriage, not later than
the first day of the first month beginning after
the date the completed request for enrollment is
received;
``(ii) in the case of a dependent's birth, as
of the date of such birth; or
``(iii) in the case of a dependent's adoption
or placement for adoption, the date of such
adoption or placement for adoption.
``(g) Use of Affiliation Period by HMOs as Alternative to
Preexisting Condition Exclusion.--
``(1) In general.--In the case of a group health plan that
offers medical care through health insurance coverage offered by
a health maintenance organization, the plan may provide for an
affiliation period with respect to coverage through the
organization only if--
``(A) no preexisting condition exclusion is imposed
with respect to coverage through the organization,
``(B) the period is applied uniformly without regard
to any health status-related factors, and
``(C) such period does not exceed 2 months (or 3
months in the case of a late enrollee).
``(2) Affiliation period.--
``(A) Defined.--For purposes of this part, the term
`affiliation period' means a period which, under the
terms of the health insurance coverage offered by the
health maintenance organization, must expire before the
health insurance coverage becomes effective. The
organization is not required to provide health care
services or benefits during such period and no premium
shall be charged to the participant or beneficiary for
any coverage during the period.
``(B) Beginning.--Such period shall begin on the
enrollment date.
``(C) Runs concurrently with waiting periods.--An
affiliation period under a plan shall run concurrently
with any waiting period under the plan.
``(3) Alternative methods.--A health maintenance
organization described in paragraph (1) may use alternative
methods, from those described in such paragraph, to address
adverse selection as approved by the State insurance
commissioner or official or officials designated by the State to
enforce the requirements of part A of title XXVII of the Public
Health Service Act for the State involved with respect to such
issuer.
``SEC. 702. PROHIBITING <<NOTE: 29 USC 1182.>> DISCRIMINATION
AGAINST INDIVIDUAL PARTICIPANTS AND
BENEFICIARIES BASED ON HEALTH STATUS.
``(a) In Eligibility To Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan, and a health insurance issuer offering group health
insurance coverage in connection with a group health plan, may
not establish rules for eligibility (including continued
eligibility) of any individual to enroll under the terms of the
plan based on any of the following health status-related factors
in relation to the individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and
mental illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the
extent consistent with section 701, paragraph (1) shall not be
construed--
``(A) to require a group health plan, or group
health insurance coverage, to provide particular
benefits other than those provided under the terms of
such plan or coverage, or
``(B) to prevent such a plan or coverage from
establishing limitations or restrictions on the amount,
level, extent, or nature of the benefits or coverage for
similarly situated individuals enrolled in the plan or
coverage.
``(3) Construction.--For purposes of paragraph (1), rules
for eligibility to enroll under a plan include rules defining
any applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan, and a health
insurance issuer offering health insurance coverage in
connection with a group health plan, may not require any
individual (as a condition of enrollment or continued enrollment
under the plan) to pay a premium or contribution which is
greater than such premium or contribution for a similarly
situated individual enrolled in the plan on the basis of any
health status-related factor in relation to the individual or to
an individual enrolled under the plan as a dependent of the
individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan, and a health
insurance issuer offering group health insurance
coverage, from establishing premium discounts or rebates
or modifying otherwise applicable copayments or
deductibles in return for adherence to programs of
health promotion and disease prevention.
``SEC. 703. GUARANTEED <<NOTE: 29 USC 1183.>> RENEWABILITY IN
MULTIEMPLOYER PLANS AND MULTIPLE
EMPLOYER WELFARE ARRANGEMENTS.
``A group health plan which is a multiemployer plan or which is a
multiple employer welfare arrangement may not deny an employer whose
employees are covered under such a plan continued access to the same or
different coverage under the terms of such a plan, other than--
``(1) for nonpayment of contributions;
``(2) for fraud or other intentional misrepresentation of
material fact by the employer;
``(3) for noncompliance with material plan provisions;
``(4) because the plan is ceasing to offer any coverage in a
geographic area;
``(5) in the case of a plan that offers benefits through a
network plan, there is no longer any individual enrolled through
the employer who lives, resides, or works in the service area of
the network plan and the plan applies this paragraph uniformly
without regard to the claims experience of employers or any
health status-related factor in relation to such individuals or
their dependents; and
``(6) for failure to meet the terms of an applicable
collective bargaining agreement, to renew a collective
bargaining or other agreement requiring or authorizing
contributions to the plan, or to employ employees covered by
such an agreement.
``SEC. 704. <<NOTE: 29 USC 1184.>> PREEMPTION; STATE FLEXIBILITY;
CONSTRUCTION.
``(a) Continued Applicability of State Law With Respect to Health
Insurance Issuers.--
``(1) In General.--Subject to paragraph (2) and except as
provided in subsection (b), this part shall not be construed to
supersede any provision of State law which establishes,
implements, or continues in effect any standard or requirement
solely relating to health insurance issuers in connection with
group health insurance coverage except to the extent that such
standard or requirement prevents the application of a
requirement of this part.
``(2) Continued preemption with respect to group health
plans.--Nothing in this part shall be construed to affect or
modify the provisions of section 514 with respect to group
health plans.
``(b) Special Rules in Case of Portability Requirements.--
``(1) In general.--Subject to paragraph (2), the provisions
of this part relating to health insurance coverage offered by a
health insurance issuer supersede any provision of State law
which establishes, implements, or continues in effect a standard
or requirement applicable to imposition of a preexisting
condition exclusion specifically governed by section 701 which
differs from the standards or requirements specified in such
section.
``(2) Exceptions.--Only in relation to health insurance
coverage offered by a health insurance issuer, the provisions of
this part do not supersede any provision of State law to the
extent that such provision--
``(A) substitutes for the reference to `6-month
period' in section 701(a)(1) a reference to any shorter
period of time;
``(B) substitutes for the reference to `12 months'
and `18 months' in section 701(a)(2) a reference to any
shorter period of time;
``(C) substitutes for the references to `63 days' in
sections 701 (c)(2)(A) and (d)(4)(A) a reference to any
greater number of days;
``(D) substitutes for the reference to `30-day
period' in sections 701 (b)(2) and (d)(1) a reference to
any greater period;
``(E) prohibits the imposition of any preexisting
condition exclusion in cases not described in section
701(d) or expands the exceptions described in such
section;
``(F) requires special enrollment periods in
addition to those required under section 701(f); or
``(G) reduces the maximum period permitted in an
affiliation period under section 701(g)(1)(B).
``(c) Rules of Construction.--Nothing in this part shall be
construed as requiring a group health plan or health insurance coverage
to provide specific benefits under the terms of such plan or coverage.
``(d) Definitions.--For purposes of this section--
``(1) State law.--The term `State law' includes all laws,
decisions, rules, regulations, or other State action having the
effect of law, of any State. A law of the United States
applicable only to the District of Columbia shall be treated as
a State law rather than a law of the United States.
``(2) State.--The term `State' includes a State, the
Northern Mariana Islands, any political subdivisions of a State
or such Islands, or any agency or instrumentality of either.
``SEC. 705. SPECIAL <<NOTE: 29 USC 1185.>> RULES RELATING TO GROUP
HEALTH PLANS.
``(a) General Exception for Certain Small Group Health Plans.--The
requirements of this part shall not apply to any group health plan (and
group health insurance coverage offered in connection with a group
health plan) for any plan year if, on the first day of such plan year,
such plan has less than 2 participants who are current employees.
``(b) Exception for Certain Benefits.--The requirements of this part
shall not apply to any group health plan (and group health insurance
coverage) in relation to its provision of excepted benefits described in
section 706(c)(1).
``(c) Exception for Certain Benefits if Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of this
part shall not apply to any group health plan (and group health
insurance coverage offered in connection with a group health
plan) in relation to its provision of excepted benefits
described in section 706(c)(2) if the benefits--
``(A) are provided under a separate policy,
certificate, or contract of insurance; or
``(B) are otherwise not an integral part of the
plan.
``(2) Noncoordinated, excepted benefits.--The requirements
of this part shall not apply to any group health plan (and group
health insurance coverage offered in connection with a group
health plan) in relation to its provision of excepted benefits
described in section 706(c)(3) if all of the following
conditions are met:
``(A) The benefits are provided under a separate
policy, certificate, or contract of insurance.
``(B) There is no coordination between the provision
of such benefits and any exclusion of benefits under any
group health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an
event without regard to whether benefits are provided
with respect to such an event under any group health
plan maintained by the same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of
this part shall not apply to any group health plan (and group
health insurance coverage) in relation to its provision of
excepted benefits described in section 706(c)(4) if the benefits
are provided under a separate policy, certificate, or contract
of insurance.
``(d) Treatment of Partnerships.--For purposes of this part--
``(1) Treatment as a group health plan.--Any plan, fund, or
program which would not be (but for this subsection) an employee
welfare benefit plan and which is established or maintained by a
partnership, to the extent that such plan, fund, or program
provides medical care (including items and services paid for as
medical care) to present or former partners in the partnership
or to their dependents (as defined under the terms of the plan,
fund, or program), directly or through insurance, reimbursement,
or otherwise, shall be treated (subject to paragraph (2)) as an
employee welfare benefit plan which is a group health plan.
``(2) Employer.--In the case of a group health plan, the
term `employer' also includes the partnership in relation to any
partner.
``(3) Participants of group health plans.--In the case of a
group health plan, the term `participant' also includes--
``(A) in connection with a group health plan
maintained by a partnership, an individual who is a
partner in relation to the partnership, or
``(B) in connection with a group health plan
maintained by a self-employed individual (under which
one or more employees are participants), the self-
employed individual,
if such individual is, or may become, eligible to receive a
benefit under the plan or such individual's beneficiaries may be
eligible to receive any such benefit.
``SEC. 706. <<NOTE: 29 USC 1186.>> DEFINITIONS.
``(a) Group Health Plan.--For purposes of this part--
``(1) In general.--The term `group health plan' means an
employee welfare benefit plan to the extent that the plan
provides medical care (as defined in paragraph (2) and including
items and services paid for as medical care) to employees or
their dependents (as defined under the terms of the plan)
directly or through insurance, reimbursement, or otherwise.
``(2) Medical care.--The term `medical care' means amounts
paid for--
``(A) the diagnosis, cure, mitigation, treatment, or
prevention of disease, or amounts paid for the purpose
of affecting any structure or function of the body,
``(B) amounts paid for transportation primarily for
and essential to medical care referred to in
subparagraph (A), and
``(C) amounts paid for insurance covering medical
care referred to in subparagraphs (A) and (B).
``(b) Definitions Relating to Health Insurance.--For purposes of
this part--
``(1) Health insurance coverage.--The term `health insurance
coverage' means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise and
including items and services paid for as medical care) under any
hospital or medical service policy or certificate, hospital or
medical service plan contract, or health maintenance
organization contract offered by a health insurance issuer.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or
insurance organization (including a health maintenance
organization, as defined in paragraph (3)) which is licensed to
engage in the business of insurance in a State and which is
subject to State law which regulates insurance (within the
meaning of section 514(b)(2)). Such term does not include a
group health plan.
``(3) Health maintenance organization.--The term `health
maintenance organization' means--
``(A) a federally qualified health maintenance
organization (as defined in section 1301(a) of the
Public Health Service Act (42 U.S.C. 300e(a))),
``(B) an organization recognized under State law as
a health maintenance organization, or
``(C) a similar organization regulated under State
law for solvency in the same manner and to the same
extent as such a health maintenance organization.
``(4) Group health insurance coverage.--The term `group
health insurance coverage' means, in connection with a group
health plan, health insurance coverage offered in connection
with such plan.
``(c) Excepted Benefits.--For purposes of this part, the term
`excepted benefits' means benefits under one or more (or any combination
thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability
income insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability
insurance.
``(C) Liability insurance, including general
liability insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home
care, home health care, community-based care, or any
combination thereof.
``(C) Such other similar, limited benefits as are
specified in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or
illness.
``(B) Hospital indemnity or other fixed indemnity
insurance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health
insurance (as defined under section 1882(g)(1) of the Social
Security Act), coverage supplemental to the coverage provided
under chapter 55 of title 10, United States Code, and similar
supplemental coverage provided to coverage under a group health
plan.
``(d) Other Definitions.--For purposes of this part--
``(1) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Part 6 of this subtitle.
``(B) Section 4980B of the Internal Revenue Code of
1986, other than subsection (f)(1) of such section
insofar as it relates to pediatric vaccines.
``(C) Title XXII of the Public Health Service Act.
``(2) Health status-related factor.--The term `health
status-related factor' means any of the factors described in
section 702(a)(1).
``(3) Network plan.--The term `network plan' means health
insurance coverage offered by a health insurance issuer under
which the financing and delivery of medical care (including
items and services paid for as medical care) are provided, in
whole or in part, through a defined set of providers under
contract with the issuer.
``(4) Placed for adoption.--The term `placement', or being
`placed', for adoption, has the meaning given such term in
section 609(c)(3)(B).
``SEC. 707. <<NOTE: 29 USC 1187.>> REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this part. The Secretary may promulgate any interim final
rules as the Secretary determines are appropriate to carry out this
part.''.
(b) Enforcement With Respect to Health Insurance Issuers.--Section
502(b) of such Act (29 U.S.C. 1132(b)) is amended by adding at the end
the following new paragraph:
``(3) The Secretary is not authorized to enforce under this part any
requirement of part 7 against a health insurance issuer offering health
insurance coverage in connection with a group health plan (as defined in
section 706(a)(1)). Nothing in this paragraph shall affect the authority
of the Secretary to issue regulations to carry out such part.''.
(c) Disclosure of Information to Participants and Beneficiaries.--
(1) In general.--Section 104(b)(1) of such Act (29 U.S.C.
1024(b)(1)) is amended in the matter following subpara-
graph (B)--
(A) by striking ``102(a)(1),'' and inserting
``102(a)(1) (other than a material reduction in covered
services or benefits provided in the case of a group
health plan (as defined in section 706(a)(1))),''; and
(B) by adding at the end the following new
sentences: ``If there is a modification or change
described in section 102(a)(1) that is a material
reduction in covered services or benefits provided under
a group health plan (as defined in section 706(a)(1)), a
summary description of such modification or change shall
be furnished to participants and beneficiaries not later
than 60 days after the date of the adoption of the
modification or change. In the alternative, the plan
sponsors may provide such description at regular
intervals of not more than 90 days. The Secretary shall
issue regulations within 180 days after the date of
enactment of the Health Insurance Portability and
Accountability Act of 1996, providing alternative
mechanisms to
delivery by mail through which group health plans (as so
defined) may notify participants and beneficiaries of
material reductions in covered services or benefits.''.
(2) Plan description and summary.--Section 102(b) of such
Act (29 U.S.C. 1022(b)) is amended--
(A) by inserting ``in the case of a group health
plan (as defined in section 706(a)(1)), whether a health
insurance issuer (as defined in section 706(b)(2)) is
responsible for the financing or administration
(including payment of claims) of the plan and (if so)
the name and address of such issuer;'' after ``type of
administration of the plan;''; and
(B) by inserting ``including the office at the
Department of Labor through which participants and
beneficiaries may seek assistance or information
regarding their rights under this Act and the Health
Insurance Portability and Accountability Act of 1996
with respect to health benefits that are offered through
a group health plan (as defined in section 706(a)(1))''
after ``benefits under the plan''.
(d) Treatment of Health Insurance Issuers Offering Health Insurance
Coverage to Noncovered Plans.--Section 4(b) of such Act (29 U.S.C.
1003(b)) is amended by adding at the end (after and below paragraph (5))
the following:
``The provisions of part 7 of subtitle B shall not apply to a health
insurance issuer (as defined in section 706(b)(2)) solely by reason of
health insurance coverage (as defined in section 706(b)(1)) provided by
such issuer in connection with a group health plan (as defined in
section 706(a)(1)) if the provisions of this title do not apply to such
group health plan.''.
(e) Reporting and Enforcement With Respect to Certain
Arrangements.--
(1) In general.--Section 101 of such Act (29 U.S.C. 1021) is
amended--
(A) by redesignating subsection (g) as subsection
(h), and
(B) by inserting after subsection (f) the following
new subsection:
``(g) Reporting by Certain Arrangements.--The Secretary may, by
regulation, require multiple employer welfare arrangements providing
benefits consisting of medical care (within the meaning of section
706(a)(2)) which are not group health plans to report, not more
frequently than annually, in such form and such manner as the Secretary
may require for the purpose of determining the extent to which the
requirements of part 7 are being carried out in connection with such
benefits.''.
(2) Enforcement.--
(A) In general.--Section 502 of such Act (29 U.S.C.
1132) is amended--
(i) in subsection (a)(6), by striking ``under
subsection (c)(2) or (i) or (l)'' and inserting
``under paragraph (2), (4), or (5) of subsection
(c) or under
subsection (i) or (l)''; and
(ii) in the last 2 sentences of subsection
(c), by striking ``For purposes of this
paragraph'' and all that follows through ``The
Secretary and'' and inserting the following:
``(5) The Secretary may assess a civil penalty against any person of
up to $1,000 a day from the date of the person's failure or refusal to
file the information required to be filed by such person with the
Secretary under regulations prescribed pursuant to section 101(g).
``(6) The Secretary and''.
(B) Technical and conforming amendment.--Section
502(c)(1) of such Act (29 U.S.C. 1132(c)(1)) is amended
by adding at the end the following sentence: ``For
purposes of this paragraph, each violation described in
subparagraph (A) with respect to any single participant,
and each violation described in subparagraph (B) with
respect to any single participant or beneficiary, shall
be treated as a separate violation.''.
(3) Coordination.--Section 506 of such Act (29 U.S.C. 1136)
is amended by adding at the end the following new subsection:
``(c) Coordination of Enforcement With States With Respect to
Certain Arrangements.--A State may enter into an agreement with the
Secretary for delegation to the State of some or all of the Secretary's
authority under sections 502 and 504 to enforce the requirements under
part 7 in connection with multiple employer welfare arrangements,
providing medical care (within the meaning of section 706(a)(2)), which
are not group health plans.''.
(f) Conforming Amendments.--
(1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is
amended by adding at the end the following new paragraph:
``(9) For additional provisions relating to group health plans, see
section 704.''.
(2)(A) Part 6 of subtitle B of title I of such Act (29
U.S.C. 1161 et seq.) is amended by striking the heading and
inserting the following:
``Part 6--Continuation Coverage and Additional Standards for Group
Health Plans''.
(B) The table of contents in section 1 of such Act is
amended by striking the item relating to the heading for part 6
of subtitle B of title I and inserting the following:
``Part 6--Continuation Coverage and Additional Standards for Group
Health Plans''.
(3) The table of contents in section 1 of such Act (as
amended by the preceding provisions of this section) is amended
by inserting after the items relating to part 6 the following
new items:
``Part 7--Group Health Plan Portability, Access, and Renewability
Requirements
``Sec. 701. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 702. Prohibiting discrimination against individual participants
and beneficiaries based on health status.
``Sec. 703. Guaranteed renewability in multiemployer plans and multiple
employer welfare arrangements.
``Sec. 704. Preemption; State flexibility; construction.
``Sec. 705. Special rules relating to group health plans.
``Sec. 706. Definitions.
``Sec. 707. Regulations.''.
(g) Effective <<NOTE: 29 USC 1181 note.>> Dates.--
(1) In general.--Except as provided in this section, this
section (and the amendments made by this section) shall apply
with respect to group health plans for plan years beginning
after June 30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no
period before July 1, 1996, shall be taken into
account under part 7 of subtitle B of title I of
the Employee Retirement Income Security Act of
1974 (as added by this section) in determining
creditable coverage.
(ii) Special rule for certain periods.--The
Secretary of Labor, consistent with section 104,
shall provide for a process whereby individuals
who need to establish creditable coverage for
periods before July 1, 1996, and who would have
such coverage credited but for clause (i) may be
given credit for creditable coverage for such
periods through the presentation of documents or
other means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and
(iii), subsection (e) of section 701 of the
Employee Retirement Income Security Act of 1974
(as added by this section) shall apply to events
occurring after June 30, 1996.
(ii) No certification required to be provided
before june 1, 1997.--In no case is a
certification required to be provided under such
subsection before June 1, 1997.
(iii) Certification only on written request
for events occurring before october 1, 1996.--In
the case of an event occurring after June 30,
1996, and before October 1, 1996, a certification
is not required to be provided under such
subsection unless an individual (with respect to
whom the certification is otherwise required to be
made) requests such certification in writing.
(C) Transitional rule.--In the case of an individual
who seeks to establish creditable coverage for any
period for which certification is not required because
it relates to an event occurring before June 30, 1996--
(i) the individual may present other credible
evidence of such coverage in order to establish
the period of creditable coverage; and
(ii) a group health plan and a health
insurance issuer shall not be subject to any
penalty or enforcement action with respect to the
plan's or issuer's crediting (or not crediting)
such coverage if the plan or issuer has sought to
comply in good faith with the applicable
requirements under the amendments made by this
section.
(3) Special rule for collective bargaining agreements.--
Except as provided in paragraph (2), in the case of a group
health plan maintained pursuant to one or more collective
bargaining agreements between employee representatives and one
or more employers ratified before the date of the enactment of
this Act, part 7 of subtitle B of title I of Employee Retirement
Income Security Act of 1974 (other than section 701(e) thereof)
shall not apply to plan years beginning before the later of--
(A) the date on which the last of the collective
bargaining agreements relating to the plan terminates
(determined without regard to any extension thereof
agreed to after the date of the enactment of this Act),
or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made
pursuant to a collective bargaining agreement relating to the
plan which amends the plan solely to conform to any requirement
of such part shall not be treated as a termination of such
collective bargaining agreement.
(4) Timely regulations.--The Secretary of Labor, consistent
with section 104, shall first issue by not later than April 1,
1997, such regulations as may be necessary to carry out the
amendments made by this section.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against
a group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of
regulations referred to in paragraph (4), if the plan or issuer
has sought to comply in good faith with such requirements.
SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.
(a) In General.--The Public Health Service Act is amended by adding
at the end the following new title:
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
HEALTH INSURANCE COVERAGE
``Part A--Group Market Reforms
``Subpart 1--Portability, Access, and Renewability Requirements
``SEC. 2701. INCREASED <<NOTE: 42 USC 300gg.>> PORTABILITY
THROUGH LIMITATION ON PREEXISTING
CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan, and a health insurance issuer offering group health
insurance coverage, may, with respect to a participant or beneficiary,
impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether
physical or mental), regardless of the cause of the condition,
for which medical advice, diagnosis, care, or treatment was
recommended or received within the 6-month period ending on the
enrollment date;
``(2) such exclusion extends for a period of not more than
12 months (or 18 months in the case of a late enrollee) after
the enrollment date; and
``(3) the period of any such preexisting condition exclusion
is reduced by the aggregate of the periods of creditable
coverage (if any, as defined in subsection (c)(1)) applicable to
the participant or beneficiary as of the enrollment date.
``(b) Definitions.--For purposes of this part--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation
or exclusion of benefits relating to a condition based
on the fact that the condition was present before the
date of enrollment for such coverage, whether or not any
medical advice, diagnosis, care, or treatment was
recommended or received before such date.
``(B) Treatment of genetic information.--Genetic
information shall not be treated as a condition
described in subsection (a)(1) in the absence of a
diagnosis of the condition related to such information.
``(2) Enrollment date.--The term `enrollment date' means,
with respect to an individual covered under a group health plan
or health insurance coverage, the date of enrollment of the
individual in the plan or coverage or, if earlier, the first day
of the waiting period for such enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is
eligible to enroll under the plan, or
``(B) a special enrollment period under subsection
(f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a
potential participant or beneficiary in the plan, the period
that must pass with respect to the individual before the
individual is eligible to be covered for benefits under the
terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this
title, the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the
following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other
than coverage consisting solely of benefits under
section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health
Service or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of
title 5, United States Code.
``(I) A public health plan (as defined in
regulations).
``(J) A health benefit plan under section 5(e) of
the Peace Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of
coverage of excepted benefits (as defined in section 2791(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage
shall not be counted, with respect to enrollment of an
individual under a group health plan, if, after such
period and before the enrollment date, there was a 63-
day period during all of which the individual was not
covered under any creditable coverage.
``(B) Waiting period not treated as a break in
coverage.--For purposes of subparagraph (A) and
subsection (d)(4), any period that an individual is in a
waiting period for any coverage under a group health
plan (or for group health insurance coverage) or is in
an affiliation period (as defined in subsection (g)(2))
shall not be taken into account in determining the
continuous period under subparagraph (A).
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided
under subparagraph (B), for purposes of applying
subsection (a)(3), a group health plan, and a health
insurance issuer offering group health insurance
coverage, shall count a period of creditable coverage
without regard to the specific benefits covered during
the period.
``(B) Election of alternative method.--A group
health plan, or a health insurance issuer offering group
health insurance, may elect to apply subsection (a)(3)
based on coverage of benefits within each of several
classes or categories of benefits specified in
regulations rather than as provided under subparagraph
(A). Such election shall be made on a uniform basis for
all participants and beneficiaries. Under such election
a group health plan or issuer shall count a period of
creditable coverage with respect to any class or
category of benefits if any level of benefits is covered
within such class or category.
``(C) Plan notice.--In the case of an election with
respect to a group health plan under subparagraph (B)
(whether or not health insurance coverage is provided in
connection with such plan), the plan shall--
``(i) prominently state in any disclosure
statements concerning the plan, and state to each
enrollee at the time of enrollment under the plan,
that the plan has made such election, and
``(ii) include in such statements a
description of the effect of this election.
``(D) Issuer notice.--In the case of an election
under subparagraph (B) with respect to health insurance
coverage offered by an issuer in the small or large
group market, the issuer--
``(i) shall prominently state in any
disclosure statements concerning the coverage, and
to each employer at the time of the offer or sale
of the coverage, that the issuer has made such
election, and
``(ii) shall include in such statements a
description of the effect of such election.
``(4) Establishment of period.--Periods of creditable
coverage with respect to an individual shall be established
through presentation of certifications described in subsection
(e) or in such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject
to paragraph (4), a group health plan, and a health insurance
issuer offering group health insurance coverage, may not impose
any preexisting condition exclusion in the case of an individual
who, as of the last day of the 30-day period beginning with the
date of birth, is covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted
children.--Subject to paragraph (4), a group health plan, and a
health insurance issuer offering group health insurance
coverage, may not impose any preexisting condition exclusion in
the case of a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-
day period beginning on the date of the adoption or placement
for adoption, is covered under creditable coverage. The previous
sentence shall not apply to coverage before the date of such
adoption or placement for adoption.
``(3) Exclusion not applicable to pregnancy.--A group health
plan, and health insurance issuer offering group health
insurance coverage, may not impose any preexisting condition
exclusion relating to pregnancy as a preexisting condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2)
shall no longer apply to an individual after the end of the
first 63-day period during all of which the individual was not
covered under any creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of creditable
coverage.--
``(A) In general.--A group health plan, and a health
insurance issuer offering group health insurance
coverage, shall provide the certification described in
subparagraph (B)--
``(i) at the time an individual ceases to be
covered under the plan or otherwise becomes
covered under a COBRA continuation provision,
``(ii) in the case of an individual becoming
covered under such a provision, at the time the
individual ceases to be covered under such
provision, and
``(iii) on the request on behalf of an
individual made not later than 24 months after the
date of cessation of the coverage described in
clause (i) or (ii), whichever is later.
The certification under clause (i) may be provided, to
the extent practicable, at a time consistent with
notices required under any applicable COBRA continuation
provision.
``(B) Certification.--The certification described in
this subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage (if
any) under such COBRA continuation provision, and
``(ii) the waiting period (if any) (and
affiliation period, if applicable) imposed with
respect to the individual for any coverage under
such plan.
``(C) Issuer compliance.--To the extent that medical
care under a group health plan consists of group health
insurance coverage, the plan is deemed to have satisfied
the certification requirement under this paragraph if
the health insurance issuer offering the coverage
provides for such certification in accordance with this
paragraph.
``(2) Disclosure of information on previous benefits.--In
the case of an election described in subsection (c)(3)(B) by a
group health plan or health insurance issuer, if the plan or
issuer enrolls an individual for coverage under the plan and the
individual provides a certification of coverage of the
individual under paragraph (1)--
``(A) upon request of such plan or issuer, the
entity which issued the certification provided by the
individual shall promptly disclose to such requesting
plan or issuer information on coverage of classes and
categories of health benefits available under such
entity's plan or coverage, and
``(B) such entity may charge the requesting plan or
issuer for the reasonable cost of disclosing such
information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under
paragraph (1) or (2) with respect to previous coverage of an
individual from adversely affecting any subsequent coverage of
the individual under another group health plan or health
insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health
plan, and a health insurance issuer offering group health
insurance coverage in connection with a group health plan, shall
permit an employee who is eligible, but not enrolled, for
coverage under the terms of the plan (or a dependent of such an
employee if the dependent is eligible, but not enrolled, for
coverage under such terms) to enroll for coverage under the
terms of the plan if each of the following conditions is met:
``(A) The employee or dependent was covered under a
group health plan or had health insurance coverage at
the time coverage was previously offered to the employee
or dependent.
``(B) The employee stated in writing at such time
that coverage under a group health plan or health
insurance coverage was the reason for declining
enrollment, but only if the plan sponsor or issuer (if
applicable) required such a statement at such time and
provided the employee with notice of such requirement
(and the consequences of such requirement) at such time.
``(C) The employee's or dependent's coverage
described in subparagraph (A)--
``(i) was under a COBRA continuation provision
and the coverage under such provision was
exhausted; or
``(ii) was not under such a provision and
either the coverage was terminated as a result of
loss of eligibility for the coverage (including as
a result of legal separation, divorce, death,
termination of employment, or reduction in the
number of hours of employment) or employer
contributions toward such coverage were
terminated.
``(D) Under the terms of the plan, the employee
requests such enrollment not later than 30 days after
the date of exhaustion of coverage described in
subparagraph (C)(i) or termination of coverage or
employer contribution described in subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage
available with respect to a dependent of an
individual,
``(ii) the individual is a participant under
the plan (or has met any waiting period applicable
to becoming a participant under the plan and is
eligible to be enrolled under the plan but for a
failure to enroll during a previous enrollment
period), and
``(iii) a person becomes such a dependent of
the individual through marriage, birth, or
adoption or placement for adoption,
the group health plan shall provide for a dependent
special enrollment period described in subparagraph (B)
during which the person (or, if not otherwise enrolled,
the individual) may be enrolled under the plan as a
dependent of the individual, and in the case of the
birth or adoption of a child, the spouse of the
individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for
coverage.
``(B) Dependent special enrollment period.--A
dependent special enrollment period under this
subparagraph shall be a period of not less than 30 days
and shall begin on the later of--
``(i) the date dependent coverage is made
available, or
``(ii) the date of the marriage, birth, or
adoption or placement for adoption (as the case
may be) described in subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks to
enroll a dependent during the first 30 days of such a
dependent special enrollment period, the coverage of the
dependent shall become effective--
``(i) in the case of marriage, not later than
the first day of the first month beginning after
the date the completed request for enrollment is
received;
``(ii) in the case of a dependent's birth, as
of the date of such birth; or
``(iii) in the case of a dependent's adoption
or placement for adoption, the date of such
adoption or placement for adoption.
``(g) Use of Affiliation Period by HMOs as Alternative to
Preexisting Condition Exclusion.--
``(1) In general.--A health maintenance organization which
offers health insurance coverage in connection with a group
health plan and which does not impose any preexisting condition
exclusion allowed under subsection (a) with respect to any
particular coverage option may impose an affiliation period for
such coverage option, but only if--
``(A) such period is applied uniformly without
regard to any health status-related factors; and
``(B) such period does not exceed 2 months (or 3
months in the case of a late enrollee).
``(2) Affiliation period.--
``(A) Defined.--For purposes of this title, the term
`affiliation period' means a period which, under the
terms of the health insurance coverage offered by the
health maintenance organization, must expire before the
health insurance coverage becomes effective. The
organization is not required to provide health care
services or benefits during such period and no premium
shall be charged to the participant or beneficiary for
any coverage during the period.
``(B) Beginning.--Such period shall begin on the
enrollment date.
``(C) Runs concurrently with waiting periods.--An
affiliation period under a plan shall run concurrently
with any waiting period under the plan.
``(3) Alternative methods.--A health maintenance
organization described in paragraph (1) may use alternative
methods, from those described in such paragraph, to address
adverse selection as approved by the State insurance
commissioner or official or officials designated by the State to
enforce the requirements of this part for the State involved
with respect to such issuer.
``SEC. 2702. PROHIBITING <<NOTE: 42 USC 300gg-1.>> DISCRIMINATION
AGAINST INDIVIDUAL PARTICIPANTS AND
BENEFICIARIES BASED ON HEALTH STATUS.
``(a) In Eligibility To Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan, and a health insurance issuer offering group health
insurance coverage in connection with a group health plan, may
not establish rules for eligibility (including continued
eligibility) of any individual to enroll under the terms of the
plan based on any of the following health status-related factors
in relation to the individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and
mental illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the
extent consistent with section 701, paragraph (1) shall not be
construed--
``(A) to require a group health plan, or group
health insurance coverage, to provide particular
benefits other than those provided under the terms of
such plan or coverage, or
``(B) to prevent such a plan or coverage from
establishing limitations or restrictions on the amount,
level, extent, or nature of the benefits or coverage for
similarly situated individuals enrolled in the plan or
coverage.
``(3) Construction.--For purposes of paragraph (1), rules
for eligibility to enroll under a plan include rules defining
any applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan, and a health
insurance issuer offering health insurance coverage in
connection with a group health plan, may not require any
individual (as a condition of enrollment or continued enrollment
under the plan) to pay a premium or contribution which is
greater than such premium or contribution for a similarly
situated individual enrolled in the plan on the basis of any
health status-related factor in relation to the individual or to
an individual enrolled under the plan as a dependent of the
individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan, and a health
insurance issuer offering group health insurance
coverage, from establishing premium discounts or rebates
or modifying otherwise applicable copayments or
deductibles in return for adherence to programs of
health promotion and disease prevention.
``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
``SEC. 2711. GUARANTEED <<NOTE: 42 USC 300gg-11.>> AVAILABILITY
OF COVERAGE FOR
EMPLOYERS IN THE GROUP MARKET.
``(a) Issuance of Coverage in the Small Group Market.--
``(1) In general.--Subject to subsections (c) through (f),
each health insurance issuer that offers health insurance
coverage in the small group market in a State--
``(A) must accept every small employer (as defined
in section 2791(e)(4)) in the State that applies for
such coverage; and
``(B) must accept for enrollment under such coverage
every eligible individual (as defined in paragraph (2))
who applies for enrollment during the period in which
the individual first becomes eligible to enroll under
the terms of the group health plan and may not place any
restriction which is inconsistent with section 2702 on
an eligible individual being a participant or
beneficiary.
``(2) Eligible individual defined.--For purposes of this
section, the term `eligible individual' means, with respect to a
health insurance issuer that offers health insurance coverage to
a small employer in connection with a group health plan in the
small group market, such an individual in relation to the
employer as shall be determined--
``(A) in accordance with the terms of such plan,
``(B) as provided by the issuer under rules of the
issuer which are uniformly applicable in a State to
small employers in the small group market, and
``(C) in accordance with all applicable State laws
governing such issuer and such market.
``(b) Assuring Access in the Large Group Market.--
``(1) Reports to hhs.--The Secretary shall request that the
chief executive officer of each State submit to the Secretary,
by not later December 31, 2000, and every 3 years thereafter a
report on--
``(A) the access of large employers to health
insurance coverage in the State, and
``(B) the circumstances for lack of access (if any)
of large employers (or one or more classes of such
employers) in the State to such coverage.
``(2) Triennial reports to congress.--The Secretary, based
on the reports submitted under paragraph (1) and such other
information as the Secretary may use, shall prepare and submit
to Congress, every 3 years, a report describing the extent to
which large employers (and classes of such employers) that seek
health insurance coverage in the different States are able to
obtain access to such coverage. Such report shall include such
recommendations as the Secretary determines to be appropriate.
``(3) GAO report on large employer access to health
insurance coverage.--The Comptroller General shall provide for a
study of the extent to which classes of large employers in the
different States are able to obtain access to health insurance
coverage and the circumstances for lack of access (if any) to
such coverage. The Comptroller General shall submit to Congress
a report on such study not later than 18 months after the date
of the enactment of this title.
``(c) Special Rules for Network Plans.--
``(1) In general.--In the case of a health insurance issuer
that offers health insurance coverage in the small group market
through a network plan, the issuer may--
``(A) limit the employers that may apply for such
coverage to those with eligible individuals who live,
work, or reside in the service area for such network
plan; and
``(B) within the service area of such plan, deny
such coverage to such employers if the issuer has
demonstrated, if required, to the applicable State
authority that--
``(i) it will not have the capacity to deliver
services adequately to enrollees of any additional
groups because of its obligations to existing
group contract holders and enrollees, and
``(ii) it is applying this paragraph uniformly
to all employers without regard to the claims
experience of those employers and their employees
(and their dependents) or any health status-
related factor relating to such employees and
dependents.
``(2) 180-day suspension upon denial of coverage.--An
issuer, upon denying health insurance coverage in any service
area in accordance with paragraph (1)(B), may not offer coverage
in the small group market within such service area for a period
of 180 days after the date such coverage is denied.
``(d) Application of Financial Capacity Limits.--
``(1) In general.--A health insurance issuer may deny health
insurance coverage in the small group market if the issuer has
demonstrated, if required, to the applicable State authority
that--
``(A) it does not have the financial reserves
necessary to underwrite additional coverage; and
``(B) it is applying this paragraph uniformly to all
employers in the small group market in the State
consistent with applicable State law and without regard
to the claims experience of those employers and their
employees (and their dependents) or any health status-
related factor relating to such employees and
dependents.
``(2) 180-day suspension upon denial of coverage.--A health
insurance issuer upon denying health insurance coverage in
connection with group health plans in accordance with paragraph
(1) in a State may not offer coverage in connection with group
health plans in the small group market in the State for a period
of 180 days after the date such coverage is denied or until the
issuer has demonstrated to the applicable State authority, if
required under applicable State law, that the issuer has
sufficient financial reserves to underwrite additional coverage,
whichever is later. An applicable State authority may provide
for the application of this subsection on a service-area-
specific basis.
``(e) Exception to Requirement for Failure To Meet Certain Minimum
Participation or Contribution Rules.--
``(1) In general.--Subsection (a) shall not be construed to
preclude a health insurance issuer from establishing employer
contribution rules or group participation rules for the offering
of health insurance coverage in connection
with a group health plan in the small group market, as allowed under
applicable State law.
``(2) Rules defined.--For purposes of paragraph (1)--
``(A) the term `employer contribution rule' means a
requirement relating to the minimum level or amount of
employer contribution toward the premium for enrollment
of participants and beneficiaries; and
``(B) the term `group participation rule' means a
requirement relating to the minimum number of
participants or beneficiaries that must be enrolled in
relation to a specified percentage or number of eligible
individuals or employees of an employer.
``(f) Exception for Coverage Offered Only to Bona Fide Association
Members.--Subsection (a) shall not apply to health insurance coverage
offered by a health insurance issuer if such coverage is made available
in the small group market only through one or more bona fide
associations (as defined in section 2791(d)(3)).
``SEC. 2712. GUARANTEED <<NOTE: 42 USC 300gg-12.>> RENEWABILITY
OF COVERAGE FOR EMPLOYERS IN THE GROUP
MARKET.
``(a) In General.--Except as provided in this section, if a health
insurance issuer offers health insurance coverage in the small or large
group market in connection with a group health plan, the issuer must
renew or continue in force such coverage at the option of the plan
sponsor of the plan.
``(b) General Exceptions.--A health insurance issuer may nonrenew or
discontinue health insurance coverage offered in connection with a group
health plan in the small or large group market based only on one or more
of the following:
``(1) Nonpayment of premiums.--The plan sponsor has failed
to pay premiums or contributions in accordance with the terms of
the health insurance coverage or the issuer has not received
timely premium payments.
``(2) Fraud.--The plan sponsor has performed an act or
practice that constitutes fraud or made an intentional
misrepresentation of material fact under the terms of the
coverage.
``(3) Violation of participation or contribution rules.--The
plan sponsor has failed to comply with a material plan provision
relating to employer contribution or group participation rules,
as permitted under section 2711(e) in the case of the small
group market or pursuant to applicable State law in the case of
the large group market.
``(4) Termination of coverage.--The issuer is ceasing to
offer coverage in such market in accordance with subsection (c)
and applicable State law.
``(5) Movement outside service area.--In the case of a
health insurance issuer that offers health insurance coverage in
the market through a network plan, there is no longer any
enrollee in connection with such plan who lives, resides, or
works in the service area of the issuer (or in the area for
which the issuer is authorized to do business) and, in the case
of the small group market, the issuer would deny enrollment with
respect to such plan under section 2711(c)(1)(A).
``(6) Association membership ceases.--In the case of health
insurance coverage that is made available in the small or large
group market (as the case may be) only through one or more bona
fide associations, the membership of an employer in the
association (on the basis of which the coverage is provided)
ceases but only if such coverage is terminated under this
paragraph uniformly without regard to any health status-related
factor relating to any covered individual.
``(c) Requirements for Uniform Termination of Coverage.--
``(1) Particular type of coverage not offered.--In any case
in which an issuer decides to discontinue offering a particular
type of group health insurance coverage offered in the small or
large group market, coverage of such type may be discontinued by
the issuer in accordance with applicable State law in such
market only if--
``(A) the issuer provides notice to each plan
sponsor provided coverage of this type in such market
(and participants and beneficiaries covered under such
coverage) of such discontinuation at least 90 days prior
to the date of the discontinuation of such coverage;
``(B) the issuer offers to each plan sponsor
provided coverage of this type in such market, the
option to purchase all (or, in the case of the large
group market, any) other health insurance coverage
currently being offered by the issuer to a group health
plan in such market; and
``(C) in exercising the option to discontinue
coverage of this type and in offering the option of
coverage under subparagraph (B), the issuer acts
uniformly without regard to the claims experience of
those sponsors or any health status-related factor
relating to any participants or beneficiaries covered or
new participants or beneficiaries who may become
eligible for such coverage.
``(2) Discontinuance of all coverage.--
``(A) In general.--In any case in which a health
insurance issuer elects to discontinue offering all
health insurance coverage in the small group market or
the large group market, or both markets, in a State,
health insurance coverage may be discontinued by the
issuer only in accordance with applicable State law and
if--
``(i) the issuer provides notice to the
applicable State authority and to each plan
sponsor (and participants and beneficiaries
covered under such coverage) of such
discontinuation at least 180 days prior to the
date of the discontinuation of such coverage; and
``(ii) all health insurance issued or
delivered for issuance in the State in such market
(or markets) are discontinued and coverage under
such health insurance coverage in such market (or
markets) is not renewed.
``(B) Prohibition on market reentry.--In the case of
a discontinuation under subparagraph (A) in a market,
the issuer may not provide for the issuance of any
health insurance coverage in the market and State
involved during the 5-year period beginning on the date
of the discontinuation of the last health insurance
coverage not so renewed.
``(d) Exception for Uniform Modification of Coverage.--At the time
of coverage renewal, a health insurance issuer may modify the health
insurance coverage for a product offered to a group health plan--
``(1) in the large group market; or
``(2) in the small group market if, for coverage that is
available in such market other than only through one or more
bona fide associations, such modification is consistent with
State law and effective on a uniform basis among group health
plans with that product.
``(e) Application to Coverage Offered Only Through Associations.--In
applying this section in the case of health insurance coverage that is
made available by a health insurance issuer in the small or large group
market to employers only through one or more associations, a reference
to `plan sponsor' is deemed, with respect to coverage provided to an
employer member of the association, to include a reference to such
employer.
``SEC. 2713. <<NOTE: 42 USC 300gg-13.>> DISCLOSURE OF INFORMATION.
``(a) Disclosure of Information by Health Plan Issuers.--In
connection with the offering of any health insurance coverage to a small
employer, a health insurance issuer--
``(1) shall make a reasonable disclosure to such employer,
as part of its solicitation and sales materials, of the
availability of information described in subsection (b), and
``(2) upon request of such a small employer, provide such
information.
``(b) Information Described.--
``(1) In general.--Subject to paragraph (3), with respect to
a health insurance issuer offering health insurance coverage to
a small employer, information described in this subsection is
information concerning--
``(A) the provisions of such coverage concerning
issuer's right to change premium rates and the factors
that may affect changes in premium rates;
``(B) the provisions of such coverage relating to
renewability of coverage;
``(C) the provisions of such coverage relating to
any preexisting condition exclusion; and
``(D) the benefits and premiums available under all
health insurance coverage for which the employer is
qualified.
``(2) Form of information.--Information under this
subsection shall be provided to small employers in a manner
determined to be understandable by the average small employer,
and shall be sufficient to reasonably inform small employers of
their rights and obligations under the health insurance
coverage.
``(3) Exception.--An issuer is not required under this
section to disclose any information that is proprietary and
trade secret information under applicable law.
``Subpart 3--Exclusion of Plans; Enforcement; Preemption
``SEC. 2721. <<NOTE: 42 USC 300gg-21.>> EXCLUSION OF CERTAIN PLANS.
``(a) Exception for Certain Small Group Health Plans.--The
requirements of subparts 1 and 2 shall not apply to any group health
plan (and health insurance coverage offered in connection with a group
health plan) for any plan year if, on the first day of such plan year,
such plan has less than 2 participants who are current employees.
``(b) Limitation on Application of Provisions Relating to Group
Health Plans.--
``(1) In general.--The requirements of subparts 1 and 2
shall apply with respect to group health plans only--
``(A) subject to paragraph (2), in the case of a
plan that is a nonfederal governmental plan, and
``(B) with respect to health insurance coverage
offered in connection with a group health plan
(including such a plan that is a church plan or a
governmental plan).
``(2) Treatment of nonfederal governmental plans.--
``(A) Election to be excluded.--If the plan sponsor
of a nonfederal governmental plan which is a group
health plan to which the provisions of subparts 1 and 2
otherwise apply makes an election under this
subparagraph (in such form and manner as the Secretary
may by regulations prescribe), then the requirements of
such subparts insofar as they apply directly to group
health plans (and not merely to group health insurance
coverage) shall not apply to such governmental plans for
such period except as provided in this paragraph.
``(B) Period of election.--An election under
subparagraph (A) shall apply--
``(i) for a single specified plan year, or
``(ii) in the case of a plan provided pursuant
to a collective bargaining agreement, for the term
of such agreement.
An election under clause (i) may be extended through
subsequent elections under this paragraph.
``(C) Notice to enrollees.--Under such an election,
the plan shall provide for--
``(i) notice to enrollees (on an annual basis
and at the time of enrollment under the plan) of
the fact and consequences of such election, and
``(ii) certification and disclosure of
creditable coverage under the plan with respect to
enrollees in accordance with section 2701(e).
``(c) Exception for Certain Benefits.--The requirements of subparts
1 and 2 shall not apply to any group health plan (or group health
insurance coverage) in relation to its provision of excepted benefits
described in section 2791(c)(1).
``(d) Exception for Certain Benefits If Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of
subparts 1 and 2 shall not apply to any group health plan (and
group health insurance coverage offered in connection with a
group health plan) in relation to its provision of excepted
benefits described in section 2791(c)(2) if the benefits--
``(A) are provided under a separate policy,
certificate, or contract of insurance; or
``(B) are otherwise not an integral part of the
plan.
``(2) Noncoordinated, excepted benefits.--The requirements
of subparts 1 and 2 shall not apply to any group health plan
(and group health insurance coverage offered in connection with
a group health plan) in relation to its provision of excepted
benefits described in section 2791(c)(3) if all of the following
conditions are met:
``(A) The benefits are provided under a separate
policy, certificate, or contract of insurance.
``(B) There is no coordination between the provision
of such benefits and any exclusion of benefits under any
group health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an
event without regard to whether benefits are provided
with respect to such an event under any group health
plan maintained by the same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of
this part shall not apply to any group health plan (and group
health insurance coverage) in relation to its provision of
excepted benefits described in section 27971(c)(4) if the
benefits are provided under a separate policy, certificate, or
contract of insurance.
``(e) Treatment of Partnerships.--For purposes of this part--
``(1) Treatment as a group health plan.--Any plan, fund, or
program which would not be (but for this subsection) an employee
welfare benefit plan and which is established or maintained by a
partnership, to the extent that such plan, fund, or program
provides medical care (including items and services paid for as
medical care) to present or former partners in the partnership
or to their dependents (as defined under the terms of the plan,
fund, or program), directly or through insurance, reimbursement,
or otherwise, shall be treated (subject to paragraph (2)) as an
employee welfare benefit plan which is a group health plan.
``(2) Employer.--In the case of a group health plan, the
term `employer' also includes the partnership in relation to any
partner.
``(3) Participants of group health plans.--In the case of a
group health plan, the term `participant' also includes--
``(A) in connection with a group health plan
maintained by a partnership, an individual who is a
partner in relation to the partnership, or
``(B) in connection with a group health plan
maintained by a self-employed individual (under which
one or more employees are participants), the self-
employed individual,
if such individual is, or may become, eligible to receive a
benefit under the plan or such individual's beneficiaries may be
eligible to receive any such benefit.
``SEC. 2722. <<NOTE: 42 USC 2722.>> ENFORCEMENT.
``(a) State Enforcement.--
``(1) State authority.--Subject to section 2723, each State
may require that health insurance issuers that issue, sell,
renew, or offer health insurance coverage in the State in the
small or large group markets meet the requirements of this part
with respect to such issuers.
``(2) Failure to implement provisions.--In the case of a
determination by the Secretary that a State has failed to
substantially enforce a provision (or provisions) in this part
with respect to health insurance issuers in the State, the
Secretary shall enforce such provision (or provisions) under
subsection (b) insofar as they relate to the issuance, sale,
renewal, and offering of health insurance coverage in connection
with group health plans in such State.
``(b) Secretarial Enforcement Authority.--
``(1) Limitation.--The provisions of this subsection shall
apply to enforcement of a provision (or provisions) of this part
only--
``(A) as provided under subsection (a)(2); and
``(B) with respect to group health plans that are
non-Federal governmental plans.
``(2) Imposition of penalties.--In the cases described in
paragraph (1)--
``(A) In general.--Subject to the succeeding
provisions of this subsection, any non-Federal
governmental plan that is a group health plan and any
health insurance issuer that fails to meet a provision
of this part applicable to such plan or issuer is
subject to a civil money penalty under this subsection.
``(B) Liability for penalty.--In the case of a
failure by--
``(i) a health insurance issuer, the issuer is
liable for such penalty, or
``(ii) a group health plan that is a non-
Federal governmental plan which is--
``(I) sponsored by 2 or more
employers, the plan is liable for such
penalty, or
``(II) not so sponsored, the
employer is liable for such penalty.
``(C) Amount of penalty.--
``(i) In general.--The maximum amount of
penalty imposed under this paragraph is $100 for
each day for each individual with respect to which
such a failure occurs.
``(ii) Considerations in imposition.--In
determining the amount of any penalty to be
assessed under this paragraph, the Secretary shall
take into account the previous record of
compliance of the entity being assessed with the
applicable provisions of this part and the gravity
of the violation.
``(iii) Limitations.--
``(I) Penalty not to apply where
failure not discovered exercising
reasonable diligence.--No civil money
penalty shall be imposed under this
paragraph on any failure during any
period for which it is established to
the satisfaction of the Secretary that
none of the entities against whom the
penalty would be imposed knew, or
exercising reasonable diligence would
have known, that such failure existed.
``(II) Penalty not to apply to
failures corrected within 30 days.--No
civil money penalty shall be imposed
under this paragraph on any failure if
such failure was due to reasonable cause
and not to willful neglect, and such
failure is corrected during the 30-day
period beginning on the first day any of
the entities against whom the penalty
would be imposed knew, or exercising
reasonable diligence would have known,
that such failure existed.
``(D) Administrative review.--
``(i) Opportunity for hearing.--The entity
assessed shall be afforded an opportunity for
hearing by the Secretary upon request made within
30 days after the date of the issuance of a notice
of assessment. In such hearing the decision shall
be made on the record pursuant to section 554 of
title 5, United States Code. If no hearing is
requested, the assessment shall constitute a final
and unappealable order.
``(ii) Hearing procedure.--If a hearing is
requested, the initial agency decision shall be
made by an administrative law judge, and such
decision shall become the final order unless the
Secretary modifies or vacates the decision. Notice
of intent to modify or vacate the decision of the
administrative law judge shall be issued to the
parties within 30 days after the date of the
decision of the judge. A final order which takes
effect under this paragraph shall be
subject to review only as provided under
subparagraph (E).
``(E) Judicial review.--
``(i) Filing of action for review.--Any entity
against whom an order imposing a civil money
penalty has been entered after an agency hearing
under this paragraph may obtain review by the
United States district court for any district in
which such entity is located or the United States
District Court for the District of Columbia by
filing a notice of appeal in such court within 30
days from the date of such order, and
simultaneously sending a copy of such notice by
registered mail to the Secretary.
``(ii) Certification of administrative
record.--The Secretary shall promptly certify and
file in such court the record upon which the
penalty was imposed.
``(iii) Standard for review.--The findings of
the Secretary shall be set aside only if found to
be unsupported by substantial evidence as provided
by section 706(2)(E) of title 5, United States
Code.
``(iv) Appeal.--Any final decision, order, or
judgment of the district court concerning such
review shall be subject to appeal as provided in
chapter 83 of title 28 of such Code.
``(F) Failure to pay assessment; maintenance of
action.--
``(i) Failure to pay assessment.--If any
entity fails to pay an assessment after it has
become a final and unappealable order, or after
the court has entered final judgment in favor of
the Secretary, the Secretary shall refer the
matter to the Attorney General who shall recover
the amount assessed by action in the appropriate
United States district court.
``(ii) Nonreviewability.--In such action the
validity and appropriateness of the final order
imposing the penalty shall not be subject to
review.
``(G) Payment of penalties.--Except as otherwise
provided, penalties collected under this paragraph shall
be paid to the Secretary (or other officer) imposing the
penalty and shall be available without appropriation and
until expended for the purpose of enforcing the
provisions with respect to which the penalty was
imposed.
``SEC. 2723. <<NOTE: 42 USC 300gg-23.>> PREEMPTION; STATE FLEXIBILITY;
CONSTRUCTION.
``(a) Continued Applicability of State Law With Respect to Health
Insurance Issuers.--
``(1) In General.--Subject to paragraph (2) and except as
provided in subsection (b), this part and part C insofar as it
relates to this part shall not be construed to supersede any
provision of State law which establishes, implements, or
continues in effect any standard or requirement solely relating
to health insurance issuers in connection with group health
insurance coverage except to the extent that such standard or
requirement prevents the application of a requirement of this
part.
``(2) Continued preemption with respect to group health
plans.--Nothing in this part shall be construed to affect or
modify the provisions of section 514 of the Employee Retirement
Income Security Act of 1974 with respect to group health plans.
``(b) Special Rules in Case of Portability Requirements.--
``(1) In general.--Subject to paragraph (2), the provisions
of this part relating to health insurance coverage offered by a
health insurance issuer supersede any provision of State law
which establishes, implements, or continues in effect a standard
or requirement applicable to imposition of a preexisting
condition exclusion specifically governed by section 701 which
differs from the standards or requirements specified in such
section.
``(2) Exceptions.--Only in relation to health insurance
coverage offered by a health insurance issuer, the provisions of
this part do not supersede any provision of State law to the
extent that such provision--
``(i) substitutes for the reference to `6-month
period' in section 2701(a)(1) a reference to any shorter
period of time;
``(ii) substitutes for the reference to `12 months'
and `18 months' in section 2701(a)(2) a reference to any
shorter period of time;
``(iii) substitutes for the references to `63' days
in sections 2701(c)(2)(A) and 2701(d)(4)(A) a reference
to any greater number of days;
``(iv) substitutes for the reference to `30-day
period' in sections 2701(b)(2) and 2701(d)(1) a
reference to any greater period;
``(v) prohibits the imposition of any preexisting
condition exclusion in cases not described in section
2701(d) or expands the exceptions described in such
section;
``(vi) requires special enrollment periods in
addition to those required under section 2701(f); or
``(vii) reduces the maximum period permitted in an
affiliation period under section 2701(g)(1)(B).
``(c) Rules of Construction.--Nothing in this part shall be
construed as requiring a group health plan or health insurance coverage
to provide specific benefits under the terms of such plan or coverage.
``(d) Definitions.--For purposes of this section--
``(1) State law.--The term `State law' includes all laws,
decisions, rules, regulations, or other State action having the
effect of law, of any State. A law of the United States
applicable only to the District of Columbia shall be treated as
a State law rather than a law of the United States.
``(2) State.--The term `State' includes a State (including
the Northern Mariana Islands), any political subdivisions of a
State or such Islands, or any agency or instrumentality of
either.
``Part C--Definitions; Miscellaneous Provisions
``SEC. 2791 <<NOTE: 42 USC 300gg-91.>> . DEFINITIONS.
``(a) Group Health Plan.--
``(1) Definition.--The term `group health plan' means an
employee welfare benefit plan (as defined in section 3(1) of the
Employee Retirement Income Security Act of 1974) to the extent
that the plan provides medical care (as defined in paragraph
(2)) and including items and services paid for as medical care)
to employees or their dependents (as defined under the terms of
the plan) directly or through insurance, reimbursement, or
otherwise.
``(2) Medical care.--The term `medical care' means amounts
paid for--
``(A) the diagnosis, cure, mitigation, treatment, or
prevention of disease, or amounts paid for the purpose
of affecting any structure or function of the body,
``(B) amounts paid for transportation primarily for
and essential to medical care referred to in
subparagraph (A), and
``(C) amounts paid for insurance covering medical
care referred to in subparagraphs (A) and (B).
``(3) Treatment of certain plans as group health plan for
notice provision.--A program under which creditable coverage
described in subparagraph (C), (D), (E), or (F) of section
2701(c)(1) is provided shall be treated as a group health plan
for purposes of applying section 2701(e).
``(b) Definitions Relating to Health Insurance.--
``(1) Health insurance coverage.--The term `health insurance
coverage' means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or otherwise and
including items and services paid for as medical care) under any
hospital or medical service policy or certificate, hospital or
medical service plan contract, or health maintenance
organization contract offered by a health insurance issuer.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or
insurance organization (including a health maintenance
organization, as defined in paragraph (3)) which is licensed to
engage in the business of insurance in a State and which is
subject to State law which regulates insurance (within the
meaning of section 514(b)(2) of the Employee Retirement Income
Security Act of 1974). Such term does not include a group health
plan.
``(3) Health maintenance organization.--The term `health
maintenance organization' means--
``(A) a Federally qualified health maintenance
organization (as defined in section 1301(a)),
``(B) an organization recognized under State law as
a health maintenance organization, or
``(C) a similar organization regulated under State
law for solvency in the same manner and to the same
extent as such a health maintenance organization.
``(4) Group health insurance coverage.--The term `group
health insurance coverage' means, in connection with a group
health plan, health insurance coverage offered in connection
with such plan.
``(5) Individual health insurance coverage.--The term
`individual health insurance coverage' means health insurance
coverage offered to individuals in the individual market, but
does not include short-term limited duration insurance.
``(c) Excepted Benefits.--For purposes of this title, the term
`excepted benefits' means benefits under one or more (or any combination
thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability
income insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability
insurance.
``(C) Liability insurance, including general
liability insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home
care, home health care, community-based care, or any
combination thereof.
``(C) Such other similar, limited benefits as are
specified in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or
illness.
``(B) Hospital indemnity or other fixed
indemnity insurance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health
insurance (as defined under section 1882(g)(1) of the Social
Security Act), coverage supplemental to the coverage provided
under chapter 55 of title 10, United States Code, and similar
supplemental coverage provided to coverage under a group health
plan.
``(d) Other Definitions.--
``(1) Applicable state authority.--The term `applicable
State authority' means, with respect to a health insurance
issuer in a State, the State insurance commissioner or official
or officials designated by the State to enforce the requirements
of this title for the State involved with respect to such
issuer.
``(2) Beneficiary.--The term `beneficiary' has the meaning
given such term under section 3(8) of the Employee Retirement
Income Security Act of 1974.
``(3) Bona fide association.--The term `bona fide
association' means, with respect to health insurance coverage
offered in a State, an association which--
``(A) has been actively in existence for at least 5
years;
``(B) has been formed and maintained in good faith
for purposes other than obtaining insurance;
``(C) does not condition membership in the
association on any health status-related factor relating
to an individual (including an employee of an employer
or a dependent of an employee);
``(D) makes health insurance coverage offered
through the association available to all members
regardless of any health status-related factor relating
to such members (or individuals eligible for coverage
through a member);
``(E) does not make health insurance coverage
offered through the association available other than in
connection with a member of the association; and
``(F) meets such additional requirements as may be
imposed under State law.
``(4) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Section 4980B of the Internal Revenue Code of
1986, other than subsection (f)(1) of such section
insofar as it relates to pediatric vaccines.
``(B) Part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974, other
than section 609 of such Act.
``(C) Title XXII of this Act.
``(5) Employee.--The term `employee' has the meaning given
such term under section 3(6) of the Employee Retirement Income
Security Act of 1974.
``(6) Employer.--The term `employer' has the meaning given
such term under section 3(5) of the Employee Retirement Income
Security Act of 1974, except that such term shall include only
employers of two or more employees.
``(7) Church plan.--The term `church plan' has the meaning
given such term under section 3(33) of the Employee Retirement
Income Security Act of 1974.
``(8) Governmental plan.--(A) The term `governmental plan'
has the meaning given such term under section 3(32) of the
Employee Retirement Income Security Act of 1974 and any Federal
governmental plan.
``(B) Federal governmental plan.--The term `Federal
governmental plan' means a governmental plan established or
maintained for its employees by the Government of the United
States or by any agency or instrumentality of such Government.
``(C) Non-Federal governmental plan.--The term `non-Federal
governmental plan' means a governmental plan that is not a
Federal governmental plan.
``(9) Health status-related factor.--The term `health
status-related factor' means any of the factors described in
section 2702(a)(1).
``(10) Network plan.--The term `network plan' means health
insurance coverage of a health insurance issuer under which the
financing and delivery of medical care (including items and
services paid for as medical care) are provided, in whole or in
part, through a defined set of providers under contract with the
issuer.
``(11) Participant.--The term `participant' has the meaning
given such term under section 3(7) of the Employee Retirement
Income Security Act of 1974.
``(12) Placed for adoption defined.--The term `placement',
or being `placed', for adoption, in connection with any
placement for adoption of a child with any person, means the
assumption and retention by such person of a legal obligation
for total or partial support of such child in anticipation of
adoption of such child. The child's placement with such person
terminates upon the termination of such legal obligation.
``(13) Plan sponsor.--The term `plan sponsor' has the
meaning given such term under section 3(16)(B) of the Employee
Retirement Income Security Act of 1974.
``(14) State.--The term `State' means each of the several
States, the District of Columbia, Puerto Rico, the Virgin
Islands, Guam, American Samoa, and the Northern Mariana Islands.
``(e) Definitions Relating to Markets and Small Em-
ployers.--For purposes of this title:
``(1) Individual market.--
``(A) In general.--The term `individual market'
means the market for health insurance coverage offered
to individuals other than in connection with a group
health plan.
``(B) Treatment of very small groups.--
``(i) In general.--Subject to clause (ii),
such terms includes coverage offered in connection
with a group health plan that has fewer than two
participants as current employees on the first day
of the plan year.
``(ii) State exception.--Clause (i) shall not
apply in the case of a State that elects to
regulate the coverage described in such clause as
coverage in the small group market.
``(2) Large employer.--The term `large employer' means, in
connection with a group health plan with respect to a calendar
year and a plan year, an employer who employed an average of at
least 51 employees on business
days during the preceding calendar year and who employs at least 2
employees on the first day of the plan year.
``(3) Large group market.--The term `large group market'
means the health insurance market under which individuals obtain
health insurance coverage (directly or through any arrangement)
on behalf of themselves (and their dependents) through a group
health plan maintained by a large employer.
``(4) Small employer.--The term `small employer' means, in
connection with a group health plan with respect to a calendar
year and a plan year, an employer who employed an average of at
least 2 but not more than 50 employees on business days during
the preceding calendar year and who employs at least 2 employees
on the first day of the plan year.
``(5) Small group market.--The term `small group market'
means the health insurance market under which individuals obtain
health insurance coverage (directly or through any arrangement)
on behalf of themselves (and their dependents) through a group
health plan maintained by a small employer.
``(6) Application of certain rules in determination of
employer size.--For purposes of this subsection--
``(A) Application of aggregation rule for
employers.--all persons treated as a single employer
under subsection (b), (c), (m), or (o) of section 414 of
the Internal Revenue Code of 1986 shall be treated as 1
employer.
``(B) Employers not in existence in preceding
year.--In the case of an employer which was not in
existence throughout the preceding calendar year, the
determination of whether such employer is a small or
large employer shall be based on the average number of
employees that it is reasonably expected such employer
will employ on business days in the current calendar
year.
``(C) Predecessors.--Any reference in this
subsection to an employer shall include a reference to
any predecessor of such employer.
``SEC. 2792. <<NOTE: 42 USC 300gg-92.>> REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this title. The Secretary may promulgate any interim final
rules as the Secretary determines are appropriate to carry out this
title.''.
(b) Application of Rules by Certain Health Maintenance
Organizations.--Section 1301 of such Act (42 U.S.C. 300e) is amended by
adding at the end the following new subsection:
``(d) An organization that offers health benefits coverage shall not
be considered as failing to meet the requirements of this section
notwithstanding that it provides, with respect to coverage offered in
connection with a group health plan in the small or large group market
(as defined in section 2791(e)), an affiliation period consistent with
the provisions of section 2701(g).''.
(c) Effective <<NOTE: 42 USC 300gg note.>> Date.--
(1) In general.--Except as provided in this subsection, part
A of title XXVII of the Public Health Service Act (as added by
subsection (a)) shall apply with respect to group health plans,
and health insurance coverage offered in connection with group
health plans, for plan years beginning after June 30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no
period before July 1, 1996, shall be taken into
account under part A of title XXVII of the Public
Health Service Act (as added by this section) in
determining creditable coverage.
(ii) Special rule for certain periods.--The
Secretary of Health and Human Services, consistent
with section 104, shall provide for a process
whereby individuals who need to establish
creditable coverage for periods before July 1,
1996, and who would have such coverage credited
but for clause (i) may be given credit for
creditable coverage for such periods through the
presentation of documents or other means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and
(iii), subsection (e) of section 2701 of the
Public Health Service Act (as added by this
section) shall apply to events occurring after
June 30, 1996.
(ii) No certification required to be provided
before june 1, 1997.--In no case is a
certification required to be provided under such
subsection before June 1, 1997.
(iii) Certification only on written request
for events occurring before october 1, 1996.--In
the case of an event occurring after June 30,
1996, and before October 1, 1996, a certification
is not required to be provided under such
subsection unless an individual (with respect to
whom the certification is otherwise required to be
made) requests such certification in writing.
(C) Transitional rule.--In the case of an individual
who seeks to establish creditable coverage for any
period for which certification is not required because
it relates to an event occurring before June 30, 1996--
(i) the individual may present other credible
evidence of such coverage in order to establish
the period of creditable coverage; and
(ii) a group health plan and a health
insurance issuer shall not be subject to any
penalty or enforcement action with respect to the
plan's or issuer's crediting (or not crediting)
such coverage if the plan or issuer has sought to
comply in good faith with the applicable
requirements under the amendments made by this
section.
(3) Special rule for collective bargaining agreements.--
Except as provided in paragraph (2)(B), in the case of a group
health plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and one
or more employers ratified before the date of the enactment of
this Act, part A of title XXVII of the Public Health Service Act
(other than section 2701(e) thereof) shall not apply to plan
years beginning before the later of--
(A) the date on which the last of the collective
bargaining agreements relating to the plan terminates
(determined without regard to any extension thereof
agreed to after the date of the enactment of this Act),
or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made
pursuant to a collective bargaining agreement relating to the
plan which amends the plan solely to conform to any requirement
of such part shall not be treated as a termination of such
collective bargaining agreement.
(4) Timely regulations.--The Secretary of Health and Human
Services, consistent with section 104, shall first issue by not
later than April 1, 1997, such regulations as may be necessary
to carry out the amendments made by this section and section
111.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against
a group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of
regulations referred to in paragraph (4), if the plan or issuer
has sought to comply in good faith with such requirements.
(d) Miscellaneous Correction.--Section 2208(1) of the Public Health
Service Act (42 U.S.C. 300bb-8(1)) is amended by striking ``section
162(i)(2)'' and inserting ``5000(b)''.
SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE INTERNAL REVENUE
CODE OF 1986.
For provisions amending the Internal Revenue Code of 1986 to provide
for application and enforcement of rules for group health plans similar
to those provided under the amendments made by section 101(a), see
section 401.
SEC. 104. <<NOTE: 42 USC 300gg-92 note.>> ASSURING COORDINATION.
The Secretary of the Treasury, the Secretary of Health and Human
Services, and the Secretary of Labor shall ensure, through the execution
of an interagency memorandum of understanding among such Secretaries,
that--
(1) regulations, rulings, and interpretations issued by such
Secretaries relating to the same matter over which two or more
such Secretaries have responsibility under this subtitle (and
the amendments made by this subtitle and section 401) are
administered so as to have the same effect at all times; and
(2) coordination of policies relating to enforcing the same
requirements through such Secretaries in order to have a
coordinated enforcement strategy that avoids duplication of
enforcement efforts and assigns priorities in enforcement.
Subtitle B--Individual Market Rules
SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.
(a) In General.--Title XXVII of the Public Health Service Act, as
added by section 102(a) of this Act, is amended by inserting after part
A the following new part:
``Part B--Individual Market Rules
``SEC. 2741 <<NOTE: 42 USC 300gg-41.>> . GUARANTEED AVAILABILITY
OF INDIVIDUAL HEALTH INSURANCE
COVERAGE TO CERTAIN INDIVIDUALS WITH
PRIOR GROUP COVERAGE.
``(a) Guaranteed Availability.--
``(1) In general.--Subject to the succeeding subsections of
this section and section 2744, each health insurance issuer that
offers health insurance coverage (as defined in section
2791(b)(1)) in the individual market in a State may not, with
respect to an eligible individual (as defined in subsection (b))
desiring to enroll in individual health insurance coverage--
``(A) decline to offer such coverage to, or deny
enrollment of, such individual; or
``(B) impose any preexisting condition exclusion (as
defined in section 2701(b)(1)(A)) with respect to such
coverage.
``(2) Substitution by state of acceptable alternative
mechanism.--The requirement of paragraph (1) shall not apply to
health insurance coverage offered in the individual market in a
State in which the State is implementing an acceptable
alternative mechanism under section 2744.
``(b) Eligible Individual Defined.--In this part, the term `eligible
individual' means an individual--
``(1)(A) for whom, as of the date on which the individual
seeks coverage under this section, the aggregate of the periods
of creditable coverage (as defined in section 2701(c)) is 18 or
more months and (B) whose most recent prior creditable coverage
was under a group health plan, governmental plan, or church plan
(or health insurance coverage offered in connection with any
such plan);
``(2) who is not eligible for coverage under (A) a group
health plan, (B) part A or part B of title XVIII of the Social
Security Act, or (C) a State plan under title XIX of such Act
(or any successor program), and does not have other health
insurance coverage;
``(3) with respect to whom the most recent coverage within
the coverage period described in paragraph (1)(A) was not
terminated based on a factor described in paragraph (1) or (2)
of section 2712(b) (relating to nonpayment of premiums or
fraud);
``(4) if the individual had been offered the option of
continuation coverage under a COBRA continuation provision or
under a similar State program, who elected such coverage; and
``(5) who, if the individual elected such continuation
coverage, has exhausted such continuation coverage under such
provision or program.
``(c) Alternative Coverage Permitted Where No State Mechanism.--
``(1) In general.--In the case of health insurance coverage
offered in the individual market in a State in which the State
is not implementing an acceptable alternative mechanism under
section 2744, the health insurance issuer may elect to limit the
coverage offered under subsection (a) so long as it offers at
least two different policy forms of health insurance coverage
both of which--
``(A) are designed for, made generally available to,
and actively marketed to, and enroll both eligible and
other individuals by the issuer; and
``(B) meet the requirement of paragraph (2) or (3),
as elected by the issuer.
For purposes of this subsection, policy forms which have
different cost-sharing arrangements or different riders shall be
considered to be different policy forms.
``(2) Choice of most popular policy forms.--The requirement
of this paragraph is met, for health insurance coverage policy
forms offered by an issuer in the individual market, if the
issuer offers the policy forms for individual health insurance
coverage with the largest, and next to
largest, premium volume of all such policy forms offered by the issuer
in the State or applicable marketing or service area (as may be
prescribed in regulation) by the issuer in the individual market in the
period involved.
``(3) Choice of 2 policy forms with representative
coverage.--
``(A) In general.--The requirement of this paragraph
is met, for health insurance coverage policy forms
offered by an issuer in the individual market, if the
issuer offers a lower-level coverage policy form (as
defined in subparagraph (B)) and a higher-level coverage
policy form (as defined in subparagraph (C)) each of
which includes benefits substantially similar to other
individual health insurance coverage offered by the
issuer in that State and each of which is covered under
a method described in section 2744(c)(3)(A) (relating to
risk adjustment, risk spreading, or financial
subsidization).
``(B) Lower-level of coverage described.--A policy
form is described in this subparagraph if the actuarial
value of the benefits under the coverage is at least 85
percent but not greater than 100 percent of a weighted
average (described in subparagraph (D)).
``(C) Higher-level of coverage described.--A policy
form is described in this subparagraph if--
``(i) the actuarial value of the benefits
under the coverage is at least 15 percent greater
than the actuarial value of the coverage described
in subparagraph (B) offered by the issuer in the
area involved; and
``(ii) the actuarial value of the benefits
under the coverage is at least 100 percent but not
greater than 120 percent of a weighted average
(described in subparagraph (D)).
``(D) Weighted average.--For purposes of this
paragraph, the weighted average described in this
subparagraph is the average actuarial value of the
benefits provided by all the health insurance coverage
issued (as elected by the issuer) either by that issuer
or by all issuers in the State in the individual market
during the previous year (not including coverage issued
under this section), weighted by enrollment for the
different coverage.
``(4) Election.--The issuer elections under this subsection
shall apply uniformly to all eligible individuals in the State
for that issuer. Such an election shall be effective for
policies offered during a period of not shorter than 2 years.
``(5) Assumptions.--For purposes of paragraph (3), the
actuarial value of benefits provided under individual health
insurance coverage shall be calculated based on a standardized
population and a set of standardized utilization and cost
factors.
``(d) Special Rules for Network Plans.--
``(1) In general.--In the case of a health insurance issuer
that offers health insurance coverage in the individual market
through a network plan, the issuer may--
``(A) limit the individuals who may be enrolled
under such coverage to those who live, reside, or work
within the service area for such network plan; and
``(B) within the service area of such plan, deny
such coverage to such individuals if the issuer has
demonstrated, if required, to the applicable State
authority that--
``(i) it will not have the capacity to deliver
services adequately to additional individual
enrollees because of its obligations to existing
group contract holders and enrollees and
individual enrollees, and
``(ii) it is applying this paragraph uniformly
to individuals without regard to any health
status-related factor of such individuals and
without regard to whether the individuals are
eligible individuals.
``(2) 180-day suspension upon denial of coverage.--An
issuer, upon denying health insurance coverage in any service
area in accordance with paragraph (1)(B), may not offer coverage
in the individual market within such service area for a period
of 180 days after such coverage is denied.
``(e) Application of Financial Capacity Limits.--
``(1) In general.--A health insurance issuer may deny health
insurance coverage in the individual market to an eligible
individual if the issuer has demonstrated, if required, to the
applicable State authority that--
``(A) it does not have the financial reserves
necessary to underwrite additional coverage; and
``(B) it is applying this paragraph uniformly to all
individuals in the individual market in the State
consistent with applicable State law and without regard
to any health status-related factor of such individuals
and without regard to whether the individuals are
eligible individuals.
``(2) 180-day suspension upon denial of coverage.--An issuer
upon denying individual health insurance coverage in any service
area in accordance with paragraph (1) may not offer such
coverage in the individual market within such service area for a
period of 180 days after the date such coverage is denied or
until the issuer has demonstrated, if required under applicable
State law, to the applicable State authority that the issuer has
sufficient financial reserves to underwrite additional coverage,
whichever is later. A State may provide for the application of
this paragraph on a service-area-specific basis.
``(e) Market Requirements.--
``(1) In general.--The provisions of subsection (a) shall
not be construed to require that a health insurance issuer
offering health insurance coverage only in connection with group
health plans or through one or more bona fide associations, or
both, offer such health insurance coverage in the individual
market.
``(2) Conversion policies.--A health insurance issuer
offering health insurance coverage in connection with group
health plans under this title shall not be deemed to be a health
insurance issuer offering individual health insurance coverage
solely because such issuer offers a conversion policy.
``(f) Construction.--Nothing in this section shall be
construed--
``(1) to restrict the amount of the premium rates that an
issuer may charge an individual for health insurance coverage
provided in the individual market under applicable State law; or
``(2) to prevent a health insurance issuer offering health
insurance coverage in the individual market from establishing
premium discounts or rebates or modifying otherwise applicable
copayments or deductibles in return for adherence to programs of
health promotion and disease prevention.
``SEC. 2742. GUARANTEED <<NOTE: 42 USC 300gg-42.>> RENEWABILITY
OF INDIVIDUAL HEALTH INSURANCE
COVERAGE.
``(a) In General.--Except as provided in this section, a health
insurance issuer that provides individual health insurance coverage to
an individual shall renew or continue in force such coverage at the
option of the individual.
``(b) General Exceptions.--A health insurance issuer may nonrenew or
discontinue health insurance coverage of an individual in the individual
market based only on one or more of the following:
``(1) Nonpayment of premiums.--The individual has failed to
pay premiums or contributions in accordance with the terms of
the health insurance coverage or the issuer has not received
timely premium payments.
``(2) Fraud.--The individual has performed an act or
practice that constitutes fraud or made an intentional
misrepresentation of material fact under the terms of the
coverage.
``(3) Termination of plan.--The issuer is ceasing to offer
coverage in the individual market in accordance with subsection
(c) and applicable State law.
``(4) Movement outside service area.--In the case of a
health insurance issuer that offers health insurance coverage in
the market through a network plan, the individual no longer
resides, lives, or works in the service area (or in an area for
which the issuer is authorized to do business) but only if such
coverage is terminated under this paragraph uniformly without
regard to any health status-related factor of covered
individuals.
``(5) Association membership ceases.--In the case of health
insurance coverage that is made available in the individual
market only through one or more bona fide associations, the
membership of the individual in the association (on the basis of
which the coverage is provided) ceases but only if such coverage
is terminated under this paragraph uniformly without regard to
any health status-related factor of covered individuals.
``(c) Requirements for Uniform Termination of Coverage.--
``(1) Particular type of coverage not offered.--In any case
in which an issuer decides to discontinue offering a particular
type of health insurance coverage offered in the individual
market, coverage of such type may be discontinued by the issuer
only if--
``(A) the issuer provides notice to each covered
individual provided coverage of this type in such market
of such discontinuation at least 90 days prior to the
date of the discontinuation of such coverage;
``(B) the issuer offers to each individual in the
individual market provided coverage of this type, the
option to purchase any other individual health insurance
coverage currently being offered by the issuer for
individuals in such market; and
``(C) in exercising the option to discontinue
coverage of this type and in offering the option of
coverage under subparagraph (B), the issuer acts
uniformly without regard to any health status-related
factor of enrolled individuals or individuals who may
become eligible for such coverage.
``(2) Discontinuance of all coverage.--
``(A) In general.--Subject to subparagraph (C), in
any case in which a health insurance issuer elects to
discontinue offering all health insurance coverage in
the individual market in a State, health insurance
coverage may be discontinued by the issuer only if--
``(i) the issuer provides notice to the
applicable State authority and to each individual
of such discontinuation at least 180 days prior to
the date of the expiration of such coverage, and
``(ii) all health insurance issued or
delivered for issuance in the State in such market
are discontinued and coverage under such health
insurance coverage in such market is not renewed.
``(B) Prohibition on market reentry.--In the case of
a discontinuation under subparagraph (A) in the
individual market, the issuer may not provide for the
issuance of any health insurance coverage in the market
and State involved during the 5-year period beginning on
the date of the discontinuation of the last health
insurance coverage not so renewed.
``(d) Exception for Uniform Modification of Coverage.--At the time
of coverage renewal, a health insurance issuer may modify the health
insurance coverage for a policy form offered to individuals in the
individual market so long as such modification is consistent with State
law and effective on a uniform basis among all individuals with that
policy form.
``(e) Application to Coverage Offered Only Through Associations.--In
applying this section in the case of health insurance coverage that is
made available by a health insurance issuer in the individual market to
individuals only through one or more associations, a reference to an
`individual' is deemed to include a reference to such an association (of
which the individual is a member).
``SEC. 2743. <<NOTE: 42 USC 300gg-43.>> CERTIFICATION OF COVERAGE.
``The provisions of section 2701(e) shall apply to health insurance
coverage offered by a health insurance issuer in the individual market
in the same manner as it applies to health insurance coverage offered by
a health insurance issuer in connection with a group health plan in the
small or large group market.
``SEC. 2744. <<NOTE: 42 USC 300gg-44.>> STATE FLEXIBILITY IN INDIVIDUAL
MARKET REFORMS.
``(a) Waiver of Requirements Where Implementation of Acceptable
Alternative Mechanism.--
``(1) In general.--The requirements of section 2741 shall
not apply with respect to health insurance coverage offered in
the individual market in the State so long as a State is found
to be implementing, in accordance with this section and
consistent with section 2746(b), an alternative mechanism (in
this section referred to as an `acceptable alternative
mechanism')--
``(A) under which all eligible individuals are
provided a choice of health insurance coverage;
``(B) under which such coverage does not impose any
preexisting condition exclusion with respect to such
coverage;
``(C) under which such choice of coverage includes
at least one policy form of coverage that is comparable
to comprehensive health insurance coverage offered in
the individual market in such State or that is
comparable to a standard option of coverage available
under the group or individual health insurance laws of
such State; and
``(D) in a State which is implementing--
``(i) a model act described in subsection
(c)(1),
``(ii) a qualified high risk pool described in
subsection (c)(2), or
``(iii) a mechanism described in subsection
(c)(3).
``(2) Permissible Forms of mechanisms.--A private or public
individual health insurance mechanism (such as a health
insurance coverage pool or programs, mandatory group conversion
policies, guaranteed issue of one or more plans of individual
health insurance coverage, or open enrollment by one or more
health insurance issuers), or combination of such mechanisms,
that is designed to provide access to health benefits for
individuals in the individual market in the State in accordance
with this section may constitute an acceptable alternative
mechanism.
``(b) Application of Acceptable Alternative Mechanisms.--
``(1) Presumption.--
``(A) In general.--Subject to the succeeding
provisions of this subsection, a State is presumed to be
implementing an acceptable alternative mechanism in
accordance with this section as of July 1, 1997, if, by
not later than April 1, 1997, the chief executive
officer of a State--
``(i) notifies the Secretary that the State
has enacted or intends to enact (by not later than
January 1, 1998, or July 1, 1998, in the case of a
State described in subparagraph (B)(ii)) any
necessary legislation to provide for the
implementation of a mechanism reasonably designed
to be an acceptable alternative mechanism as of
January 1, 1998, (or, in the case of a State
described in subparagraph (B)(ii), July 1, 1998);
and
``(ii) provides the Secretary with such
information as the Secretary may require to review
the mechanism and its implementation (or proposed
implementation) under this subsection.
``(B) Delay permitted for certain states.--
``(i) Effect of delay.--In the case of a State
described in clause (ii) that provides notice
under subparagraph (A)(i), for the presumption to
continue on and after July 1, 1998, the chief
executive officer of the State by April 1, 1998--
``(I) must notify the Secretary that
the State has enacted any necessary
legislation to provide for the
implementation of a mechanism reasonably
designed to be an acceptable alternative
mechanism as of July 1, 1998; and
``(II) must provide the Secretary
with such information as the Secretary
may require to review the mechanism and
its implementation (or proposed
implementation) under this subsection.
``(ii) States described.--A State described in
this clause is a State that has a legislature that
does not meet within the 12-month period beginning
on the date of enactment of this Act.
``(C) Continued application.--In order for a
mechanism to continue to be presumed to be an acceptable
alternative mechanism, the State shall provide the
Secretary every 3 years with information described in
subparagraph (A)(ii) or (B)(i)(II) (as the case may be).
``(2) Notice.--If the Secretary finds, after review of
information provided under paragraph (1) and in consultation
with the chief executive officer of the State and the insurance
commissioner or chief insurance regulatory official of the
State, that such a mechanism is not an acceptable alternative
mechanism or is not (or no longer) being implemented, the
Secretary--
``(A) shall notify the State of--
``(i) such preliminary determination, and
``(ii) the consequences under paragraph (3) of
a failure to implement such a mechanism; and
``(B) shall permit the State a reasonable
opportunity in which to modify the mechanism (or to
adopt another mechanism) in a manner so that may be an
acceptable alternative mechanism or to provide for
implementation of such a mechanism.
``(3) Final determination.--If, after providing notice and
opportunity under paragraph (2), the Secretary finds that the
mechanism is not an acceptable alternative mechanism or the
State is not implementing such a mechanism, the Secretary shall
notify the State that the State is no longer considered to be
implementing an acceptable alternative mechanism and that the
requirements of section 2741 shall apply to health insurance
coverage offered in the individual market in the State,
effective as of a date specified in the notice.
``(4) Limitation on secretarial authority.--The Secretary
shall not make a determination under paragraph (2) or (3) on any
basis other than the basis that a mechanism is not an acceptable
alternative mechanism or is not being implemented.
``(5) Future adoption of mechanisms.--If a State, after
January 1, 1997, submits the notice and information described in
paragraph (1), unless the Secretary makes a finding described in
paragraph (3) within the 90-day period beginning on the date of
submission of the notice and information, the mechanism shall be
considered to be an acceptable alternative mechanism for
purposes of this section, effective 90 days after the end of
such period, subject to the second sentence of paragraph (1).
``(c) Provision Related to Risk.--
``(1) Adoption of naic models.--The model act referred to in
subsection (a)(1)(D)(i) is the Small Employer and Individual
Health Insurance Availability Model Act (adopted by the National
Association of Insurance Commissioners on June 3, 1996) insofar
as it applies to individual health insurance coverage or the
Individual Health Insurance Portability Model Act (also adopted
by such Association on such date).
``(2) Qualified high risk pool.--For purposes of subsection
(a)(1)(D)(ii), a `qualified high risk pool' described in this
paragraph is a high risk pool that--
``(A) provides to all eligible individuals health
insurance coverage (or comparable coverage) that does
not impose any preexisting condition exclusion with
respect to such coverage for all eligible individuals,
and
``(B) provides for premium rates and covered
benefits for such coverage consistent with standards
included in the NAIC Model Health Plan for Uninsurable
Individuals Act (as in effect as of the date of the
enactment of this title).
``(3) Other mechanisms.--For purposes of subsection
(a)(1)(D)(iii), a mechanism described in this paragraph--
``(A) provides for risk adjustment, risk spreading,
or a risk spreading mechanism (among issuers or policies
of an issuer) or otherwise provides for some financial
subsidization for eligible individuals, including
through assistance to participating issuers; or
``(B) is a mechanism under which each eligible
individual is provided a choice of all individual health
insurance coverage otherwise available.
``SEC. 2745. <<NOTE: 42 USC 300gg-45.>> ENFORCEMENT.
``(a) State Enforcement.--
``(1) State authority.--Subject to section 2746, each State
may require that health insurance issuers that issue, sell,
renew, or offer health insurance coverage in the State in the
individual market meet the requirements established under this
part with respect to such issuers.
``(2) Failure to implement requirements.--In the case of a
State that fails to substantially enforce the requirements set
forth in this part with respect to health insurance issuers in
the State, the Secretary shall enforce the requirements of this
part under subsection (b) insofar as they relate to the
issuance, sale, renewal, and offering of health insurance
coverage in the individual market in such State.
``(b) Secretarial Enforcement Authority.--The Secretary shall have
the same authority in relation to enforcement of the provisions of this
part with respect to issuers of health insurance coverage in the
individual market in a State as the Secretary has under section
2722(b)(2) in relation to the enforcement of the provisions of part A
with respect to issuers of health insurance coverage in the small group
market in the State.
``SEC. <<NOTE: 42 USC 300gg-46.>> 2746. PREEMPTION.
``(a) In General.--Subject to subsection (b), nothing in this part
(or part C insofar as it applies to this part) shall be construed to
prevent a State from establishing, implementing, or continuing in effect
standards and requirements unless such standards and requirements
prevent the application of a requirement of this part.
``(b) Rules of Construction.--Nothing in this part (or part C
insofar as it applies to this part) shall be construed to affect or
modify the provisions of section 514 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1144).
``SEC. 2747. <<NOTE: 42 USC 300gg-47.>> GENERAL EXCEPTIONS.
``(a) Exception for Certain Benefits.--The requirements of this part
shall not apply to any health insurance coverage in relation to its
provision of excepted benefits described in section 2791(c)(1).
``(b) Exception for Certain Benefits If Certain Conditions Met.--The
requirements of this part shall not apply to any health insurance
coverage in relation to its provision of excepted benefits described in
paragraph (2), (3), or (4) of section 2791(c) if the benefits are
provided under a separate policy, certificate, or contract of
insurance.''.
(b) Effective <<NOTE: 42 USC 300gg-41 note.>> Date.--
(1) In general.--Except as provided in this subsection, part
B of title XXVII of the Public Health Service Act (as inserted
by subsection (a)) shall apply with respect to health insurance
coverage offered, sold, issued, renewed, in effect, or operated
in the individual market after June 30, 1997, regardless of when
a period of creditable coverage occurs.
(2) Application of certification rules.--The provisions of
section 102(d)(2) of this Act shall apply to section 2743 of the
Public Health Service Act in the same manner as it applies to
section 2701(e) of such Act.
Subtitle C--General and Miscellaneous Provisions
SEC. 191. <<NOTE: 42 USC 300gg note.>> HEALTH COVERAGE AVAILABILITY
STUDIES.
(a) Studies.--
(1) Study on effectiveness of reforms.--The Secretary of
Health and Human Services shall provide for a study on the
effectiveness of the provisions of this title and the various
State laws, in ensuring the availability of reasonably priced
health coverage to employers purchasing group coverage and
individuals purchasing coverage on a non-group basis.
(2) Study on access and choice.--The Secretary also shall
provide for a study on--
(A) the extent to which patients have direct access
to, and choice of, health care providers, including
specialty providers, within a network plan, as well as
the opportunity to utilize providers outside of the
network plan, under the various types of coverage
offered under the provisions of this title; and
(B) the cost and cost-effectiveness to health
insurance issuers of providing access to out-of-network
providers, and the potential impact of providing such
access on the cost and quality of health insurance
coverage offered under provisions of this title.
(3) Consultation.--The studies under this subsection shall
be conducted in consultation with the Secretary of Labor,
representatives of State officials, consumers, and other
representatives of individuals and entities that have expertise
in health insurance and employee benefits.
(b) Reports.--Not later than January 1, 2000, the Secretary shall
submit to the appropriate committees of Congress a report on each of the
studies under subsection (a).
SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.
The Health Care Financing Administration shall complete its ongoing
study of Medicare reimbursement of all telemedicine services and submit
a report to Congress on Medicare reimbursement of telemedicine services
by not later than March 1, 1997. The report shall--
(1) utilize data compiled from the current demonstration
projects already under review and gather data from other ongoing
telemedicine networks;
(2) include an analysis of the cost of services provided via
telemedicine; and
(3) include a proposal for Medicare reimbursement of such
services.
SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH
DEDUCTIBLE PLANS.
Section 1301(b) of the Public Health Service Act (42 U.S.C. 300e(b))
is amended by adding at the end the following new paragraph:
``(6) A health maintenance organization that otherwise meets
the requirements of this title may offer a high-deductible
health plan (as defined in section 220(c)(2) of the Internal
Revenue Code of 1986).''.
SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT
FREE CLINICS.
Section 224 of the Public Health Service Act (42 U.S.C. 233) is
amended by adding at the end the following subsection:
``(o)(1) For purposes of this section, a free clinic health
professional shall in providing a qualifying health service to an
individual be deemed to be an employee of the Public Health Service for
a calendar year that begins during a fiscal year for which a transfer
was made under paragraph (6)(D). The preceding sentence is subject to
the provisions of this subsection.
``(2) In providing a health service to an individual, a health care
practitioner shall for purposes of this subsection be considered to be a
free clinic health professional if the following conditions are met:
``(A) The service is provided to the individual at a free
clinic, or through offsite programs or events carried out by the
free clinic.
``(B) The free clinic is sponsoring the health care
practitioner pursuant to paragraph (5)(C).
``(C) The service is a qualifying health service (as defined
in paragraph (4)).
``(D) Neither the health care practitioner nor the free
clinic receives any compensation for the service from the
individual or from any third-party payor (including
reimbursement under any insurance policy or health plan, or
under any Federal or State health benefits program). With
respect to compliance with such condition:
``(i) The health care practitioner may receive
repayment from the free clinic for reasonable expenses
incurred by the health care practitioner in the
provision of the service to the individual.
``(ii) The free clinic may accept voluntary
donations for the provision of the service by the health
care practitioner to the individual.
``(E) Before the service is provided, the health care
practitioner or the free clinic provides written notice to the
individual of the extent to which the legal liability of the
health care practitioner is limited pursuant to this subsection
(or in the case of an emergency, the written notice is provided
to the individual as soon after the emergency as is
practicable). If the individual is a minor or is otherwise
legally incompetent, the condition under this subparagraph is
that the written notice be provided to a legal guardian or other
person with legal responsibility for the care of the individual.
``(F) At the time the service is provided, the health care
practitioner is licensed or certified in accordance with
applicable law regarding the provision of the service.
``(3)(A) For purposes of this subsection, the term `free clinic'
means a health care facility operated by a nonprofit private entity
meeting the following requirements:
``(i) The entity does not, in providing health services
through the facility, accept reimbursement from any third-party
payor (including reimbursement under any insurance policy or
health plan, or under any Federal or State health benefits
program).
``(ii) The entity, in providing health services through the
facility, either does not impose charges on the individuals to
whom the services are provided, or imposes a charge according to
the ability of the individual involved to pay the charge.
``(iii) The entity is licensed or certified in accordance
with applicable law regarding the provision of health services.
``(B) With respect to compliance with the conditions under
subparagraph (A), the entity involved may accept voluntary donations for
the provision of services.
``(4) For purposes of this subsection, the term `qualifying health
service' means any medical assistance required or authorized to be
provided in the program under title XIX of the Social Security Act,
without regard to whether the medical assistance is included in the plan
submitted under such program by the State in which the health care
practitioner involved provides the medical assistance. References in the
preceding sentence to such program shall as applicable be considered to
be references to any successor to such program.
``(5) Subsection (g) (other than paragraphs (3) through (5)) and
subsections (h), (i), and (l) apply to a health care practitioner for
purposes of this subsection to the same extent and in the same manner as
such subsections apply to an officer, governing board member, employee,
or contractor of an entity described in subsection (g)(4), subject to
paragraph (6) and subject to the
following:
``(A) The first sentence of paragraph (1) applies in lieu of
the first sentence of subsection (g)(1)(A).
``(B) This subsection may not be construed as deeming any
free clinic to be an employee of the Public Health Service for
purposes of this section.
``(C) With respect to a free clinic, a health care
practitioner is not a free clinic health professional unless the
free clinic sponsors the health care practitioner. For purposes
of this subsection, the free clinic shall be considered to be
sponsoring the health care practitioner if--
``(i) with respect to the health care practitioner,
the free clinic submits to the Secretary an application
meeting the requirements of subsection (g)(1)(D); and
``(ii) the Secretary, pursuant to subsection
(g)(1)(E), determines that the health care practitioner
is deemed to be an employee of the Public Health
Service.
``(D) In the case of a health care practitioner who is
determined by the Secretary pursuant to subsection (g)(1)(E) to
be a free clinic health professional, this subsection applies to
the health care practitioner (with respect to the free clinic
sponsoring the health care practitioner pursuant to subparagraph
(C)) for any cause of action arising from an act or omission of
the health care practitioner
occurring on or after the date on which the Secretary makes such
determination.
``(E) Subsection (g)(1)(F) applies to a health care
practitioner for purposes of this subsection only to the extent
that, in providing health services to an individual, each of the
conditions specified in paragraph (2) is met.
``(6)(A) For purposes of making payments for judgments against the
United States (together with related fees and expenses of witnesses)
pursuant to this section arising from the acts or omissions of free
clinic health professionals, there is authorized to be appropriated
$10,000,000 for each fiscal year.
``(B) The Secretary shall establish a fund for purposes of this
subsection. Each fiscal year amounts appropriated under subparagraph (A)
shall be deposited in such fund.
``(C) Not later <<NOTE: Reports.>> than May 1 of each fiscal year,
the Attorney General, in consultation with the Secretary, shall submit
to the Congress a report providing an estimate of the amount of claims
(together with related fees and expenses of witnesses) that, by reason
of the acts or omissions of free clinic health professionals, will be
paid pursuant to this section during the calendar year that begins in
the following fiscal year. Subsection (k)(1)(B) applies to the estimate
under the preceding sentence regarding free clinic health professionals
to the same extent and in the same manner as such subsection applies to
the estimate under such subsection regarding officers, governing board
members, employees, and contractors of entities described in subsection
(g)(4).
``(D) Not later than December 31 of each fiscal year, the Secretary
shall transfer from the fund under subparagraph (B) to the appropriate
accounts in the Treasury an amount equal to the estimate made under
subparagraph (C) for the calendar year beginning in such fiscal year,
subject to the extent of amounts in the fund.
``(7)(A) This <<NOTE: Effective date.>> subsection takes effect on
the date of the enactment of the first appropriations Act that makes an
appropriation under paragraph (6)(A), except as provided in subparagraph
(B)(i).
``(B)(i) Effective on the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996--
``(I) the Secretary may issue regulations for carrying out
this subsection, and the Secretary may accept and consider
applications submitted pursuant to paragraph (5)(C); and
``(II) reports under paragraph (6)(C) may be submitted to
the Congress.
``(ii) For the first fiscal year for which an appropriation is made
under subparagraph (A) of paragraph (6), if an estimate under
subparagraph (C) of such paragraph has not been made for the calendar
year beginning in such fiscal year, the transfer under subparagraph (D)
of such paragraph shall be made notwithstanding the lack of the
estimate, and the transfer shall be made in an amount equal to the
amount of such appropriation.''.
SEC. 195. FINDINGS; <<NOTE: 42 USC 300gg note.>> SEVERABILITY.
(a) Findings Relating to Exercise of Commerce Clause Authority.--
Congress finds the following in relation to the provisions of this
title:
(1) Provisions in group health plans and health insurance
coverage that impose certain preexisting condition exclusions
impact the ability of employees to seek employment in interstate
commerce, thereby impeding such commerce.
(2) Health insurance coverage is commercial in nature and is
in and affects interstate commerce.
(3) It is a necessary and proper exercise of Congressional
authority to impose requirements under this title on group
health plans and health insurance coverage (including coverage
offered to individuals previously covered under group health
plans) in order to promote commerce among the States.
(4) Congress, however, intends to defer to States, to the
maximum extent practicable, in carrying out such requirements
with respect to insurers and health maintenance organizations
that are subject to State regulation, consistent with the
provisions of the Employee Retirement Income Security Act of
1974.
(b) Severability.--If any provision of this title or the application
of such provision to any person or circumstance is held to be
unconstitutional, the remainder of this title and the application of the
provisions of such to any person or circumstance shall not be affected
thereby.
TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
SIMPLIFICATION
SEC. 200. REFERENCES IN TITLE.
Except as otherwise specifically provided, whenever in this title an
amendment is expressed in terms of an amendment to or repeal of a
section or other provision, the reference shall be considered to be made
to that section or other provision of the Social Security Act.
Subtitle A--Fraud and Abuse Control Program
SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.
(a) Establishment of Program.--Title XI (42 U.S.C. 1301 et seq.) is
amended by inserting after section 1128B the following new section:
``fraud and abuse control program
``Sec. 1128C. (a) <<NOTE: 42 USC 1320a-7c.>> Establishment of
Program.--
``(1) In general.--Not later than January 1, 1997, the
Secretary, acting through the Office of the Inspector General of
the Department of Health and Human Services, and the Attorney
General shall establish a program--
``(A) to coordinate Federal, State, and local law
enforcement programs to control fraud and abuse with
respect to health plans,
``(B) to conduct investigations, audits,
evaluations, and inspections relating to the delivery of
and payment for health care in the United States,
``(C) to facilitate the enforcement of the
provisions of sections 1128, 1128A, and 1128B and other
statutes applicable to health care fraud and abuse,
``(D) to provide for the modification and
establishment of safe harbors and to issue advisory
opinions and special fraud alerts pursuant to section
1128D, and
``(E) to provide for the reporting and disclosure of
certain final adverse actions against health care
providers, suppliers, or practitioners pursuant to the
data collection system established under section 1128E.
``(2) Coordination with health plans.--In carrying out the
program established under paragraph (1), the Secretary and the
Attorney General shall consult with, and arrange for the sharing
of data with representatives of health plans.
``(3) Guidelines.--
``(A) In general.--The Secretary and the Attorney
General shall issue guidelines to carry out the program
under paragraph (1). The provisions of sections 553,
556, and 557 of title 5, United States Code, shall not
apply in the issuance of such guidelines.
``(B) Information guidelines.--
``(i) In general.--Such guidelines shall
include guidelines relating to the furnishing of
information by health plans, providers, and others
to enable the Secretary and the Attorney General
to carry out the program (including coordination
with health plans under paragraph (2)).
``(ii) Confidentiality.--Such guidelines shall
include procedures to assure that such information
is provided and utilized in a manner that
appropriately protects the confidentiality of the
information and the privacy of individuals
receiving health care services and items.
``(iii) Qualified immunity for providing
information.--The provisions of section 1157(a)
(relating to limitation on liability) shall apply
to a person providing information to the Secretary
or the Attorney General in conjunction with their
performance of duties under this section.
``(4) Ensuring access to documentation.--The Inspector
General of the Department of Health and Human Services is
authorized to exercise such authority described in paragraphs
(3) through (9) of section 6 of the Inspector General Act of
1978 (5 U.S.C. App.) as necessary with respect to the activities
under the fraud and abuse control program established under this
subsection.
``(5) Authority of inspector general.--Nothing in this Act
shall be construed to diminish the authority of any Inspector
General, including such authority as provided in the Inspector
General Act of 1978 (5 U.S.C. App.).
``(b) Additional Use of Funds by Inspector General.--
``(1) Reimbursements for investigations.--The Inspector
General of the Department of Health and Human Services is
authorized to receive and retain for current use reimbursement
for the costs of conducting investigations and audits and for
monitoring compliance plans when such costs are ordered by a
court, voluntarily agreed to by the payor, or otherwise.
``(2) Crediting.--Funds received by the Inspector General
under paragraph (1) as reimbursement for costs of conducting
investigations shall be deposited to the credit of the
appropriation from which initially paid, or to appropriations
for similar purposes currently available at the time of deposit,
and shall remain available for obligation for 1 year from the
date of the deposit of such funds.
``(c) Health Plan Defined.--For purposes of this section, the term
`health plan' means a plan or program that provides health benefits,
whether directly, through insurance, or otherwise, and includes--
``(1) a policy of health insurance;
``(2) a contract of a service benefit organization; and
``(3) a membership agreement with a health maintenance
organization or other prepaid health plan.''.
(b) Establishment of Health Care Fraud and Abuse Control Account in
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i)
is amended by adding at the end the following new subsection:
``(k) Health Care Fraud and Abuse Control Account.--
``(1) Establishment.--There is hereby established in the
Trust Fund an expenditure account to be known as the `Health
Care Fraud and Abuse Control Account' (in this subsection
referred to as the `Account').
``(2) Appropriated amounts to trust fund.--
``(A) In general.--There are hereby appropriated to
the Trust Fund--
``(i) such gifts and bequests as may be made
as provided in subparagraph (B);
``(ii) such amounts as may be deposited in the
Trust Fund as provided in sections 242(b) and
249(c) of the Health Insurance Portability and
Accountability Act of 1996, and title XI; and
``(iii) such amounts as are transferred to the
Trust Fund under subparagraph (C).
``(B) Authorization to accept gifts.--The Trust Fund
is authorized to accept on behalf of the United States
money gifts and bequests made unconditionally to the
Trust Fund, for the benefit of the Account or any
activity financed through the Account.
``(C) Transfer of amounts.--The Managing Trustee
shall transfer to the Trust Fund, under rules similar to
the rules in section 9601 of the Internal Revenue Code
of 1986, an amount equal to the sum of the following:
``(i) Criminal fines recovered in cases
involving a Federal health care offense (as
defined in section 982(a)(6)(B) of title 18,
United States Code).
``(ii) Civil monetary penalties and
assessments imposed in health care cases,
including amounts recovered under titles XI,
XVIII, and XIX, and chapter 38 of title 31, United
States Code (except as otherwise provided by law).
``(iii) Amounts resulting from the forfeiture
of property by reason of a Federal health care
offense.
``(iv) Penalties and damages obtained and
otherwise creditable to miscellaneous receipts of
the general fund of the Treasury obtained under
sections 3729 through 3733 of title 31, United
States Code (known as the False Claims Act), in
cases involving claims related to the provision of
health care items and services (other than funds
awarded to a relator, for restitution or otherwise
authorized by law).
``(D) Application.--Nothing in subparagraph (C)(iii)
shall be construed to limit the availability of
recoveries and forfeitures obtained under title I of the
Employee Retirement Income Security Act of 1974 for the
purpose of providing equitable or remedial relief for
employee welfare benefit plans, and for participants and
beneficiaries under such plans, as authorized under such
title.
``(3) Appropriated amounts to account for fraud and abuse
control program, etc.--
``(A) Departments of health and human services and
justice.--
``(i) In general.--There are hereby
appropriated to the Account from the Trust Fund
such sums as the Secretary and the Attorney
General certify are necessary to carry out the
purposes described in subparagraph (C), to be
available without further appropriation, in an
amount not to exceed--
``(I) for fiscal year 1997,
$104,000,000,
``(II) for each of the fiscal years
1998 through 2003, the limit for the
preceding fiscal year, increased by 15
percent; and
``(III) for each fiscal year after
fiscal year 2003, the limit for fiscal
year 2003.
``(ii) Medicare and medicaid activities.--For
each fiscal year, of the amount appropriated in
clause (i), the following amounts shall be
available only for the purposes of the activities
of the Office of the Inspector General of the
Department of Health and Human Services with
respect to the Medicare and medicaid programs--
``(I) for fiscal year 1997, not less
than $60,000,000 and not more than
$70,000,000;
``(II) for fiscal year 1998, not
less than $80,000,000 and not more than
$90,000,000;
``(III) for fiscal year 1999, not
less than $90,000,000 and not more than
$100,000,000;
``(IV) for fiscal year 2000, not
less than $110,000,000 and not more than
$120,000,000;
``(V) for fiscal year 2001, not less
than $120,000,000 and not more than
$130,000,000;
``(VI) for fiscal year 2002, not
less than $140,000,000 and not more than
$150,000,000; and
``(VII) for each fiscal year after
fiscal year 2002, not less than
$150,000,000 and not more than
$160,000,000.
``(B) Federal bureau of investigation.--There are
hereby appropriated from the general fund of the United
States Treasury and hereby appropriated to the Account
for transfer to the Federal Bureau of Investigation to
carry out the purposes described in subparagraph (C), to
be available without further appropriation--
``(i) for fiscal year 1997, $47,000,000;
``(ii) for fiscal year 1998, $56,000,000;
``(iii) for fiscal year 1999, $66,000,000;
``(iv) for fiscal year 2000, $76,000,000;
``(v) for fiscal year 2001, $88,000,000;
``(vi) for fiscal year 2002, $101,000,000; and
``(vii) for each fiscal year after fiscal year
2002, $114,000,000.
``(C) Use of funds.--The purposes described in this
subparagraph are to cover the costs (including
equipment, salaries and benefits, and travel and
training) of the administration and operation of the
health care fraud and abuse control program established
under section 1128C(a), including the costs of--
``(i) prosecuting health care matters (through
criminal, civil, and administrative proceedings);
``(ii) investigations;
``(iii) financial and performance audits of
health care programs and operations;
``(iv) inspections and other evaluations; and
``(v) provider and consumer education
regarding compliance with the provisions of title
XI.
``(4) Appropriated amounts to account for Medicare integrity
program.--
``(A) In general.--There are hereby appropriated to
the Account from the Trust Fund for each fiscal year
such amounts as are necessary to carry out the Medicare
Integrity Program under section 1893, subject to
subparagraph (B) and to be available without further
appropriation.
``(B) Amounts specified.--The amount appropriated
under subparagraph (A) for a fiscal year is as follows:
``(i) For fiscal year 1997, such amount shall
be not less than $430,000,000 and not more than
$440,000,000.
``(ii) For fiscal year 1998, such amount shall
be not less than $490,000,000 and not more than
$500,000,000.
``(iii) For fiscal year 1999, such amount
shall be not less than $550,000,000 and not more
than $560,000,000.
``(iv) For fiscal year 2000, such amount shall
be not less than $620,000,000 and not more than
$630,000,000.
``(v) For fiscal year 2001, such amount shall
be not less than $670,000,000 and not more than
$680,000,000.
``(vi) For fiscal year 2002, such amount shall
be not less than $690,000,000 and not more than
$700,000,000.
``(vii) For each fiscal year after fiscal year
2002, such amount shall be not less than
$710,000,000 and not more than $720,000,000.
``(5) Annual report.--Not later than January 1, the
Secretary and the Attorney General shall submit jointly a report
to Congress which identifies--
``(A) the amounts appropriated to the Trust Fund for
the previous fiscal year under paragraph (2)(A) and the
source of such amounts; and
``(B) the amounts appropriated from the Trust Fund
for such year under paragraph (3) and the justification
for the expenditure of such amounts.
``(6) GAO report.--Not later than January 1 of 2000, 2002,
and 2004, the Comptroller General of the United States shall
submit a report to Congress which--
``(A) identifies--
``(i) the amounts appropriated to the Trust
Fund for the previous two fiscal years under
paragraph (2)(A) and the source of such amounts;
and
``(ii) the amounts appropriated from the Trust
Fund for such fiscal years under paragraph (3) and
the justification for the expenditure of such
amounts;
``(B) identifies any expenditures from the Trust
Fund with respect to activities not involving the
Medicare program under title XVIII;
``(C) identifies any savings to the Trust Fund, and
any other savings, resulting from expenditures from the
Trust Fund; and
``(D) analyzes such other aspects of the operation
of the Trust Fund as the Comptroller General of the
United States considers appropriate.''.
SEC. 202. MEDICARE INTEGRITY PROGRAM.
(a) Establishment of Medicare Integrity Program.--Title XVIII is
amended by adding at the end the following new section:
``medicare integrity program
``Sec. 1893. (a) Establishment <<NOTE: 42 USC 1395ddd.>> of
Program.--There is hereby established the Medicare Integrity Program (in
this section referred to as the `Program') under which the Secretary
shall promote the integrity of the Medicare program by entering into
contracts in accordance with this section with eligible entities to
carry out the activities described in subsection (b).
``(b) Activities Described.--The activities described in this
subsection are as follows:
``(1) Review of activities of providers of services or other
individuals and entities furnishing items and services for which
payment may be made under this title (including skilled nursing
facilities and home health agencies), including medical and
utilization review and fraud review (employing similar
standards, processes, and technologies used by private health
plans, including equipment and software technologies which
surpass the capability of the equipment and technologies used in
the review of claims under this title as of the date of the
enactment of this section).
``(2) Audit of cost reports.
``(3) Determinations as to whether payment should not be, or
should not have been, made under this title by reason of section
1862(b), and recovery of payments that should not have been
made.
``(4) Education of providers of services, beneficiaries, and
other persons with respect to payment integrity and benefit
quality assurance issues.
``(5) Developing (and periodically updating) a list of items
of durable medical equipment in accordance with section
1834(a)(15) which are subject to prior authorization under such
section.
``(c) Eligibility of Entities.--An entity is eligible to enter into
a contract under the Program to carry out any of the activities
described in subsection (b) if--
``(1) the entity has demonstrated capability to carry out
such activities;
``(2) in carrying out such activities, the entity agrees to
cooperate with the Inspector General of the Department of Health
and Human Services, the Attorney General, and other law
enforcement agencies, as appropriate, in the investigation and
deterrence of fraud and abuse in relation to this title and in
other cases arising out of such activities;
``(3) the entity complies with such conflict of interest
standards as are generally applicable to Federal acquisition and
procurement; and
``(4) the entity meets such other requirements as the
Secretary may impose.
In the case of the activity described in subsection (b)(5), an entity
shall be deemed to be eligible to enter into a contract under the
Program to carry out the activity if the entity is a carrier with a
contract in effect under section 1842.
``(d) Process <<NOTE: Regulations.>> for Entering Into Contracts.--
The Secretary shall enter into contracts under the Program in accordance
with such procedures as the Secretary shall by regulation establish,
except that such procedures shall include the following:
``(1) Procedures for identifying, evaluating, and resolving
organizational conflicts of interest that are generally
applicable to Federal acquisition and procurement.
``(2) Competitive procedures to be used--
``(A) when entering into new contracts under this
section;
``(B) when entering into contracts that may result
in the elimination of responsibilities of an individual
fiscal intermediary or carrier under section 202(b) of
the Health Insurance Portability and Accountability Act
of 1996; and
``(C) at any other time considered appropriate by
the Secretary,
except that the Secretary may continue to contract with entities
that are carrying out the activities described in this section
pursuant to agreements under section 1816 or contracts under
section 1842 in effect on the date of the enactment of this
section.
``(3) Procedures under which a contract under this section
may be renewed without regard to any provision of law requiring
competition if the contractor has met or exceeded the
performance requirements established in the current contract.
The Secretary may enter into such contracts without regard to final
rules having been promulgated.
``(e) Limitation <<NOTE: Regulations.>> on Contractor Liability.--
The Secretary shall by regulation provide for the limitation of a
contractor's liability for actions taken to carry out a contract under
the Program, and such regulation shall, to the extent the Secretary
finds appropriate, employ the same or comparable standards and other
substantive and procedural provisions as are contained in section
1157.''.
(b) Elimination of FI and Carrier Responsibility for Carrying Out
Activities Subject to Program.--
(1) Responsibilities of fiscal intermediaries under part
a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the
end the following new subsection:
``(l) No agency or organization may carry out (or receive payment
for carrying out) any activity pursuant to an agreement under this
section to the extent that the activity is carried out pursuant to a
contract under the Medicare Integrity Program under
section 1893.''.
(2) Responsibilities of carriers under part b.--Section
1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end the
following new paragraph:
``(6) No carrier may carry out (or receive payment for carrying out)
any activity pursuant to a contract under this subsection to the extent
that the activity is carried out pursuant to a contract under the
Medicare Integrity Program under section 1893. The previous sentence
shall not apply with respect to the activity described in section
1893(b)(5) (relating to prior authorization of certain items of durable
medical equipment under section 1834(a)(15)).''.
SEC. 203. BENEFICIARY <<NOTE: 42 USC 1395b-5.>> INCENTIVE PROGRAMS.
(a) Clarification of Requirement to Provide Explanation of Medicare
Benefits.--The Secretary of Health and Human Services (in this section
referred to as the ``Secretary'') shall provide an explanation of
benefits under the Medicare program under title XVIII of the Social
Security Act with respect to each item or service for which payment may
be made under the program which is furnished to an individual, without
regard to whether or not a deductible or coinsurance may be imposed
against the individual with respect to the item or service.
(b) Program To Collect Information on Fraud and Abuse.--
(1) Establishment of program.--Not later than 3 months after
the date of the enactment of this Act, the Secretary shall
establish a program under which the Secretary shall encourage
individuals to report to the Secretary information on
individuals and entities who are engaging in or who have engaged
in acts or omissions which constitute grounds for the imposition
of a sanction under section 1128, 1128A, or 1128B of the Social
Security Act, or who have otherwise engaged in fraud and abuse
against the Medicare program under title XVIII of such act for
which there is a sanction provided under law. The program shall
discourage provision of, and not consider, information which is
frivolous or otherwise not relevant or material to the
imposition of such a sanction.
(2) Payment of portion of amounts collected.--If an
individual reports information to the Secretary under the
program established under paragraph (1) which serves as the
basis for the collection by the Secretary or the Attorney
General of any amount of at least $100 (other than any amount
paid as a penalty under section 1128B of the Social Security
Act), the Secretary may pay a portion of the amount collected to
the individual (under procedures similar to those applicable
under section 7623 of the Internal Revenue Code of 1986 to
payments to individuals providing information on violations of
such Code).
(c) Program To Collect Information on Program
Efficiency.--
(1) Establishment of program.--Not later than 3 months after
the date of the enactment of this Act, the Secretary shall
establish a program under which the Secretary shall encourage
individuals to submit to the Secretary suggestions on methods to
improve the efficiency of the Medicare program.
(2) Payment of portion of program savings.--If an individual
submits a suggestion to the Secretary under the program
established under paragraph (1) which is adopted by the
Secretary and which results in savings to the program, the
Secretary may make a payment to the individual of such amount as
the Secretary considers appropriate.
SEC. 204. APPLICATION OF CERTAIN HEALTH ANTIFRAUD AND ABUSE
SANCTIONS TO FRAUD AND ABUSE AGAINST
FEDERAL HEALTH CARE PROGRAMS.
(a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as
follows:
(1) In the heading, by striking ``Medicare or state health
care programs'' and inserting ``federal health care programs''.
(2) In subsection (a)(1), by striking ``a program under
title XVIII or a State health care program (as defined in
section 1128(h))'' and inserting ``a Federal health care program
(as defined in subsection (f))''.
(3) In subsection (a)(5), by striking ``a program under
title XVIII or a State health care program'' and inserting ``a
Federal health care program''.
(4) In the second sentence of subsection (a)--
(A) by striking ``a State plan approved under title
XIX'' and inserting ``a Federal health care program'',
and
(B) by striking ``the State may at its option
(notwithstanding any other provision of that title or of
such plan)'' and inserting ``the administrator of such
program may at its option (notwithstanding any other
provision of such program)''.
(5) In subsection (b), by striking ``title XVIII or a State
health care program'' each place it appears and inserting ``a
Federal health care program''.
(6) In subsection (c), by inserting ``(as defined in section
1128(h))'' after ``a State health care program''.
(7) By adding at the end the following new subsection:
``(f) For purposes of this section, the term `Federal health care
program' means--
``(1) any plan or program that provides health benefits,
whether directly, through insurance, or otherwise, which is
funded directly, in whole or in part, by the United States
Government (other than the health insurance program under
chapter 89 of title 5, United States Code); or
``(2) any State health care program, as defined in section
1128(h).''.
(b) Effective <<NOTE: 42 USC 1320a-7b note.>> Date.--The amendments
made by this section shall take effect on January 1, 1997.
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND
ABUSE SANCTIONS.
Title XI (42 U.S.C. 1301 et seq.), as amended by section 201, is
amended by inserting after section 1128C the following new section:
``guidance regarding application of health care fraud and abuse
sanctions
``Sec. 1128D. (a) Solicitation <<NOTE: 42 USC 1320a-7d.>> and
Publication of Modifications to Existing Safe Harbors and New Safe
Harbors.--
``(1) In general.--
``(A) Solicitation <<NOTE: Federal Register,
publication.>> of proposals for safe harbors.--Not
later than January 1, 1997, and not less than annually
thereafter, the Secretary shall publish a notice in the
Federal Register soliciting proposals, which will be
accepted during a 60-day period, for--
``(i) modifications to existing safe harbors
issued pursuant to section 14(a) of the Medicare
and Medicaid Patient and Program Protection Act of
1987 (42 U.S.C. 1320a-7b note);
``(ii) additional safe harbors specifying
payment practices that shall not be treated as a
criminal offense under section 1128B(b) and shall
not serve as the basis for an exclusion under
section 1128(b)(7);
``(iii) advisory opinions to be issued
pursuant to subsection (b); and
``(iv) special fraud alerts to be issued
pursuant to subsection (c).
``(B) Publication of proposed modifications and
proposed additional safe <<NOTE: Federal Register,
publication.>> harbors.--After considering the
proposals described in clauses (i) and (ii) of
subparagraph (A), the Secretary, in consultation with
the Attorney General, shall publish in the Federal
Register proposed modifications to existing safe harbors
and proposed additional safe harbors, if appropriate,
with a 60-day comment period. After considering any
public comments received during this period, the
Secretary shall issue final rules modifying the existing
safe harbors and establishing new safe harbors, as
appropriate.
``(C) Report.--The Inspector General of the
Department of Health and Human Services (in this section
referred to as the `Inspector General') shall, in an
annual report to Congress or as part of the year-end
semiannual report required by section 5 of the Inspector
General Act of 1978 (5 U.S.C. App.), describe the
proposals received under clauses (i) and (ii) of
subparagraph (A) and explain which proposals were
included in the publication described in subparagraph
(B), which proposals were not included in that
publication, and the reasons for the rejection of the
proposals that were not included.
``(2) Criteria for modifying and establishing safe
harbors.--In modifying and establishing safe harbors under
paragraph (1)(B), the Secretary may consider the extent to which
providing a safe harbor for the specified payment practice may
result in any of the following:
``(A) An increase or decrease in access to health
care services.
``(B) An increase or decrease in the quality of
health care services.
``(C) An increase or decrease in patient freedom of
choice among health care providers.
``(D) An increase or decrease in competition among
health care providers.
``(E) An increase or decrease in the ability of
health care facilities to provide services in medically
underserved areas or to medically underserved
populations.
``(F) An increase or decrease in the cost to Federal
health care programs (as defined in section 1128B(f)).
``(G) An increase or decrease in the potential
overutilization of health care services.
``(H) The existence or nonexistence of any potential
financial benefit to a health care professional or
provider which may vary based on their decisions of--
``(i) whether to order a health care item or
service; or
``(ii) whether to arrange for a referral of
health care items or services to a particular
practitioner or provider.
``(I) Any other factors the Secretary deems
appropriate in the interest of preventing fraud and
abuse in Federal health care programs (as so defined).
``(b) Advisory Opinions.--
``(1) Issuance of advisory opinions.--The Secretary, in
consultation with the Attorney General, shall issue written
advisory opinions as provided in this subsection.
``(2) Matters subject to advisory opinions.--The Secretary
shall issue advisory opinions as to the following matters:
``(A) What constitutes prohibited remuneration
within the meaning of section 1128B(b).
``(B) Whether an arrangement or proposed arrangement
satisfies the criteria set forth in section 1128B(b)(3)
for activities which do not result in prohibited
remuneration.
``(C) Whether an arrangement or proposed arrangement
satisfies the criteria which the Secretary has
established, or shall establish by regulation for
activities which do not result in prohibited
remuneration.
``(D) What constitutes an inducement to reduce or
limit services to individuals entitled to benefits under
title XVIII or title XIX within the meaning of section
1128B(b).
``(E) Whether any activity or proposed activity
constitutes grounds for the imposition of a sanction
under section 1128, 1128A, or 1128B.
``(3) Matters not subject to advisory opinions.--Such
advisory opinions shall not address the following matters:
``(A) Whether the fair market value shall be, or was
paid or received for any goods, services or property.
``(B) Whether an individual is a bona fide employee
within the requirements of section 3121(d)(2) of the
Internal Revenue Code of 1986.
``(4) Effect of advisory opinions.--
``(A) Binding as to secretary and parties
involved.--Each advisory opinion issued by the Secretary
shall be binding as to the Secretary and the party or
parties requesting the opinion.
``(B) Failure to seek opinion.--The failure of a
party to seek an advisory opinion may not be introduced
into evidence to prove that the party intended to
violate the provisions of sections 1128, 1128A, or
1128B.
``(5) Regulations.--
``(A) In general.--Not later than 180 days after the
date of the enactment of this section, the Secretary
shall issue regulations to carry out this section. Such
regulations shall provide for--
``(i) the procedure to be followed by a party
applying for an advisory opinion;
``(ii) the procedure to be followed by the
Secretary in responding to a request for an
advisory opinion;
``(iii) the interval in which the Secretary
shall respond;
``(iv) the reasonable fee to be charged to the
party requesting an advisory opinion; and
``(v) the manner in which advisory opinions
will be made available to the public.
``(B) Specific contents.--Under the regulations
promulgated pursuant to subparagraph (A)--
``(i) the Secretary shall be required to issue
to a party requesting an advisory opinion by not
later than 60 days after the request is received;
and
``(ii) the fee charged to the party requesting
an advisory opinion shall be equal to the costs
incurred by the Secretary in responding to the
request.
``(6) Application of subsection.--This subsection shall
apply to requests for advisory opinions made on or after the
date which is 6 months after the date of enactment of this
section and before the date which is 4 years after such date of
enactment.
``(c) Special Fraud Alerts.--
``(1) In general.--
``(A) Request for special fraud alerts.--Any person
may present, at any time, a request to the Inspector
General for a notice which informs the public of
practices which the Inspector General considers to be
suspect or of particular concern under the Medicare
program under title XVIII or a State health care
program, as defined in section 1128(h) (in this
subsection referred to as a `special fraud alert').
``(B) Issuance and publication of special fraud
alerts.--Upon receipt of a request described in
subparagraph (A), the Inspector General shall
investigate the subject matter of the request to
determine whether a special fraud alert should be
issued. If appropriate, the Inspector General shall
issue a special fraud alert in response to the request.
All special fraud alerts issued pursuant to this
subparagraph shall be published in the Federal Register.
``(2) Criteria for special fraud alerts.--In determining
whether to issue a special fraud alert upon a request described
in paragraph (1), the Inspector General may consider--
``(A) whether and to what extent the practices that
would be identified in the special fraud alert may
result in any of the consequences described in
subsection (a)(2); and
``(B) the volume and frequency of the conduct that
would be identified in the special fraud alert.''.
Subtitle B--Revisions to Current Sanctions for Fraud and Abuse
SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND
STATE HEALTH CARE PROGRAMS.
(a) Individual Convicted of Felony Relating to Health Care Fraud.--
(1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is
amended by adding at the end the following new paragraph:
``(3) Felony conviction relating to health care fraud.--Any
individual or entity that has been convicted for an offense
which occurred after the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996, under
Federal or State law, in connection with the delivery of a
health care item or service or with respect to any act or
omission in a health care program (other than those specifically
described in paragraph (1)) operated by or financed in whole or
in part by any Federal, State, or local government agency, of a
criminal offense consisting of a felony relating to fraud,
theft, embezzlement, breach of fiduciary responsibility, or
other financial misconduct.''.
(2) Conforming amendment.--Paragraph (1) of section 1128(b)
(42 U.S.C. 1320a-7(b)) is amended to read as follows:
``(1) Conviction relating to fraud.--Any individual or
entity that has been convicted for an offense which occurred
after the date of the enactment of the Health Insurance
Portability and Accountability Act of 1996, under Federal or
State law--
``(A) of a criminal offense consisting of a
misdemeanor relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial
misconduct--
``(i) in connection with the delivery of a
health care item or service, or
``(ii) with respect to any act or omission in
a health care program (other than those
specifically described in subsection (a)(1))
operated by or financed in whole or in part by any
Federal, State, or local government agency; or
``(B) of a criminal offense relating to fraud,
theft, embezzlement, breach of fiduciary responsibility,
or other financial misconduct with respect to any act or
omission in a program (other than a health care program)
operated by or financed in whole or in part by any
Federal, State, or local government agency.''.
(b) Individual Convicted of Felony Relating to Controlled
Substance.--
(1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as
amended by subsection (a), is amended by adding at the end the
following new paragraph:
``(4) Felony conviction relating to controlled substance.--
Any individual or entity that has been convicted for an offense
which occurred after the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996, under
Federal or State law, of a criminal offense consisting of a
felony relating to the unlawful manufacture, distribution,
prescription, or dispensing of a controlled substance.''.
(2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C.
1320a-7(b)(3)) is amended--
(A) in the heading, by striking ``Conviction'' and
inserting ``Misdemeanor conviction''; and
(B) by striking ``criminal offense'' and inserting
``criminal offense consisting of a misdemeanor''.
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN
INDIVIDUALS AND ENTITIES SUBJECT TO
PERMISSIVE EXCLUSION FROM MEDICARE AND
STATE HEALTH CARE PROGRAMS.
Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at
the end the following new subparagraphs:
``(D) In the case of an exclusion of an individual or entity under
paragraph (1), (2), or (3) of subsection (b), the period of the
exclusion shall be 3 years, unless the Secretary determines in
accordance with published regulations that a shorter period is
appropriate because of mitigating circumstances or that a longer period
is appropriate because of aggravating circumstances.
``(E) In the case of an exclusion of an individual or entity under
subsection (b)(4) or (b)(5), the period of the exclusion shall not be
less than the period during which the individual's or entity's license
to provide health care is revoked, suspended, or surrendered, or the
individual or the entity is excluded or suspended from a Federal or
State health care program.
``(F) In the case of an exclusion of an individual or entity under
subsection (b)(6)(B), the period of the exclusion shall be not less than
1 year.''.
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR
CONTROL INTEREST IN SANCTIONED ENTITIES.
Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the
end the following new paragraph:
``(15) Individuals controlling a sanctioned entity.--(A) Any
individual--
``(i) who has a direct or indirect ownership or
control interest in a sanctioned entity and who knows or
should know (as defined in section 1128A(i)(6)) of the
action constituting the basis for the conviction or
exclusion described in subparagraph (B); or
``(ii) who is an officer or managing employee (as
defined in section 1126(b)) of such an entity.
``(B) For purposes of subparagraph (A), the term `sanctioned
entity' means an entity--
``(i) that has been convicted of any offense
described in subsection (a) or in paragraph (1), (2), or
(3) of this subsection; or
``(ii) that has been excluded from participation
under a program under title XVIII or under a State
health care program.''.
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE
TO COMPLY WITH STATUTORY OBLIGATIONS.
(a) Minimum Period of Exclusion for Practitioners and Persons
Failing To Meet Statutory Obligations.--
(1) In general.--The second sentence of section 1156(b)(1)
(42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may
prescribe)'' and inserting ``may prescribe, except that such
period may not be less than 1 year)''.
(2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C.
1320c-5(b)(2)) is amended by striking ``shall remain'' and
inserting ``shall (subject to the minimum period specified in
the second sentence of paragraph (1)) remain''.
(b) Repeal of ``Unwilling or Unable'' Condition for Imposition of
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--
(1) in the second sentence, by striking ``and determines''
and all that follows through ``such obligations,''; and
(2) by striking the third sentence.
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE
ORGANIZATIONS.
(a) Application of Intermediate Sanctions for any Program
Violations.--
(1) In general.--Section 1876(i)(1) (42 U.S.C. 1395mm(i)(1))
is amended by striking ``the Secretary may terminate'' and all
that follows and inserting ``in accordance with procedures
established under paragraph (9), the Secretary may at any time
terminate any such contract or may impose the intermediate
sanctions described in paragraph (6)(B) or (6)(C) (whichever is
applicable) on the eligible organization if the Secretary
determines that the organization--
``(A) has failed substantially to carry out the contract;
``(B) is carrying out the contract in a manner substantially
inconsistent with the efficient and effective administration of
this section; or
``(C) no longer substantially meets the applicable
conditions of subsections (b), (c), (e), and (f).''.
(2) Other intermediate sanctions for miscellaneous program
violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is
amended by adding at the end the following new subparagraph:
``(C) In the case of an eligible organization for which the
Secretary makes a determination under paragraph (1), the basis of which
is not described in subparagraph (A), the Secretary may apply the
following intermediate sanctions:
``(i) Civil money penalties of not more than $25,000 for
each determination under paragraph (1) if the deficiency that is
the basis of the determination has directly adversely affected
(or has the substantial likelihood of adversely affecting) an
individual covered under the organization's contract.
``(ii) Civil money penalties of not more than $10,000 for
each week beginning after the initiation of procedures by the
Secretary under paragraph (9) during which the deficiency that
is the basis of a determination under paragraph (1) exists.
``(iii) Suspension of enrollment of individuals under this
section after the date the Secretary notifies the organization
of a determination under paragraph (1) and until the Secretary
is satisfied that the deficiency that is the basis for the
determination has been corrected and is not likely to recur.''.
(3) Procedures for imposing sanctions.--Section 1876(i) (42
U.S.C. 1395mm(i)) is amended by adding at the end the following
new paragraph:
``(9) The Secretary may terminate a contract with an eligible
organization under this section or may impose the intermediate sanctions
described in paragraph (6) on the organization in accordance with formal
investigation and compliance procedures established by the Secretary
under which--
``(A) the Secretary first provides the organization with the
reasonable opportunity to develop and implement a corrective
action plan to correct the deficiencies that were the basis of
the Secretary's determination under paragraph (1) and the
organization fails to develop or implement such a plan;
``(B) in deciding whether to impose sanctions, the Secretary
considers aggravating factors such as whether an organization
has a history of deficiencies or has not taken action to correct
deficiencies the Secretary has brought to the organization's
attention;
``(C) there are no unreasonable or unnecessary delays
between the finding of a deficiency and the imposition of
sanctions; and
``(D) the Secretary provides the organization with
reasonable notice and opportunity for hearing (including the
right to appeal an initial decision) before imposing any
sanction or terminating the contract.''.
(4) Conforming amendments.--Section 1876(i)(6)(B) (42 U.S.C.
1395mm(i)(6)(B)) is amended by striking the second sentence.
(b) Agreements With Peer Review Organizations.--Section
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ``an
agreement'' and inserting ``a written agreement''.
(c) Effective <<NOTE: 42 USC 1395mm note.>> Date.--The amendments
made by this section shall apply with respect to contract years
beginning on or after January 1, 1997.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR
RISK-SHARING ARRANGEMENTS.
(a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is
amended--
(1) by striking ``and'' at the end of subparagraph (D);
(2) by striking the period at the end of subparagraph (E)
and inserting ``; and''; and
(3) by adding at the end the following new subparagraph:
``(F) any remuneration between an organization and an
individual or entity providing items or services, or a
combination thereof, pursuant to a written agreement between the
organization and the individual or entity if the organization is
an eligible organization under section 1876 or if the written
agreement, through a risk-sharing arrangement, places the
individual or entity at substantial financial risk for the cost
or utilization of the items or services, or a combination
thereof, which the individual or entity is obligated to
provide.''.
(b) Negotiated <<NOTE: 42 USC 1320a-7b note.>> Rulemaking for Risk-
Sharing Exception.--
(1) Establishment.--
(A) In general.--The Secretary of Health and Human
Services (in this subsection referred to as the
``Secretary'') shall establish, on an expedited basis
and using a negotiated rulemaking process under
subchapter 3 of chapter 5 of title 5, United States
Code, standards relating to the exception for risk-
sharing arrangements to the anti-kickback penalties
described in section 1128B(b)(3)(F) of the Social
Security Act, as added by subsection (a).
(B) Factors to consider.--In establishing standards
relating to the exception for risk-sharing arrangements
to the anti-kickback penalties under subparagraph (A),
the Secretary--
(i) shall consult with the Attorney General
and representatives of the hospital, physician,
other health practitioner, and health plan
communities, and other interested parties; and
(ii) shall take into account--
(I) the level of risk appropriate to
the size and type of arrangement;
(II) the frequency of assessment and
distribution of incentives;
(III) the level of capital
contribution; and
(IV) the extent to which the risk-
sharing arrangement provides incentives
to control the cost and quality of
health care services.
(2) Publication of notice.--In carrying out the rulemaking
process under this subsection, the Secretary shall publish the
notice provided for under section 564(a) of title 5, United
States Code, by not later than 45 days after the date of the
enactment of this Act.
(3) Target date for publication of rule.--As part of the
notice under paragraph (2), and for purposes of this subsection,
the ``target date for publication'' (referred to in section
564(a)(5) of such title) shall be January 1, 1997.
(4) Abbreviated period for submission of comments.--In
applying section 564(c) of such title under this subsection,
``15 days'' shall be substituted for ``30 days''.
(5) Appointment of negotiated rulemaking committee and
facilitator.--The Secretary shall provide for--
(A) the appointment of a negotiated rulemaking
committee under section 565(a) of such title by not
later than 30 days after the end of the comment period
provided for under section 564(c) of such title (as
shortened under paragraph (4)), and
(B) the nomination of a facilitator under section
566(c) of such title by not later than 10 days after the
date of appointment of the committee.
(6) Preliminary committee report.--The negotiated rulemaking
committee appointed under paragraph (5) shall report to the
Secretary, by not later than October 1, 1996, regarding the
committee's progress on achieving a consensus with regard to the
rulemaking proceeding and whether such consensus is likely to
occur before one month before the target date for publication of
the rule. If the committee reports that the committee has failed
to make significant progress toward such consensus or is
unlikely to reach such consensus by the target date, the
Secretary may terminate such process and provide for the
publication of a rule under this subsection through such other
methods as the Secretary may provide.
(7) Final committee report.--If the committee is not
terminated under paragraph (6), the rulemaking committee shall
submit a report containing a proposed rule by not later than one
month before the target publication date.
(8) Interim, final <<NOTE: Federal Register, publication.>>
effect.--The Secretary shall publish a rule under this
subsection in the Federal Register by not later than the target
publication date. Such rule shall be effective and final
immediately on an interim basis, but is subject to change and
revision after public notice and opportunity for a period (of
not less than 60 days) for public comment. In connection with
such rule, the Secretary shall specify the process for the
timely review and approval of applications of entities to be
certified as provider-sponsored organizations pursuant to such
rules and consistent with this subsection.
(9) Publication of rule after public comment.--The Secretary
shall provide for consideration of such comments and
republication of such rule by not later than 1 year after the
target publication date.
(c) Effective <<NOTE: 42 USC 1320a-7b note.>> Date.--The amendments
made by subsection (a) shall apply to written agreements entered into on
or after January 1, 1997, without regard to whether regulations have
been issued to implement such amendments.
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN
ORDER TO OBTAIN MEDICAID BENEFITS.
Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by adding ``or'' at the end of paragraph (5); and
(3) by inserting after paragraph (5) the following new
paragraph:
``(6) knowingly and willfully disposes of assets (including
by any transfer in trust) in order for an individual to become
eligible for medical assistance under a State plan under title
XIX, if disposing of the assets results in the imposition of a
period of ineligibility for such assistance under section
1917(c),''.
SEC. 218. EFFECTIVE <<NOTE: 42 USC 1320a-7 note.>> DATE.
Except as otherwise provided, the amendments made by this subtitle
shall take effect January 1, 1997.
Subtitle C--Data Collection
SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA
COLLECTION PROGRAM.
(a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by
sections 201 and 205, is amended by inserting after section 1128D the
following new section:
``health care fraud and abuse data collection program
``Sec. 1128E. (a) General <<NOTE: 42 USC 1320a-7e.>> Purpose.--Not
later than January 1, 1997, the Secretary shall establish a national
health care fraud and abuse data collection program for the reporting of
final adverse actions (not including settlements in which no findings of
liability have been made) against health care providers, suppliers, or
practitioners as required by subsection (b), with access as set forth in
subsection (c), and shall maintain a database of the information
collected under this section.
``(b) Reporting of Information.--
``(1) In general.--Each Government agency and health plan
shall report any final adverse action (not including settlements
in which no findings of liability have been made) taken against
a health care provider, supplier, or practitioner.
``(2) Information to be reported.--The information to be
reported under paragraph (1) includes:
``(A) The name and TIN (as defined in section
7701(a)(41) of the Internal Revenue Code of 1986) of any
health care provider, supplier, or practitioner who is
the subject of a final adverse action.
``(B) The name (if known) of any health care entity
with which a health care provider, supplier, or
practitioner, who is the subject of a final adverse
action, is affiliated or associated.
``(C) The nature of the final adverse action and
whether such action is on appeal.
``(D) A description of the acts or omissions and
injuries upon which the final adverse action was based,
and such other information as the Secretary determines
by regulation is required for appropriate interpretation
of information reported under this section.
``(3) Confidentiality.--In determining what information is
required, the Secretary shall include procedures to assure that
the privacy of individuals receiving health care services is
appropriately protected.
``(4) Timing and form of reporting.--The information
required to be reported under this subsection shall be reported
regularly (but not less often than monthly) and in such form and
manner as the Secretary prescribes. Such information shall first
be required to be reported on a date specified by the Secretary.
``(5) To whom reported.--The information required to be
reported under this subsection shall be reported to the
Secretary.
``(c) Disclosure and Correction of Information.--
``(1) Disclosure.--With respect to the information about
final adverse actions (not including settlements in which no
findings of liability have been made) reported to the Secretary
under this section with respect to a health care provider,
supplier, or practitioner, the Secretary shall, by regulation,
provide for--
``(A) disclosure of the information, upon request,
to the health care provider, supplier, or licensed
practitioner, and
``(B) procedures in the case of disputed accuracy of
the information.
``(2) Corrections.--Each Government agency and health plan
shall report corrections of information already reported about
any final adverse action taken against a health care provider,
supplier, or practitioner, in such form and manner that the
Secretary prescribes by regulation.
``(d) Access to Reported Information.--
``(1) Availability.--The information in the database
maintained under this section shall be available to Federal and
State government agencies and health plans pursuant to
procedures that the Secretary shall provide by regulation.
``(2) Fees for disclosure.--The Secretary may establish or
approve reasonable fees for the disclosure of information in
such database (other than with respect to requests by Federal
agencies). The amount of such a fee shall be sufficient to
recover the full costs of operating the database. Such fees
shall be available to the Secretary or, in the Secretary's
discretion to the agency designated under this section to cover
such costs.
``(e) Protection From Liability for Reporting.--No person or entity,
including the agency designated by the Secretary in subsection (b)(5)
shall be held liable in any civil action with respect to any report made
as required by this section, without knowledge of the falsity of the
information contained in the report.
``(f) Coordination With National Practitioner Data Bank.--The
Secretary shall implement this section in such a manner as to avoid
duplication with the reporting requirements established for the National
Practitioner Data Bank under the Health Care Quality Improvement Act of
1986 (42 U.S.C. 11101 et seq.).
``(g) Definitions and Special Rules.--For purposes of this section:
``(1) Final adverse action.--
``(A) In general.--The term `final adverse action'
includes:
``(i) Civil judgments against a health care
provider, supplier, or practitioner in Federal or
State court related to the delivery of a health
care item or service.
``(ii) Federal or State criminal convictions
related to the delivery of a health care item or
service.
``(iii) Actions by Federal or State agencies
responsible for the licensing and certification of
health care providers, suppliers, and licensed
health care practitioners, including--
``(I) formal or official actions,
such as revocation or suspension of a
license (and the length of any such
suspension), reprimand, censure or
probation,
``(II) any other loss of license or
the right to apply for, or renew, a
license of the provider, supplier, or
practitioner, whether by operation of
law, voluntary surrender, non-
renewability, or otherwise, or
``(III) any other negative action or
finding by such Federal or State agency
that is publicly available information.
``(iv) Exclusion from participation in Federal
or State health care programs (as defined in
sections 1128B(f) and 1128(h), respectively).
``(v) Any other adjudicated actions or
decisions that the Secretary shall establish by
regulation.
``(B) Exception.--The term does not include any
action with respect to a malpractice claim.
``(2) Practitioner.--The terms `licensed health care
practitioner', `licensed practitioner', and `practitioner' mean,
with respect to a State, an individual who is licensed or
otherwise authorized by the State to provide health care
services (or any individual who, without authority holds himself
or herself out to be so licensed or authorized).
``(3) Government agency.--The term `Government agency' shall
include:
``(A) The Department of Justice.
``(B) The Department of Health and Human Services.
``(C) Any other Federal agency that either
administers or provides payment for the delivery of
health care services, including, but not limited to the
Department of Defense and the Veterans' Administration.
``(D) State law enforcement agencies.
``(E) State medicaid fraud control units.
``(F) Federal or State agencies responsible for the
licensing and certification of health care providers and
licensed health care practitioners.
``(4) Health plan.--The term `health plan' has the meaning
given such term by section 1128C(c).
``(5) Determination of conviction.--For purposes of
paragraph (1), the existence of a conviction shall be determined
under paragraph (4) of section 1128(i).''.
(b) Improved Prevention in Issuance of Medicare Provider Numbers.--
Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end the
following new sentence: ``Under such system, the Secretary may impose
appropriate fees on such physicians to cover the costs of investigation
and recertification activities with respect to the issuance of the
identifiers.''.
Subtitle D--Civil Monetary Penalties
SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.
(a) General Civil Monetary Penalties.--Section 1128A (42 U.S.C.
1320a-7a) is amended as follows:
(1) In the third sentence of subsection (a), by striking
``programs under title XVIII'' and inserting ``Federal health
care programs (as defined in section 1128B(f)(1))''.
(2) In subsection (f)--
(A) by redesignating paragraph (3) as paragraph
(4); and
(B) by inserting after paragraph (2) the following
new paragraph:
``(3) With respect to amounts recovered arising out of a
claim under a Federal health care program (as defined in section
1128B(f)), the portion of such amounts as is determined to have
been paid by the program shall be repaid to the program, and the
portion of such amounts attributable to the amounts recovered
under this section by reason of the amendments made by the
Health Insurance Portability and Accountability Act of 1996 (as
estimated by the Secretary) shall be deposited into the Federal
Hospital Insurance Trust Fund pursuant to section
1817(k)(2)(C).''.
(3) In subsection (i)--
(A) in paragraph (2), by striking ``title V, XVIII,
XIX, or XX of this Act'' and inserting ``a Federal
health care program (as defined in section 1128B(f))'',
(B) in paragraph (4), by striking ``a health
insurance or medical services program under title XVIII
or XIX of this Act'' and inserting ``a Federal health
care program (as so defined)'', and
(C) in paragraph (5), by striking ``title V, XVIII,
XIX, or XX'' and inserting ``a Federal health care
program (as so defined)''.
(4) By adding at the end the following new subsection:
``(m)(1) For purposes of this section, with respect to a Federal
health care program not contained in this Act, references to the
Secretary in this section shall be deemed to be references to the
Secretary or Administrator of the department or agency with jurisdiction
over such program and references to the Inspector General of the
Department of Health and Human Services in this section shall be deemed
to be references to the Inspector General of the applicable department
or agency.
``(2)(A) The Secretary and Administrator of the departments and
agencies referred to in paragraph (1) may include in any action pursuant
to this section, claims within the jurisdiction of other Federal
departments or agencies as long as the following conditions are
satisfied:
``(i) The case involves primarily claims submitted to the
Federal health care programs of the department or agency
initiating the action.
``(ii) The Secretary or Administrator of the department or
agency initiating the action gives notice and an opportunity to
participate in the investigation to the Inspector General of the
department or agency with primary jurisdiction over the Federal
health care programs to which the claims were submitted.
``(B) If the conditions specified in subparagraph (A) are fulfilled,
the Inspector General of the department or agency initiating the action
is authorized to exercise all powers granted under the Inspector General
Act of 1978 (5 U.S.C. App.) with respect to the claims submitted to the
other departments or agencies to the same manner and extent as provided
in that Act with respect to claims submitted to such departments or
agencies.''.
(b) Excluded Individual Retaining Ownership or Control Interest in
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
amended--
(1) by striking ``or'' at the end of paragraph (1)(D);
(2) by striking ``, or'' at the end of paragraph (2) and
inserting a semicolon;
(3) by striking the semicolon at the end of paragraph (3)
and inserting ``; or''; and
(4) by inserting after paragraph (3) the following new
paragraph:
``(4) in the case of a person who is not an organization,
agency, or other entity, is excluded from participating in a
program under title XVIII or a State health care program in
accordance with this subsection or under section 1128 and who,
at the time of a violation of this subsection--
``(A) retains a direct or indirect ownership or
control interest in an entity that is participating in a
program under title XVIII or a State health care
program, and who knows or should know of the action
constituting the basis for the exclusion; or
``(B) is an officer or managing employee (as defined
in section 1126(b)) of such an entity;''.
(c) Modifications of Amounts of Penalties and Assessments.--Section
1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is
amended in the matter following paragraph (4)--
(1) by striking ``$2,000'' and inserting ``$10,000'';
(2) by inserting ``; in cases under paragraph (4), $10,000
for each day the prohibited relationship occurs'' after ``false
or misleading information was given''; and
(3) by striking ``twice the amount'' and inserting ``3 times
the amount''.
(d) Clarification of Level of Knowledge Required for Imposition of
Civil Monetary Penalties.--
(1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
amended--
(A) in paragraphs (1) and (2), by inserting
``knowingly'' before ``presents'' each place it appears;
and
(B) in paragraph (3), by striking ``gives'' and
inserting ``knowingly gives or causes to be given''.
(2) Definition of standard.--Section 1128A(i) (42 U.S.C.
1320a-7a(i)), as amended by subsection (h)(2), is amended by
adding at the end the following new paragraph:
``(7) The term `should know' means that a person, with
respect to information--
``(A) acts in deliberate ignorance of the truth or
falsity of the information; or
``(B) acts in reckless disregard of the truth or
falsity of the information,
and no proof of specific intent to defraud is required.''.
(e) Claim for Item or Service Based on Incorrect Coding or Medically
Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-7a(a)(1)),
as amended by subsection (b), is amended--
(1) in subparagraph (A) by striking ``claimed,'' and
inserting ``claimed, including any person who engages in a
pattern or practice of presenting or causing to be presented a
claim for an item or service that is based on a code that the
person knows or should know will result in a greater payment to
the person than the code the person knows or should know is
applicable to the item or service actually provided,'';
(2) in subparagraph (C), by striking ``or'' at the end;
(3) in subparagraph (D), by striking the semicolon and
inserting ``, or''; and
(4) by inserting after subparagraph (D) the following new
subparagraph:
``(E) is for a pattern of medical or other items or
services that a person knows or should know are not
medically necessary;''.
(f) Sanctions Against Practitioners and Persons for Failure To
Comply With Statutory Obligations.--Section 1156(b)(3) (42 U.S.C. 1320c-
5(b)(3)) is amended by striking ``the actual or estimated cost'' and
inserting ``up to $10,000 for each instance''.
(g) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C.
1395mm(i)(6)), as amended by section 215(a)(2), is amended by adding at
the end the following new subparagraph:
``(D) The provisions of section 1128A (other than subsections (a)
and (b)) shall apply to a civil money penalty under subparagraph (B)(i)
or (C)(i) in the same manner as such provisions apply to a civil money
penalty or proceeding under section 1128A(a).''.
(h) Prohibition Against Offering Inducements to Individuals Enrolled
Under Programs or Plans.--
(1) Offer of remuneration.--Section 1128A(a) (42 U.S.C.
1320a-7a(a)), as amended by subsection (b), is amended--
(A) by striking ``or'' at the end of paragraph (3);
(B) by striking the semicolon at the end of
paragraph (4) and inserting ``; or''; and
(C) by inserting after paragraph (4) the following
new paragraph:
``(5) offers to or transfers remuneration to any individual
eligible for benefits under title XVIII of this Act, or under a
State health care program (as defined in section 1128(h)) that
such person knows or should know is likely to influence such
individual to order or receive from a particular provider,
practitioner, or supplier any item or service for which payment
may be made, in whole or in part, under title XVIII, or a State
health care program (as so defined);''.
(2) Remuneration defined.--Section 1128A(i) (42 U.S.C.
1320a-7a(i)) is amended by adding at the end the following new
paragraph:
``(6) The term `remuneration' includes the waiver of
coinsurance and deductible amounts (or any part thereof), and
transfers of items or services for free or for other than fair
market value. The term `remuneration' does not include--
``(A) the waiver of coinsurance and deductible
amounts by a person, if--
``(i) the waiver is not offered as part of any
advertisement or solicitation;
``(ii) the person does not routinely waive
coinsurance or deductible amounts; and
``(iii) the person--
``(I) waives the coinsurance and
deductible amounts after determining in
good faith that the individual is in
financial need;
``(II) fails to collect coinsurance
or deductible amounts after making
reasonable collection
efforts; or
``(III) provides for any permissible
waiver as specified in section
1128B(b)(3) or in regulations issued by
the Secretary;
``(B) differentials in coinsurance and deductible
amounts as part of a benefit plan design as long as the
differentials have been disclosed in writing to all
beneficiaries, third party payers, and providers, to
whom claims are presented and as long as the
differentials meet the standards as defined in
regulations promulgated
by the Secretary not later than 180 days after the date
of the enactment of the Health Insurance Portability and
Accountability Act of 1996; or
``(C) incentives given to individuals to promote the
delivery of preventive care as determined by the
Secretary in regulations so promulgated.''.
(i) Effective <<NOTE: 42 USC 1320a-7a note.>> Date.--The amendments
made by this section shall apply to acts or omissions occurring on or
after January 1, 1997.
SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH
SERVICES.
(a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is amended
by adding at the end the following new paragraph:
``(3)(A) Any physician who executes a document described in
subparagraph (B) with respect to an individual knowing that all of the
requirements referred to in such subparagraph are not met with respect
to the individual shall be subject to a civil monetary penalty of not
more than the greater of--
``(i) $5,000, or
``(ii) three times the amount of the payments under title
XVIII for home health services which are made pursuant to such
certification.
``(B) A document described in this subparagraph is any document that
certifies, for purposes of title XVIII, that an individual meets the
requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) in the case of
home health services furnished to the individual.''.
(b) Effective <<NOTE: 42 USC 1320a-7a note.>> Date.--The amendment
made by subsection (a) shall apply to certifications made on or after
the date of the enactment of this Act.
Subtitle E--Revisions to Criminal Law
SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH CARE OFFENSE.
(a) In General.--Chapter 1 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 24. Definitions relating to Federal health care offense
``(a) As used in this title, the term `Federal health care offense'
means a violation of, or a criminal conspiracy to violate--
``(1) section 669, 1035, 1347, or 1518 of this title;
``(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343, or
1954 of this title, if the violation or conspiracy relates to a
health care benefit program.
``(b) As used in this title, the term `health care benefit program'
means any public or private plan or contract, affecting commerce, under
which any medical benefit, item, or service is provided to any
individual, and includes any individual or entity who is providing a
medical benefit, item, or service for which payment may be made under
the plan or contract.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 2 of title 18, United States Code, is amended by inserting after
the item relating to section 23 the following new item:
``24. Definitions relating to Federal health care offense.''.
SEC. 242. HEALTH CARE FRAUD.
(a) Offense.--
(1) In general.--Chapter 63 of title 18, United States Code,
is amended by adding at the end the following:
``Sec. 1347. Health care fraud
``Whoever knowingly and willfully executes, or attempts to execute,
a scheme or artifice--
``(1) to defraud any health care benefit program; or
``(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property owned
by, or under the custody or control of, any health care benefit
program,
in connection with the delivery of or payment for health care benefits,
items, or services, shall be fined under this title or imprisoned not
more than 10 years, or both. If the violation results in serious bodily
injury (as defined in section 1365 of this title), such person shall be
fined under this title or imprisoned not more than 20 years, or both;
and if the violation results in death, such person shall be fined under
this title, or imprisoned for any term of years or for life, or both.''.
(2) Clerical amendment.--The table of sections at the
beginning of chapter 63 of title 18, United States Code, is
amended by adding at the end the following:
``1347. Health care fraud.''.
(b) Criminal <<NOTE: 42 USC 1395i note.>> Fines Deposited in
Federal Hospital Insurance Trust Fund.--The Secretary of the Treasury
shall deposit into the Federal Hospital Insurance Trust Fund pursuant to
section 1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an
amount equal to the criminal fines imposed under section 1347 of title
18, United States Code (relating to health care fraud).
SEC. 243. THEFT OR EMBEZZLEMENT.
(a) In General.--Chapter 31 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 669. Theft or embezzlement in connection with health care
``(a) Whoever knowingly and willfully embezzles, steals, or
otherwise without authority converts to the use of any person other than
the rightful owner, or intentionally misapplies any of the moneys,
funds, securities, premiums, credits, property, or other assets of a
health care benefit program, shall be fined under this title or
imprisoned not more than 10 years, or both; but if the value of such
property does not exceed the sum of $100 the defendant shall be fined
under this title or imprisoned not more than one year, or both.
``(b) As used in this section, the term `health care benefit
program' has the meaning given such term in section 24(b) of this
title.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 31 of title 18, United States Code, is amended by adding at the
end the following:
``669. Theft or embezzlement in connection with health care.''.
SEC. 244. FALSE STATEMENTS.
(a) In General.--Chapter 47 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 1035. False statements relating to health care matters
``(a) Whoever, in any matter involving a health care benefit
program, knowingly and willfully--
``(1) falsifies, conceals, or covers up by any trick,
scheme, or device a material fact; or
``(2) makes any materially false, fictitious, or fraudulent
statements or representations, or makes or uses any materially
false writing or document knowing the same to contain any
materially false, fictitious, or fraudulent statement or entry,
in connection with the delivery of or payment for health care benefits,
items, or services, shall be fined under this title or imprisoned not
more than 5 years, or both.
``(b) As used in this section, the term `health care benefit
program' has the meaning given such term in section 24(b) of this
title.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 47 of title 18, United States Code, is amended by adding at the
end the following new item:
``1035. False statements relating to health care matters.''.
SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH CARE
OFFENSES.
(a) In General.--Chapter 73 of title 18, United States Code, is
amended by adding at the end the following:
``Sec. 1518. Obstruction of criminal investigations of health care
offenses
``(a) Whoever willfully prevents, obstructs, misleads, delays or
attempts to prevent, obstruct, mislead, or delay the communication of
information or records relating to a violation of a Federal health care
offense to a criminal investigator shall be fined under this title or
imprisoned not more than 5 years, or both.
``(b) As used in this section the term `criminal investigator' means
any individual duly authorized by a department, agency, or armed force
of the United States to conduct or engage in investigations for
prosecutions for violations of health care offenses.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 73 of title 18, United States Code, is amended by adding at the
end the following new item:
``1518. Obstruction of criminal investigations of health care
offenses.''.
SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.
Section 1956(c)(7) of title 18, United States Code, is amended by
adding at the end the following:
``(F) Any act or activity constituting an offense
involving a Federal health care offense.''.
SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES.
(a) In General.--Section 1345(a)(1) of title 18, United States Code,
is amended--
(1) by striking ``or'' at the end of subparagraph (A);
(2) by inserting ``or'' at the end of subparagraph (B); and
(3) by adding at the end the following:
``(C) committing or about to commit a Federal health care
offense.''.
(b) Freezing of Assets.--Section 1345(a)(2) of title 18, United
States Code, is amended by inserting ``or a Federal health care
offense'' after ``title)''.
SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.
(a) In General.--Chapter 223 of title 18, United States Code, is
amended by adding after section 3485 the following:
``Sec. 3486. Authorized investigative demand procedures
``(a) Authorization.--(1) In any investigation relating to any act
or activity involving a Federal health care offense, the Attorney
General or the Attorney General's designee may issue in writing and
cause to be served a subpoena--
``(A) requiring the production of any records (including any
books, papers, documents, electronic media, or other objects or
tangible things), which may be relevant to an authorized law
enforcement inquiry, that a person or legal entity may possess
or have care, custody, or control; or
``(B) requiring a custodian of records to give testimony
concerning the production and authentication of such records.
``(2) A subpoena under this subsection shall describe the objects
required to be produced and prescribe a return date within a reasonable
period of time within which the objects can be assembled and made
available.
``(3) The production of records shall not be required under this
section at any place more than 500 miles distant from the place where
the subpoena for the production of such records is served.
``(4) Witnesses summoned under this section shall be paid the same
fees and mileage that are paid witnesses in the courts of the United
States.
``(b) Service.--A subpoena issued under this section may be served
by any person who is at least 18 years of age and is designated in the
subpoena to serve it. Service upon a natural person may be made by
personal delivery of the subpoena to him. Service may be made upon a
domestic or foreign corporation or upon a partnership or other
unincorporated association which is subject to suit under a common name,
by delivering the subpoena to an officer, to a managing or general
agent, or to any other agent authorized by appointment or by law to
receive service of process. The affidavit of the person serving the
subpoena entered on a true copy thereof by the person serving it shall
be proof of service.
``(c) Enforcement.--In the case of contumacy by or refusal to obey a
subpoena issued to any person, the Attorney General may invoke the aid
of any court of the United States within the jurisdiction of which the
investigation is carried on or of which the subpoenaed person is an
inhabitant, or in which he carries on business or may be found, to
compel compliance with the subpoena. The court may issue an order
requiring the subpoenaed person to appear before the Attorney General to
produce records, if so ordered, or to give testimony concerning the
production and authentication of such records. Any failure to obey the
order of the court may be punished by the court as a contempt thereof.
All process in any such case may be served in any judicial district in
which such person may be found.
``(d) Immunity From Civil Liability.--Notwithstanding any Federal,
State, or local law, any person, including officers, agents, and
employees, receiving a summons under this section, who complies in good
faith with the summons and thus produces the materials sought, shall not
be liable in any court of any State or the United States to any customer
or other person for such production or for nondisclosure of that
production to the customer.
``(e) Limitation on Use.--(1) Health information about an individual
that is disclosed under this section may not be used in, or disclosed to
any person for use in, any administrative, civil, or criminal action or
investigation directed against the individual who is the subject of the
information unless the action or investigation arises out of and is
directly related to receipt of health care or payment for health care or
action involving a fraudulent claim related to health; or if authorized
by an appropriate order of a court of competent jurisdiction, granted
after application showing good cause therefor.
``(2) In assessing good cause, the court shall weigh the public
interest and the need for disclosure against the injury to the patient,
to the physician-patient relationship, and to the treatment services.
``(3) Upon the granting of such order, the court, in determining the
extent to which any disclosure of all or any part of any record is
necessary, shall impose appropriate safeguards against unauthorized
disclosure.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 223 of title 18, United States Code, is amended by inserting
after the item relating to section 3485 the following new item:
``3486. Authorized investigative demand procedures.''.
(c) Conforming Amendment.--Section 1510(b)(3)(B) of title 18, United
States Code, is amended by inserting ``or a Department of Justice
subpoena (issued under section 3486 of title 18),'' after ``subpoena''.
SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.
(a) In General.--Section 982(a) of title 18, United States Code, is
amended by adding after paragraph (5) the following new paragraph:
``(6) The court, in imposing sentence on a person convicted of a
Federal health care offense, shall order the person to forfeit property,
real or personal, that constitutes or is derived, directly or
indirectly, from gross proceeds traceable to the commission of the
offense.''.
(b) Conforming Amendment.--Section 982(b)(1)(A) of title 18, United
States Code, is amended by inserting ``or (a)(6)'' after ``(a)(1)''.
(c) Property Forfeited <<NOTE: 42 USC 1395i note.>> Deposited in
Federal Hospital Insurance Trust Fund.--
(1) In general.--After the payment of the costs of asset
forfeiture has been made and after all restoration payments (if
any) have been made, and notwithstanding any other provision of
law, the Secretary of the Treasury shall deposit into the
Federal Hospital Insurance Trust Fund pursuant to section
1817(k)(2)(C) of the Social Security Act, as added by section
301(b), an amount equal to the net amount realized from the
forfeiture of property by reason of a Federal health care
offense pursuant to section 982(a)(6) of title 18, United States
Code.
(2) Costs of asset forfeiture.--For purposes of paragraph
(1), the term ``payment of the costs of asset forfeiture''
means--
(A) the payment, at the discretion of the Attorney
General, of any expenses necessary to seize, detain,
inventory, safeguard, maintain, advertise, sell, or
dispose of property under seizure, detention, or
forfeited, or of any other necessary expenses incident
to the seizure, detention, forfeiture, or disposal of
such property, including payment for--
(i) contract services;
(ii) the employment of outside contractors to
operate and manage properties or provide other
specialized services necessary to dispose of such
properties in an effort to maximize the return
from such properties; and
(iii) reimbursement of any Federal, State, or
local agency for any expenditures made to perform
the functions described in this subparagraph;
(B) at the discretion of the Attorney General, the
payment of awards for information or assistance leading
to a civil or criminal forfeiture involving any Federal
agency participating in the Health Care Fraud and Abuse
Control Account;
(C) the compromise and payment of valid liens and
mortgages against property that has been forfeited,
subject to the discretion of the Attorney General to
determine the validity of any such lien or mortgage and
the amount of payment to be made, and the employment of
attorneys and other personnel skilled in State real
estate law as necessary;
(D) payment authorized in connection with remission
or mitigation procedures relating to property forfeited;
and
(E) the payment of State and local property taxes on
forfeited real property that accrued between the date of
the violation giving rise to the forfeiture and the date
of the forfeiture order.
(3) Restoration payment.--Notwithstanding any other
provision of law, if the Federal health care offense referred to
in paragraph (1) resulted in a loss to an employee welfare
benefit plan within the meaning of section 3(1) of the Employee
Retirement Income Security Act of 1974, the Secretary of the
Treasury shall transfer to such employee welfare benefit plan,
from the amount realized from the forfeiture of property
referred to in paragraph (1), an amount equal to such loss. For
purposes of paragraph (1), the term ``restoration payment''
means the amount transferred to an employee welfare benefit plan
pursuant to this paragraph.
SEC. 250. RELATION <<NOTE: 29 USC 1136 note.>> TO ERISA AUTHORITY.
Nothing in this subtitle shall be construed as affecting the
authority of the Secretary of Labor under section 506(b)
of the Employee Retirement Income Security Act of 1974, including the
Secretary's authority with respect to violations of title 18, United
States Code (as amended by this subtitle).
Subtitle F--Administrative Simplification
SEC. 261. <<NOTE: 42 USC 1320d note.>> PURPOSE.
It is the purpose of this subtitle to improve the Medicare program
under title XVIII of the Social Security Act, the medicaid program under
title XIX of such Act, and the efficiency and effectiveness of the
health care system, by encouraging the development of a health
information system through the establishment of standards and
requirements for the electronic transmission of certain health
information.
SEC. 262. ADMINISTRATIVE SIMPLIFICATION.
(a) In General.--Title XI (42 U.S.C. 1301 et seq.) is amended by
adding at the end the following:
``Part C--Administrative Simplification
``definitions
``Sec. 1171. For <<NOTE: 42 USC 1320d.>> purposes of this part:
``(1) Code set.--The term `code set' means any set of codes
used for encoding data elements, such as tables of terms,
medical concepts, medical diagnostic codes, or medical procedure
codes.
``(2) Health care clearinghouse.--The term `health care
clearinghouse' means a public or private entity that processes
or facilitates the processing of nonstandard data elements of
health information into standard data elements.
``(3) Health care provider.--The term `health care provider'
includes a provider of services (as defined in section 1861(u)),
a provider of medical or other health services (as defined in
section 1861(s)), and any other person furnishing health care
services or supplies.
``(4) Health information.--The term `health information'
means any information, whether oral or recorded in any form or
medium, that--
``(A) is created or received by a health care
provider, health plan, public health authority,
employer, life insurer, school or university, or health
care clearinghouse; and
``(B) relates to the past, present, or future
physical or mental health or condition of an individual,
the provision of health care to an individual, or the
past, present, or future payment for the provision of
health care to an individual.
``(5) Health plan.--The term `health plan' means an
individual or group plan that provides, or pays the cost of,
medical care (as such term is defined in section 2791 of the
Public Health Service Act). Such term includes the following,
and any combination thereof:
``(A) A group health plan (as defined in section
2791(a) of the Public Health Service Act), but only if
the plan--
``(i) has 50 or more participants (as defined
in section 3(7) of the Employee Retirement Income
Security Act of 1974); or
``(ii) is administered by an entity other than
the employer who established and maintains the
plan.
``(B) A health insurance issuer (as defined in
section 2791(b) of the Public Health Service Act).
``(C) A health maintenance organization (as defined
in section 2791(b) of the Public Health Service Act).
``(D) Part A or part B of the Medicare program under
title XVIII.
``(E) The medicaid program under title XIX.
``(F) A Medicare supplemental policy (as defined in
section 1882(g)(1)).
``(G) A long-term care policy, including a nursing
home fixed indemnity policy (unless the Secretary
determines that such a policy does not provide
sufficiently comprehensive coverage of a benefit so that
the policy should be treated as a health plan).
``(H) An employee welfare benefit plan or any other
arrangement which is established or maintained for the
purpose of offering or providing health benefits to the
employees of 2 or more employers.
``(I) The health care program for active military
personnel under title 10, United States Code.
``(J) The veterans health care program under chapter
17 of title 38, United States Code.
``(K) The Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS), as defined in section
1072(4) of title 10, United States Code.
``(L) The Indian health service program under the
Indian Health Care Improvement Act (25 U.S.C. 1601 et
seq.).
``(M) The Federal Employees Health Benefit Plan
under chapter 89 of title 5, United States Code.
``(6) Individually identifiable health information.--The
term `individually identifiable health information' means any
information, including demographic information collected from an
individual, that--
``(A) is created or received by a health care
provider, health plan, employer, or health care
clearinghouse; and
``(B) relates to the past, present, or future
physical or mental health or condition of an individual,
the provision of health care to an individual, or the
past, present, or future payment for the provision of
health care to an individual, and--
``(i) identifies the individual; or
``(ii) with respect to which there is a
reasonable basis to believe that the information
can be used to identify the individual.
``(7) Standard.--The term `standard', when used with
reference to a data element of health information or a
transaction referred to in section 1173(a)(1), means any such
data element or transaction that meets each of the standards and
implementation specifications adopted or established by the
Secretary with respect to the data element or transaction under
sections 1172 through 1174.
``(8) Standard setting organization.--The term `standard
setting organization' means a standard setting organization
accredited by the American National Standards Institute,
including the National Council for Prescription Drug Programs,
that develops standards for information transactions, data
elements, or any other standard that is necessary to, or will
facilitate, the implementation of this part.
``general requirements for adoption of standards
``Sec. 1172. (a) Applicability.--Any <<NOTE: 42 USC 1320d-1.>>
standard adopted under this part shall apply, in whole or in part, to
the following persons:
``(1) A health plan.
``(2) A health care clearinghouse.
``(3) A health care provider who transmits any health
information in electronic form in connection with a transaction
referred to in section 1173(a)(1).
``(b) Reduction of Costs.--Any standard adopted under this part
shall be consistent with the objective of reducing the administrative
costs of providing and paying for health care.
``(c) Role of Standard Setting Organizations.--
``(1) In general.--Except as provided in paragraph (2), any
standard adopted under this part shall be a standard that has
been developed, adopted, or modified by a standard setting
organization.
``(2) Special rules.--
``(A) Different standards.--The Secretary may adopt
a standard that is different from any standard
developed, adopted, or modified by a standard setting
organization, if--
``(i) the different standard will
substantially reduce administrative costs to
health care providers and health plans compared to
the alternatives; and
``(ii) the standard is promulgated in
accordance with the rulemaking procedures of
subchapter III of chapter 5 of title 5, United
States Code.
``(B) No standard by standard setting
organization.--If no standard setting organization has
developed, adopted, or modified any standard relating to
a standard that the Secretary is authorized or required
to adopt under this part--
``(i) paragraph (1) shall not apply; and
``(ii) subsection (f) shall apply.
``(3) Consultation requirement.--
``(A) In general.--A standard may not be adopted
under this part unless--
``(i) in the case of a standard that has been
developed, adopted, or modified by a standard
setting organization, the organization consulted
with each of the organizations described in
subparagraph (B) in the course of such
development, adoption, or modification; and
``(ii) in the case of any other standard, the
Secretary, in complying with the requirements of
subsection (f), consulted with each of the
organizations described in subparagraph (B) before
adopting the standard.
``(B) Organizations described.--The organizations
referred to in subparagraph (A) are the following:
``(i) The National Uniform Billing Committee.
``(ii) The National Uniform Claim Committee.
``(iii) The Workgroup for Electronic Data
Interchange.
``(iv) The American Dental Association.
``(d) Implementation Specifications.--The Secretary shall establish
specifications for implementing each of the standards adopted under this
part.
``(e) Protection of Trade Secrets.--Except as otherwise required by
law, a standard adopted under this part shall not require disclosure of
trade secrets or confidential commercial information by a person
required to comply with this part.
``(f) Assistance to the Secretary.--In complying with the
requirements of this part, the Secretary shall rely on the
recommendations of the National Committee on Vital and Health Statistics
established under section 306(k) of the Public Health Service Act (42
U.S.C. 242k(k)), and shall consult with appropriate Federal and State
agencies <<NOTE: Federal Register, publication.>> and private
organizations. The Secretary shall publish in the Federal Register any
recommendation of the National Committee on Vital and Health Statistics
regarding the adoption of a standard under this part.
``(g) Application to Modifications of Standards.--This section shall
apply to a modification to a standard (including an addition to a
standard) adopted under section 1174(b) in the same manner as it applies
to an initial standard adopted under section 1174(a).
``standards for information transactions and data elements
``Sec. 1173. (a) Standards <<NOTE: 42 USC 1320d-2.>> To Enable
Electronic Exchange.--
``(1) In general.--The Secretary shall adopt standards for
transactions, and data elements for such transactions, to enable
health information to be exchanged electronically, that are
appropriate for--
``(A) the financial and administrative transactions
described in paragraph (2); and
``(B) other financial and administrative
transactions determined appropriate by the Secretary,
consistent with the goals of improving the operation of
the health care system and reducing administrative
costs.
``(2) Transactions.--The transactions referred to in
paragraph (1)(A) are transactions with respect to the following:
``(A) Health claims or equivalent encounter
information.
``(B) Health claims attachments.
``(C) Enrollment and disenrollment in a health plan.
``(D) Eligibility for a health plan.
``(E) Health care payment and remittance advice.
``(F) Health plan premium payments.
``(G) First report of injury.
``(H) Health claim status.
``(I) Referral certification and authorization.
``(3) Accommodation of specific providers.--The
standards adopted by the Secretary under paragraph (1) shall
accommodate the needs of different types of health care
providers.
``(b) Unique Health Identifiers.--
``(1) In general.--The Secretary shall adopt standards
providing for a standard unique health identifier for each
individual, employer, health plan, and health care provider for
use in the health care system. In carrying out the preceding
sentence for each health plan and health care provider, the
Secretary shall take into account multiple uses for identifiers
and multiple locations and specialty classifications for health
care providers.
``(2) Use of identifiers.--The standards adopted under
paragraph (1) shall specify the purposes for which a unique
health identifier may be used.
``(c) Code Sets.--
``(1) In general.--The Secretary shall adopt standards
that--
``(A) select code sets for appropriate data elements
for the transactions referred to in subsection (a)(1)
from among the code sets that have been developed by
private and public entities; or
``(B) establish code sets for such data elements if
no code sets for the data elements have been developed.
``(2) Distribution.--The Secretary shall establish efficient
and low-cost procedures for distribution (including electronic
distribution) of code sets and modifications made to such code
sets under section 1174(b).
``(d) Security Standards for Health Information.--
``(1) Security standards.--The Secretary shall adopt
security standards that--
``(A) take into account--
``(i) the technical capabilities of record
systems used to maintain health information;
``(ii) the costs of security measures;
``(iii) the need for training persons who have
access to health information;
``(iv) the value of audit trails in
computerized record systems; and
``(v) the needs and capabilities of small
health care providers and rural health care
providers (as such providers are defined by the
Secretary); and
``(B) ensure that a health care clearinghouse, if it
is part of a larger organization, has policies and
security procedures which isolate the activities of the
health care clearinghouse with respect to processing
information in a manner that prevents unauthorized
access to such information by such larger organization.
``(2) Safeguards.--Each person described in section 1172(a)
who maintains or transmits health information shall maintain
reasonable and appropriate administrative, technical, and
physical safeguards--
``(A) to ensure the integrity and confidentiality of
the information;
``(B) to protect against any reasonably
anticipated--
``(i) threats or hazards to the security or
integrity of the information; and
``(ii) unauthorized uses or disclosures of the
information; and
``(C) otherwise to ensure compliance with this part
by the officers and employees of such person.
``(e) Electronic Signature.--
``(1) Standards.--The Secretary, in coordination with the
Secretary of Commerce, shall adopt standards specifying
procedures for the electronic transmission and authentication of
signatures with respect to the transactions referred to in
subsection (a)(1).
``(2) Effect of compliance.--Compliance with the standards
adopted under paragraph (1) shall be deemed to satisfy Federal
and State statutory requirements for written signatures with
respect to the transactions referred to in subsection (a)(1).
``(f) Transfer of Information Among Health Plans.--The Secretary
shall adopt standards for transferring among health plans appropriate
standard data elements needed for the coordination of benefits, the
sequential processing of claims, and other data elements for individuals
who have more than one health plan.
``timetables for adoption of standards
``Sec. 1174. (a) Initial <<NOTE: 42 USC 1320d-3.>> Standards.--The
Secretary shall carry out section 1173 not later than 18 months after
the date of the enactment of the Health Insurance Portability and
Accountability Act of 1996, except that standards relating to claims
attachments shall be adopted not later than 30 months after such date.
``(b) Additions and Modifications to Standards.--
``(1) In general.--Except as provided in paragraph (2), the
Secretary shall review the standards adopted under section 1173,
and shall adopt modifications to the standards (including
additions to the standards), as determined appropriate, but not
more frequently than once every 12 months. Any addition or
modification to a standard shall be completed in a manner which
minimizes the disruption and cost of compliance.
``(2) Special rules.--
``(A) First 12-month period.--Except with respect to
additions and modifications to code sets under
subparagraph (B), the Secretary may not adopt any
modification to a standard adopted under this part
during the 12-month period beginning on the date the
standard is initially adopted, unless the Secretary
determines that the modification is necessary in order
to permit compliance with the standard.
``(B) Additions and modifications to code sets.--
``(i) In general.--The Secretary shall ensure
that procedures exist for the routine maintenance,
testing, enhancement, and expansion of code sets.
``(ii) Additional rules.--If a code set is
modified under this subsection, the modified code
set shall include instructions on how data
elements of health information that were encoded
prior to the modification may be converted or
translated so as to preserve the informational
value of the data elements that existed before the
modification. Any modification to a code set under
this subsection shall be implemented in a manner
that minimizes the disruption and cost of
complying with such modification.
``requirements
``Sec. 1175. (a) Conduct <<NOTE: 42 USC 1320d-4.>> of Transactions
by Plans.--
``(1) In general.--If a person desires to conduct a
transaction referred to in section 1173(a)(1) with a health plan
as a standard transaction--
``(A) the health plan may not refuse to conduct such
transaction as a standard transaction;
``(B) the insurance plan may not delay such
transaction, or otherwise adversely affect, or attempt
to adversely affect, the person or the transaction on
the ground that the transaction is a standard
transaction; and
``(C) the information transmitted and received in
connection with the transaction shall be in the form of
standard data elements of health information.
``(2) Satisfaction of requirements.--A health plan may
satisfy the requirements under paragraph (1) by--
``(A) directly transmitting and receiving standard
data elements of health information; or
``(B) submitting nonstandard data elements to a
health care clearinghouse for processing into standard
data elements and transmission by the health care
clearinghouse, and receiving standard data elements
through the health care clearinghouse.
``(3) Timetable for compliance.--Paragraph (1) shall not be
construed to require a health plan to comply with any standard,
implementation specification, or modification to a standard or
specification adopted or established by the Secretary under
sections 1172 through 1174 at any time prior to the date on
which the plan is required to comply with the standard or
specification under subsection (b).
``(b) Compliance With Standards.--
``(1) Initial compliance.--
``(A) In general.--Not later than 24 months after
the date on which an initial standard or implementation
specification is adopted or established under sections
1172 and 1173, each person to whom the standard or
implementation specification applies shall comply with
the standard or specification.
``(B) Special rule for small health plans.--In the
case of a small health plan, paragraph (1) shall be
applied by substituting `36 months' for `24 months'. For
purposes of this subsection, the Secretary shall
determine the plans that qualify as small health plans.
``(2) Compliance with modified standards.--If the Secretary
adopts a modification to a standard or implementation
specification under this part, each person to whom the standard
or implementation specification applies shall comply with the
modified standard or implementation specification at such time
as the Secretary determines appropriate, taking into account the
time needed to comply due to the nature and extent of the
modification. The time determined appropriate under the
preceding sentence may not be earlier than the last day of the
180-day period beginning on the date such modification is
adopted. The Secretary may extend the time for compliance for
small health plans, if the Secretary determines that such
extension is appropriate.
``(3) Construction.--Nothing in this subsection shall be
construed to prohibit any person from complying with a standard
or specification by--
``(A) submitting nonstandard data elements to a
health care clearinghouse for processing into standard
data elements and transmission by the health care
clearing-
house; or
``(B) receiving standard data elements through a
health care clearinghouse.
``general penalty for failure to comply with requirements and standards
``Sec. 1176. (a) General <<NOTE: 42 USC 1320d-5.>> Penalty.--
``(1) In general.--Except as provided in subsection (b), the
Secretary shall impose on any person who violates a provision of
this part a penalty of not more than $100 for each such
violation, except that the total amount imposed on the person
for all violations of an identical requirement or prohibition
during a calendar year may not exceed $25,000.
``(2) Procedures.--The provisions of section 1128A (other
than subsections (a) and (b) and the second sentence of
subsection (f)) shall apply to the imposition of a civil money
penalty under this subsection in the same manner as such
provisions apply to the imposition of a penalty under such
section 1128A.
``(b) Limitations.--
``(1) Offenses otherwise punishable.--A penalty may not be
imposed under subsection (a) with respect to an act if the act
constitutes an offense punishable under section 1177.
``(2) Noncompliance not discovered.--A penalty may not be
imposed under subsection (a) with respect to a provision of this
part if it is established to the satisfaction of the Secretary
that the person liable for the penalty did not know, and by
exercising reasonable diligence would not have known, that such
person violated the provision.
``(3) Failures due to reasonable cause.--
``(A) In general.--Except as provided in
subparagraph (B), a penalty may not be imposed under
subsection
(a) if--
``(i) the failure to comply was due to
reasonable cause and not to willful neglect; and
``(ii) the failure to comply is corrected
during the 30-day period beginning on the first
date the person liable for the penalty knew, or by
exercising reasonable diligence would have known,
that the failure to comply occurred.
``(B) Extension of period.--
``(i) No penalty.--The period referred to in
subparagraph (A)(ii) may be extended as determined
appropriate by the Secretary based on the nature
and extent of the failure to comply.
``(ii) Assistance.--If the Secretary
determines that a person failed to comply because
the person was unable to comply, the Secretary may
provide technical assistance to the person during
the period described in subparagraph (A)(ii). Such
assistance shall be provided in any manner
determined appropriate by the Secretary.
``(4) Reduction.--In the case of a failure to comply which
is due to reasonable cause and not to willful neglect, any
penalty under subsection (a) that is not entirely waived under
paragraph (3) may be waived to the extent that the payment of
such penalty would be excessive relative to the compliance
failure involved.
``wrongful disclosure of individually identifiable health information
``Sec. 1177. (a) Offense.--A <<NOTE: 42 USC 1320d-6.>> person who
knowingly and in violation of this part--
``(1) uses or causes to be used a unique health identifier;
``(2) obtains individually identifiable health information
relating to an individual; or
``(3) discloses individually identifiable health information
to another person,
shall be punished as provided in subsection (b).
``(b) Penalties.--A person described in subsection (a) shall--
``(1) be fined not more than $50,000, imprisoned not more
than 1 year, or both;
``(2) if the offense is committed under false pretenses, be
fined not more than $100,000, imprisoned not more than 5 years,
or both; and
``(3) if the offense is committed with intent to sell,
transfer, or use individually identifiable health information
for commercial advantage, personal gain, or malicious harm, be
fined not more than $250,000, imprisoned not more than 10 years,
or both.
``Sec. 1178. (a) General <<NOTE: 42 USC 1320d-7.>> Effect.--
``(1) General rule.--Except as provided in paragraph (2), a
provision or requirement under this part, or a standard or
implementation specification adopted or established under
sections 1172 through 1174, shall supersede any contrary
provision of State law, including a provision of State law that
requires medical or health plan records (including billing
information) to be maintained or transmitted in written rather
than electronic form.
``(2) Exceptions.--A provision or requirement under this
part, or a standard or implementation specification adopted or
established under sections 1172 through 1174, shall not
supersede a contrary provision of State law, if the provision of
State law--
``(A) is a provision the Secretary determines--
``(i) is necessary--
``(I) to prevent fraud and abuse;
``(II) to ensure appropriate State
regulation of insurance and health
plans;
``(III) for State reporting on
health care delivery or costs; or
``(IV) for other purposes; or
``(ii) addresses controlled substances; or
``(B) subject to section 264(c)(2) of the Health
Insurance Portability and Accountability Act of 1996,
relates to the privacy of individually identifiable
health information.
``(b) Public Health.--Nothing in this part shall be construed to
invalidate or limit the authority, power, or procedures established
under any law providing for the reporting of disease or injury, child
abuse, birth, or death, public health surveillance, or public health
investigation or intervention.
``(c) State Regulatory Reporting.--Nothing in this part shall limit
the ability of a State to require a health plan to report, or to provide
access to, information for management audits, financial audits, program
monitoring and evaluation, facility licensure or certification, or
individual licensure or certification.
``processing payment transactions by financial institutions
``Sec. 1179. To <<NOTE: 42 USC 1320d-8.>> the extent that an entity
is engaged in activities of a financial institution (as defined in
section 1101 of the Right to Financial Privacy Act of 1978), or is
engaged in authorizing, processing, clearing, settling, billing,
transferring, reconciling, or collecting payments, for a financial
institution, this part, and any standard adopted under this part, shall
not apply to the entity with respect to such activities, including the
following:
``(1) The use or disclosure of information by the entity for
authorizing, processing, clearing, settling, billing,
transferring, reconciling or collecting, a payment for, or
related to, health plan premiums or health care, where such
payment is made by any means, including a credit, debit, or
other payment card, an account, check, or electronic funds
transfer.
``(2) The request for, or the use or disclosure of,
information by the entity with respect to a payment described in
para-
graph (1)--
``(A) for transferring receivables;
``(B) for auditing;
``(C) in connection with--
``(i) a customer dispute; or
``(ii) an inquiry from, or to, a customer;
``(D) in a communication to a customer of the entity
regarding the customer's transactions, payment card,
account, check, or electronic funds transfer;
``(E) for reporting to consumer reporting agencies;
or
``(F) for complying with--
``(i) a civil or criminal subpoena; or
``(ii) a Federal or State law regulating the
entity.''.
(b) Conforming Amendments.--
(1) Requirement for medicare providers.--Section 1866(a)(1)
(42 U.S.C. 1395cc(a)(1)) is amended--
(A) by striking ``and'' at the end of subparagraph
(P);
(B) by striking the period at the end of
subparagraph (Q) and inserting ``; and''; and
(C) by inserting immediately after subparagraph (Q)
the following new subparagraph:
``(R) to contract only with a health care clearinghouse (as
defined in section 1171) that meets each standard and
implementation specification adopted or established under part C
of title XI on or after the date on which the health care
clearinghouse is required to comply with the standard or
specification.''.
(2) Title heading.--Title XI (42 U.S.C. 1301 et seq.) is
amended by striking the title heading and inserting the
following:
``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE
SIMPLIFICATION''.
SEC. 263. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL COMMITTEE
ON VITAL AND HEALTH STATISTICS.
Section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k))
is amended--
(1) in paragraph (1), by striking ``16'' and inserting
``18'';
(2) by amending paragraph (2) to read as follows:
``(2) The members of the Committee shall be appointed from among
persons who have distinguished themselves in the fields of health
statistics, electronic interchange of health care information, privacy
and security of electronic information, population-based public health,
purchasing or financing health care services, integrated computerized
health information systems, health services research, consumer interests
in health information, health data standards, epidemiology, and the
provision of health services. Members of the Committee shall be
appointed for terms of 4 years.'';
(3) by redesignating paragraphs (3) through (5) as
paragraphs (4) through (6), respectively, and inserting after
paragraph (2) the following:
``(3) Of the members of the Committee--
``(A) 1 shall be appointed, not later than 60 days after the
date of the enactment of the Health Insurance Portability and
Accountability Act of 1996, by the Speaker of the House of
Representatives after consultation with the Minority Leader of
the House of Representatives;
``(B) 1 shall be appointed, not later than 60 days after the
date of the enactment of the Health Insurance Portability and
Accountability Act of 1996, by the President pro tempore of the
Senate after consultation with the Minority Leader of the
Senate; and
``(C) 16 shall be appointed by the Secretary.'';
(4) by amending paragraph (5) (as so redesignated) to read
as follows:
``(5) The Committee--
``(A) shall assist and advise the Secretary--
``(i) to delineate statistical problems bearing on
health and health services which are of national or
international interest;
``(ii) to stimulate studies of such problems by
other organizations and agencies whenever possible or to
make investigations of such problems through
subcommittees;
``(iii) to determine, approve, and revise the terms,
definitions, classifications, and guidelines for
assessing health status and health services, their
distribution and costs, for use (I) within the
Department of Health and Human Services, (II) by all
programs administered or funded by the Secretary,
including the Federal-State-local cooperative health
statistics system referred to in subsection (e), and
(III) to the extent possible as determined by the head
of the agency involved, by the Department of Veterans
Affairs, the Department of Defense, and other Federal
agencies concerned with health and health services;
``(iv) with respect to the design of and approval of
health statistical and health information systems
concerned with the collection, processing, and
tabulation of health statistics within the Department of
Health and Human Services, with respect to the
Cooperative Health Statistics System established under
subsection (e), and with respect to the standardized
means for the collection of health information and
statistics to be established by the Secretary under
subsection (j)(1);
``(v) to review and comment on findings and
proposals developed by other organizations and agencies
and to make recommendations for their adoption or
implementation by local, State, national, or
international agencies;
``(vi) to cooperate with national committees of
other countries and with the World Health Organization
and other national agencies in the studies of problems
of mutual interest;
``(vii) to issue <<NOTE: Reports.>> an annual
report on the state of the Nation's health, its health
services, their costs and distributions, and to make
proposals for improvement of the Nation's health
statistics and health information systems; and
``(viii) in complying with the requirements imposed
on the Secretary under part C of title XI of the Social
Security Act;
``(B) shall study the issues related to the adoption of
uniform data standards for patient medical record information
and the electronic exchange of such information;
``(C) shall <<NOTE: Reports.>> report to the Secretary not
later than 4 years after the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996
recommendations and legislative proposals for such standards and
electronic exchange; and
``(D) shall be responsible generally for advising the
Secretary and the Congress on the status of the implementation
of part C of title XI of the Social Security Act.''; and
(5) by adding at the end the following:
``(7) <<NOTE: Reports.>> Not later than 1 year after the date of
the enactment of the Health Insurance Portability and Accountability Act
of 1996, and annually thereafter, the Committee shall submit to the
Congress, and make public, a report regarding the implementation of part
C of title XI of the Social Security Act. Such report shall address the
following subjects, to the extent that the Committee determines
appropriate:
``(A) The extent to which persons required to comply with
part C of title XI of the Social Security Act are cooperating in
implementing the standards adopted under such part.
``(B) The extent to which such entities are meeting the
security standards adopted under such part and the types of
penalties assessed for noncompliance with such standards.
``(C) Whether the Federal and State Governments are
receiving information of sufficient quality to meet their
responsibilities under such part.
``(D) Any problems that exist with respect to implementation
of such part.
``(E) The extent to which timetables under such part are
being met.''.
SEC. 264. RECOMMENDATIONS WITH <<NOTE: 42 USC 1320d-2 note.>>
RESPECT TO PRIVACY OF CERTAIN HEALTH
INFORMATION.
(a) In General.--Not later than the date that is 12 months after the
date of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the Committee on Labor and
Human Resources and the Committee on Finance of the Senate and the
Committee on Commerce and the Committee on Ways and Means of the House
of Representatives detailed
recommendations on standards with respect to the privacy of individually
identifiable health information.
(b) Subjects for Recommendations.--The recommendations under
subsection (a) shall address at least the following:
(1) The rights that an individual who is a subject of
individually identifiable health information should have.
(2) The procedures that should be established for the
exercise of such rights.
(3) The uses and disclosures of such information that should
be authorized or required.
(c) Regulations.--
(1) In <<NOTE: Regulations.>> general.--If legislation
governing standards with respect to the privacy of individually
identifiable health information transmitted in connection with
the transactions described in section 1173(a) of the Social
Security Act (as added by section 262) is not enacted by the
date that is 36 months after the date of the enactment of this
Act, the Secretary of Health and Human Services shall promulgate
final regulations containing such standards not later than the
date that is 42 months after the date of the enactment of this
Act. Such regulations shall address at least the subjects
described in subsection (b).
(2) Preemption.--A regulation promulgated under paragraph
(1) shall not supercede a contrary provision of State law, if
the provision of State law imposes requirements, standards, or
implementation specifications that are more stringent than the
requirements, standards, or implementation specifications
imposed under the regulation.
(d) Consultation.--In carrying out this section, the Secretary of
Health and Human Services shall consult with--
(1) the National Committee on Vital and Health Statistics
established under section 306(k) of the Public Health Service
Act (42 U.S.C. 242k(k)); and
(2) the Attorney General.
Subtitle G--Duplication and Coordination of Medicare-Related Plans
SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.
(a) Treatment of Certain Health Insurance Policies as
Nonduplicative.--Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
amended--
(1) in clause (iii), by striking ``clause (i)'' and
inserting ``clause (i)(II)''; and
(2) by adding at the end the following:
``(iv) For purposes of this subparagraph, a health insurance policy
(other than a Medicare supplemental policy) providing for benefits which
are payable to or on behalf of an individual without regard to other
health benefit coverage of such individual is not considered to
`duplicate' any health benefits under this title, under title XIX, or
under a health insurance policy, and subclauses (I) and (III) of clause
(i) do not apply to such a policy.
``(v) For purposes of this subparagraph, a health insurance policy
(or a rider to an insurance contract which is not a health insurance
policy) is not considered to `duplicate' health benefits under this
title or under another health insurance policy if it--
``(I) provides health care benefits only for long-term care,
nursing home care, home health care, or community-based care, or
any combination thereof,
``(II) coordinates against or excludes items and services
available or paid for under this title or under another health
insurance policy, and
``(III) for policies sold or issued on or after the end of
the 90-day period beginning on the date of enactment of the
Health Insurance Portability and Accountability Act of 1996
discloses such coordination or exclusion in the policy's outline
of coverage.
For purposes of this clause, the terms `coordinates' and `coordination'
mean, with respect to a policy in relation to health benefits under this
title or under another health insurance policy, that the policy under
its terms is secondary to, or excludes from payment, items and services
to the extent available or paid for under this title or under another
health insurance policy.
``(vi)(I) An individual entitled to benefits under part A or
enrolled under part B of this title who is applying for a health
insurance policy (other than a policy described in subclause (III))
shall be furnished a disclosure statement described in clause (vii) for
the type of policy being applied for. Such statement shall be furnished
as a part of (or together with) the application for such policy.
``(II) Whoever issues or sells a health insurance policy (other than
a policy described in subclause (III)) to an individual described in
subclause (I) and fails to furnish the appropriate disclosure statement
as required under such subclause shall be fined under title 18, United
States Code, or imprisoned not more than 5 years, or both, and, in
addition to or in lieu of such a criminal penalty, is subject to a civil
money penalty of not to exceed $25,000 (or $15,000 in the case of a
person other than the issuer of the policy) for each such violation.
``(III) A policy described in this subclause (to which subclauses
(I) and (II) do not apply) is a Medicare supplemental policy or a health
insurance policy identified under 60 Federal Register 30880 (June 12,
1995) as a policy not required to have a disclosure statement.
``(IV) Any reference in this section to the revised NAIC model
regulation (referred to in subsection (m)(1)(A)) is deemed a reference
to such regulation as revised by section 171(m)(2) of the Social
Security Act Amendments of 1994 (Public Law 103-432) and as modified by
substituting, for the disclosure required under section 16D(2),
disclosure under subclause (I) of an appropriate disclosure statement
under clause (vii).
``(vii) The disclosure statement described in this clause for a type
of policy is the statement specified under subparagraph (D) of this
paragraph (as in effect before the date of the enactment of the Health
Insurance Portability and Accountability Act of 1996) for that type of
policy, as revised as follows:
``(I) In each statement, amend the second line to read as
follows:
`THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'.
``(II) In each statement, strike the third line and insert
the following: `Some health care services paid for by Medicare
may also trigger the payment of benefits under this policy.'.
``(III) In each statement not described in subclause (V),
strike the boldface matter that begins `This insurance' and all
that follows up to the next paragraph that begins `Medicare'.
``(IV) In each statement not described in subclause (V),
insert before the boxed matter (that states `Before You Buy This
Insurance') the following: `This policy must pay benefits
without regard to other health benefit coverage to which you may
be entitled under Medicare or other insurance.'.
``(V) In a statement relating to policies providing both
nursing home and non-institutional coverage, to policies
providing nursing home benefits only, or policies providing home
care benefits only, amend the sentence that begins `Federal law'
to read as follows: `Federal law requires us to inform you that
in certain situations this insurance may pay for some care also
covered by Medicare.'.
``(viii)(I) Subject to subclause (II), nothing in this subparagraph
shall restrict or preclude a State's ability to regulate health
insurance policies, including any health insurance policy that is
described in clause (iv), (v), or (vi)(III).
``(II) A State may not declare or specify, in statute, regulation,
or otherwise, that a health insurance policy (other than a Medicare
supplemental policy) or rider to an insurance contract which is not a
health insurance policy, that is described in clause (iv), (v), or
(vi)(III) and that is sold, issued, or renewed to an individual entitled
to benefits under part A or enrolled under part B `duplicates' health
benefits under this title or under a Medicare supplemental policy.''.
(b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C.
1395ss(d)(3)) is amended--
(1) in subparagraph (C)--
(A) by striking ``with respect to (i)'' and
inserting ``with respect to'', and
(B) by striking ``, (ii) the sale'' and all that
follows up to the period at the end; and
(2) by striking subparagraph (D).
(c) Transitional <<NOTE: 42 USC 1395ss note.>> Provision.--
(1) No penalties.--Subject to paragraph (3), no criminal or
civil money penalty may be imposed under section 1882(d)(3)(A)
of the Social Security Act for any act or omission that occurred
during the transition period (as defined in paragraph (4)) and
that relates to any health insurance policy that is described in
clause (iv) or (v) of such section (as amended by subsection
(a)).
(2) Limitation on legal action.--Subject to paragraph (3),
no legal action shall be brought or continued in any Federal or
State court insofar as such action--
(A) includes a cause of action which arose, or which
is based on or evidenced by any act or omission which
occurred, during the transition period; and
(B) relates to the application of section
1882(d)(3)(A) of the Social Security Act to any act or
omission with respect to the sale, issuance, or renewal
of any health insurance policy that is described in
clause (iv) or (v) of such section (as amended by
subsection (a)).
(3) Disclosure condition.--In the case of a policy described
in clause (iv) of section 1882(d)(3)(A) of the Social Security
Act that is sold or issued on or after the effective date of
statements under section 171(d)(3)(C) of the Social Security Act
Amendments of 1994 and before the end of the 30-day period
beginning on the date of the enactment of this Act, paragraphs
(1) and (2) shall only apply if disclosure was made in
accordance with section 1882(d)(3)(C)(ii) of the Social Security
Act (as in effect before the date of the enactment of this Act).
(4) Transition period.--In this subsection, the term
``transition period'' means the period beginning on November 5,
1991, and ending on the date of the enactment of this Act.
(d) Effective <<NOTE: 42 USC 1395ss note.>> Date.--(1) Except as
provided in this subsection, the amendment made by subsection (a) shall
be effective as if included in the enactment of section 4354 of the
Omnibus Budget Reconciliation Act of 1990.
(2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security
Act, as added by subsection (a), shall only apply to individuals
applying for--
(i) a health insurance policy described in section
1882(d)(3)(A)(iv) of such Act (as added by subsection (a)),
after the date of the enactment of this Act, or
(ii) another health insurance policy after the end of the
30-day period beginning on the date of the enactment of this
Act.
(B) A seller or issuer of a health insurance policy may substitute,
for the disclosure statement described in clause (vii) of such section,
the statement specified under section 1882(d)(3)(D) of the Social
Security Act (as in effect before the date of the enactment of this
Act), without the revision specified in such clause.
TITLE III--TAX-RELATED HEALTH PROVISIONS
SEC. 300. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
Subtitle A--Medical Savings Accounts
SEC. 301. MEDICAL SAVINGS ACCOUNTS.
(a) In General.--Part VII of subchapter B of chapter 1 (relating to
additional itemized deductions for individuals) is amended by
redesignating section 220 as section 221 and by inserting after section
219 the following new section:
``SEC. 220. MEDICAL SAVINGS ACCOUNTS.
``(a) Deduction Allowed.--In the case of an individual who is an
eligible individual for any month during the taxable year, there shall
be allowed as a deduction for the taxable year an amount equal to the
aggregate amount paid in cash during such taxable year by such
individual to a medical savings account of such individual.
``(b) Limitations.--
``(1) In general.--The amount allowable as a deduction under
subsection (a) to an individual for the taxable year shall not
exceed the sum of the monthly limitations for months during such
taxable year that the individual is an eligible individual.
``(2) Monthly limitation.--The monthly limitation for any
month is the amount equal to \1/12\ of--
``(A) in the case of an individual who has self-only
coverage under the high deductible health plan as of the
first day of such month, 65 percent of the annual
deductible under such coverage, and
``(B) in the case of an individual who has family
coverage under the high deductible health plan as of the
first day of such month, 75 percent of the annual
deductible under such coverage.
``(3) Special rule for married individuals.--In the case of
individuals who are married to each other, if either spouse has
family coverage--
``(A) both spouses shall be treated as having only
such family coverage (and if such spouses each have
family coverage under different plans, as having the
family coverage with the lowest annual deductible), and
``(B) the limitation under paragraph (1) (after the
application of subparagraph (A) of this paragraph) shall
be divided equally between them unless they agree on a
different division.
``(4) Deduction not to exceed compensation.--
``(A) Employees.--The deduction allowed under
subsection (a) for contributions as an eligible
individual described in subclause (I) of subsection
(c)(1)(A)(iii) shall not exceed such individual's wages,
salaries, tips, and other employee compensation which
are attributable to such individual's employment by the
employer referred to in such subclause.
``(B) Self-employed individuals.--The deduction
allowed under subsection (a) for contributions as an
eligible individual described in subclause (II) of
subsection (c)(1)(A)(iii) shall not exceed such
individual's earned income (as defined in section
401(c)(1)) derived by the taxpayer from the trade or
business with respect to which the high deductible
health plan is established.
``(C) Community property laws not to apply.--The
limitations under this paragraph shall be determined
without regard to community property laws.
``(5) Coordination with exclusion for employer
contributions.--No deduction shall be allowed under this section
for any amount paid for any taxable year to a medical savings
account of an individual if--
``(A) any amount is contributed to any medical
savings account of such individual for such year which
is excludable from gross income under section 106(b), or
``(B) if such individual's spouse is covered under
the high deductible health plan covering such
individual, any amount is contributed for such year to
any medical savings account of such spouse which is so
excludable.
``(6) Denial of deduction to dependents.--No deduction shall
be allowed under this section to any individual with respect to
whom a deduction under section 151 is allowable to another
taxpayer for a taxable year beginning in the calendar year in
which such individual's taxable year begins.
``(c) Definitions.--For purposes of this section--
``(1) Eligible individual.--
``(A) In general.--The term `eligible individual'
means, with respect to any month, any individual if--
``(i) such individual is covered under a high
deductible health plan as of the 1st day of such
month,
``(ii) such individual is not, while covered
under a high deductible health plan, covered under
any health plan--
``(I) which is not a high deductible
health plan, and
``(II) which provides coverage for
any benefit which is covered under the
high deductible health plan, and
``(iii)(I) the high deductible health plan
covering such individual is established and
maintained by
the employer of such individual or of the spouse
of such individual and such employer is a small
employer, or
``(II) such individual is an employee (within
the meaning of section 401(c)(1)) or the spouse of
such an employee and the high deductible health
plan covering such individual is not established
or maintained by any employer of such individual
or spouse.
``(B) Certain coverage disregarded.--Subparagraph
(A)(ii) shall be applied without regard to--
``(i) coverage for any benefit provided by
permitted insurance, and
``(ii) coverage (whether through insurance or
otherwise) for accidents, disability, dental care,
vision care, or long-term care.
``(C) Continued eligibility of employee and spouse
establishing medical savings accounts.--If, while an
employer is a small employer--
``(i) any amount is contributed to a medical
savings account of an individual who is an
employee of such employer or the spouse of such an
employee, and
``(ii) such amount is excludable from gross
income under section 106(b) or allowable as a
deduction under this section,
such individual shall not cease to meet the requirement
of subparagraph (A)(iii)(I) by reason of such employer
ceasing to be a small employer so long as such employee
continues to be an employee of such employer.
``(D) Limitations on eligibility.--
``For limitations on number of taxpayers who are
eligible to have medical savings accounts, see
subsection (i).
``(2) High deductible health plan.--
``(A) In general.--The term `high deductible health
plan' means a health plan--
``(i) in the case of self-only coverage, which
has an annual deductible which is not less than
$1,500 and not more than $2,250,
``(ii) in the case of family coverage, which
has an annual deductible which is not less than
$3,000 and not more than $4,500, and
``(iii) the annual out-of-pocket expenses
required to be paid under the plan (other than for
premiums) for covered benefits does not exceed--
``(I) $3,000 for self-only coverage,
and
``(II) $5,500 for family coverage.
``(B) Special rules.--
``(i) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
``(ii) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by reason
of failing to have a deductible for preventive
care if the absence of a deductible for such care
is required by State law.
``(3) Permitted insurance.--The term `permitted insurance'
means--
``(A) Medicare supplemental insurance,
``(B) insurance if substantially all of the coverage
provided under such insurance relates to--
``(i) liabilities incurred under workers'
compensation laws,
``(ii) tort liabilities,
``(iii) liabilities relating to ownership or
use of property, or
``(iv) such other similar liabilities as the
Secretary may specify by regulations,
``(C) insurance for a specified disease or illness,
and
``(D) insurance paying a fixed amount per day (or
other period) of hospitalization.
``(4) Small employer.--
``(A) In general.--The term `small employer' means,
with respect to any calendar year, any employer if such
employer employed an average of 50 or fewer employees on
business days during either of the 2 preceding calendar
years. For purposes of the preceding sentence, a
preceding calendar year may be taken into account only
if the employer was in existence throughout such year.
``(B) Employers not in existence in preceding
year.--In the case of an employer which was not in
existence throughout the 1st preceding calendar year,
the determination under subparagraph (A) shall be based
on the average number of employees that it is reasonably
expected such employer will employ on business days in
the current calendar year.
``(C) Certain growing employers retain treatment as
small employer.--The term `small employer' includes,
with respect to any calendar year, any employer if--
``(i) such employer met the requirement of
subparagraph (A) (determined without regard to
subparagraph (B)) for any preceding calendar year
after 1996,
``(ii) any amount was contributed to the
medical savings account of any employee of such
employer with respect to coverage of such employee
under a high deductible health plan of such
employer during such preceding calendar year and
such amount was excludable from gross income under
section 106(b) or allowable as a deduction under
this section, and
``(iii) such employer employed an average of
200 or fewer employees on business days during
each preceding calendar year after 1996.
``(D) Special rules.--
``(i) Controlled groups.--For purposes of this
paragraph, all persons treated as a single
employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 employer.
``(ii) Predecessors.--Any reference in this
paragraph to an employer shall include a reference
to any predecessor of such employer.
``(5) Family coverage.--The term `family coverage'
means any coverage other than self-only coverage.
``(d) Medical Savings Account.--For purposes of this
section--
``(1) Medical savings account.--The term `medical savings
account' means a trust created or organized in the United States
exclusively for the purpose of paying the qualified medical
expenses of the account holder, but only if the written
governing instrument creating the trust meets the following
requirements:
``(A) Except in the case of a rollover contribution
described in subsection (f)(5), no contribution will be
accepted--
``(i) unless it is in cash, or
``(ii) to the extent such contribution, when
added to previous contributions to the trust for
the calendar year, exceeds 75 percent of the
highest annual limit deductible permitted under
subsection (c)(2)(A)(ii) for such calendar year.
``(B) The trustee is a bank (as defined in section
408(n)), an insurance company (as defined in section
816), or another person who demonstrates to the
satisfaction of the Secretary that the manner in which
such person will administer the trust will be consistent
with the requirements of this section.
``(C) No part of the trust assets will be invested
in life insurance contracts.
``(D) The assets of the trust will not be commingled
with other property except in a common trust fund or
common investment fund.
``(E) The interest of an individual in the balance
in his account is nonforfeitable.
``(2) Qualified medical expenses.--
``(A) In general.--The term `qualified medical
expenses' means, with respect to an account holder,
amounts paid by such holder for medical care (as defined
in section 213(d)) for such individual, the spouse of
such individual, and any dependent (as defined in
section 152) of such individual, but only to the extent
such amounts are not compensated for by insurance or
otherwise.
``(B) Health insurance may not be purchased from
account.--
``(i) In general.--Subparagraph (A) shall not
apply to any payment for insurance.
``(ii) Exceptions.--Clause (i) shall not apply
to any expense for coverage under--
``(I) a health plan during any
period of continuation coverage required
under any Federal law,
``(II) a qualified long-term care
insurance contract (as defined in
section 7702B(b)), or
``(III) a health plan during a
period in which the individual is
receiving unemployment compensation
under any Federal or State law.
``(C) Medical expenses of individuals who are not
eligible individuals.--Subparagraph (A) shall apply to
an amount paid by an account holder for medical care of
an individual who is not an eligible individual for the
month in which the expense for such care is incurred
only if no amount is contributed (other than a rollover
contribution) to any medical savings account of such
account holder for the taxable year which includes such
month. This subparagraph shall not apply to any expense
for coverage described in subclause (I) or (III) of
subparagraph (B)(ii).
``(3) Account holder.--The term `account holder' means the
individual on whose behalf the medical savings account was
established.
``(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this section:
``(A) Section 219(d)(2) (relating to no deduction
for rollovers).
``(B) Section 219(f)(3) (relating to time when
contributions deemed made).
``(C) Except as provided in section 106(b), section
219(f)(5) (relating to employer payments).
``(D) Section 408(g) (relating to community property
laws).
``(E) Section 408(h) (relating to custodial
accounts).
``(e) Tax Treatment of Accounts.--
``(1) In general.--A medical savings account is exempt from
taxation under this subtitle unless such account has ceased to
be a medical savings account. Notwithstanding the preceding
sentence, any such account is subject to the taxes imposed by
section 511 (relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
``(2) Account terminations.--Rules similar to the rules of
paragraphs (2) and (4) of section 408(e) shall apply to medical
savings accounts, and any amount treated as distributed under
such rules shall be treated as not used to pay qualified medical
expenses.
``(f) Tax Treatment of Distributions.--
``(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a medical savings account
which is used exclusively to pay qualified medical expenses of
any account holder shall not be includible in gross income.
``(2) Inclusion of amounts not used for qualified medical
expenses.--Any amount paid or distributed out of a medical
savings account which is not used exclusively to pay the
qualified medical expenses of the account holder shall be
included in the gross income of such holder.
``(3) Excess contributions returned before due date of
return.--
``(A) In general.--If any excess contribution is
contributed for a taxable year to any medical savings
account of an individual, paragraph (2) shall not apply
to distributions from the medical savings accounts of
such individual (to the extent such distributions do not
exceed the aggregate excess contributions to all such
accounts of such individual for such year) if--
``(i) such distribution is received by the
individual on or before the last day prescribed by
law (including extensions of time) for filing such
individual's return for such taxable year, and
``(ii) such distribution is accompanied by the
amount of net income attributable to such excess
contribution.
Any net income described in clause (ii) shall be
included in the gross income of the individual for the
taxable year in which it is received.
``(B) Excess contribution.--For purposes of
subparagraph (A), the term `excess contribution' means
any contribution (other than a rollover contribution)
which is neither excludable from gross income under
section 106(b) nor deductible under this section.
``(4) Additional tax on distributions not used for qualified
medical expenses.--
``(A) In general.--The tax imposed by this chapter
on the account holder for any taxable year in which
there is a payment or distribution from a medical
savings account of such holder which is includible in
gross income under paragraph (2) shall be increased by
15 percent of the amount which is so includible.
``(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment or
distribution is made after the account holder becomes
disabled within the meaning of section 72(m)(7) or dies.
``(C) Exception for distributions after medicare
eligibility.--Subparagraph (A) shall not apply to any
payment or distribution after the date on which the
account holder attains the age specified in section 1811
of the Social Security Act.
``(5) Rollover contribution.--An amount is described in this
paragraph as a rollover contribution if it meets the
requirements of subparagraphs (A) and (B).
``(A) In general.--Paragraph (2) shall not apply to
any amount paid or distributed from a medical savings
account to the account holder to the extent the amount
received is paid into a medical savings account for the
benefit of such holder not later than the 60th day after
the day on which the holder receives the payment or
distribution.
``(B) Limitation.--This paragraph shall not apply to
any amount described in subparagraph (A) received by an
individual from a medical savings account if, at any
time during the 1-year period ending on the day of such
receipt, such individual received any other amount
described in subparagraph (A) from a medical savings
account which was not includible in the individual's
gross income because of the application of this
paragraph.
``(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction under
section 213, any payment or distribution out of a medical
savings account for qualified medical expenses shall not be
treated as an expense paid for medical care.
``(7) Transfer of account incident to divorce.--The transfer
of an individual's interest in a medical savings account to an
individual's spouse or former spouse under a divorce or
separation instrument described in subparagraph (A) of section
71(b)(2) shall not be considered a taxable transfer made by such
individual notwithstanding any other provision of this subtitle,
and such interest shall, after such transfer, be treated as a
medical savings account with respect to which such spouse is the
account holder.
``(8) Treatment after death of account holder.--
``(A) Treatment if designated beneficiary is
spouse.--If the account holder's surviving spouse
acquires such holder's interest in a medical savings
account by reason of being the designated beneficiary of
such account at the death of the account holder, such
medical savings account shall be treated as if the
spouse were the account holder.
``(B) Other cases.--
``(i) In general.--If, by reason of the death
of the account holder, any person acquires the
account holder's interest in a medical savings
account in a case to which subparagraph (A) does
not apply--
``(I) such account shall cease to be
a medical savings account as of the date
of death, and
``(II) an amount equal to the fair
market value of the assets in such
account on such date shall be includible
if such person is not the estate of such
holder, in such person's gross income
for the taxable year which includes such
date, or if such person is the estate of
such holder, in such holder's gross
income for the last taxable year of such
holder.
``(ii) Special rules.--
``(I) Reduction of inclusion for
pre-death expenses.--The amount
includible in gross income under clause
(i) by any person (other than the
estate) shall be reduced by the amount
of qualified medical expenses which were
incurred by the decedent before the date
of the decedent's death and paid by such
person within 1 year after such date.
``(II) Deduction for estate taxes.--
An appropriate deduction shall be
allowed under section 691(c) to any
person (other than the decedent or the
decedent's spouse) with respect to
amounts included in gross income under
clause (i) by such person.
``(g) Cost-of-Living Adjustment.--In the case of any taxable year
beginning in a calendar year after 1998, each dollar amount in
subsection (c)(2) shall be increased by an amount equal to--
``(1) such dollar amount, multiplied by
``(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which such taxable year begins
by substituting `calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any increase under the preceding sentence is not a multiple of $50,
such increase shall be rounded to the nearest multiple of $50.
``(h) Reports.--The Secretary may require the trustee of a medical
savings account to make such reports regarding such account to the
Secretary and to the account holder with respect to contributions,
distributions, and such other matters as the Secretary determines
appropriate. The reports required by this subsection shall be filed at
such time and in such manner and furnished to such individuals at such
time and in such manner as may be required by the Secretary.
``(i) Limitation on Number of Taxpayers Having Medical Savings
Accounts.--
``(1) In general.--Except as provided in paragraph (5), no
individual shall be treated as an eligible individual for any
taxable year beginning after the cut-off year unless--
``(A) such individual was an active MSA participant
for any taxable year ending on or before the close of
the cut-off year, or
``(B) such individual first became an active MSA
participant for a taxable year ending after the cut-off
year by reason of coverage under a high deductible
health plan of an MSA-participating employer.
``(2) Cut-off year.--For purposes of paragraph (1), the term
`cut-off year' means the earlier of--
``(A) calendar year 2000, or
``(B) the first calendar year before 2000 for which
the Secretary determines under subsection (j) that the
numerical limitation for such year has been exceeded.
``(3) Active msa participant.--For purposes of this
subsection--
``(A) In general.--The term `active MSA participant'
means, with respect to any taxable year, any individual
who is the account holder of any medical savings account
into which any contribution was made which was
excludable from gross income under section 106(b), or
allowable as a deduction under this section, for such
taxable year.
``(B) Special rule for cut-off years before 2000.--
In the case of a cut-off year before 2000--
``(i) an individual shall not be treated as an
eligible individual for any month of such year or
an active MSA participant under paragraph (1)(A)
unless such individual is, on or before the cut-
off date, covered under a high deductible health
plan, and
``(ii) an employer shall not be treated as an
MSA-participating employer unless the employer, on
or before the cut-off date, offered coverage under
a high deductible health plan to any employee.
``(C) Cut-off date.--For purposes of subpara-
graph (B)--
``(i) In general.--Except as otherwise
provided in this subparagraph, the cut-off date is
October 1 of the cut-off year.
``(ii) Employees with enrollment periods after
october 1.--In the case of an individual described
in subclause (I) of subsection (c)(1)(A)(iii), if
the regularly scheduled enrollment period for
health plans of the individual's employer occurs
during the last 3 months of the cut-off year, the
cut-off date is December 31 of the cut-off year.
``(iii) Self-employed individuals.--In the
case of an individual described in subclause (II)
of subsection (c)(1)(A)(iii), the cut-off date is
November 1 of the cut-off year.
``(iv) Special rules for 1997.--If 1997 is a
cut-off year by reason of subsection (j)(1)(A)--
``(I) each of the cut-off dates
under clauses (i) and (iii) shall be 1
month earlier than the date determined
without regard to this clause, and
``(II) clause (ii) shall be applied
by substituting `4 months' for `3
months'.
``(4) MSA-participating employer.--For purposes of this
subsection, the term `MSA-participating employer' means any
small employer if--
``(A) such employer made any contribution to the
medical savings account of any employee during the cut-
off year or any preceding calendar year which was
excludable from gross income under section 106(b), or
``(B) at least 20 percent of the employees of such
employer who are eligible individuals for any month of
the cut-off year by reason of coverage under a high
deductible health plan of such employer each made a
contribution of at least $100 to their medical savings
accounts for any taxable year ending with or within the
cut-off year which was allowable as a deduction under
this section.
``(5) Additional eligibility after cut-off year.--If the
Secretary determines under subsection (j)(2)(A) that the
numerical limit for the calendar year following a cut-off year
described in paragraph (2)(B) has not been exceeded--
``(A) this subsection shall not apply to any
otherwise eligible individual who is covered under a
high deductible health plan during the first 6 months of
the second calendar year following the cut-off year (and
such individual shall be treated as an active MSA
participant for purposes of this subsection if a
contribution is made to any medical savings account with
respect to such coverage), and
``(B) any employer who offers coverage under a high
deductible health plan to any employee during such 6-
month period shall be treated as an MSA-participating
employer for purposes of this subsection if the
requirements of paragraph (4) are met with respect to
such coverage.
For purposes of this paragraph, subsection (j)(2)(A) shall be
applied for 1998 by substituting `750,000' for `600,000'.
``(j) Determination of Whether Numerical Limits Are Exceeded.--
``(1) Determination of whether limit exceeded for 1997.--The
numerical limitation for 1997 is exceeded if, based on the
reports required under paragraph (4), the number of medical
savings accounts established as of--
``(A) April 30, 1997, exceeds 375,000, or
``(B) June 30, 1997, exceeds 525,000.
``(2) Determination of whether limit exceeded for 1998 or
1999.--
``(A) In general.--The numerical limitation for 1998
or 1999 is exceeded if the sum of--
``(i) the number of MSA returns filed on or
before April 15 of such calendar year for taxable
years ending with or within the preceding calendar
year, plus
``(ii) the Secretary's estimate (determined on
the basis of the returns described in clause (i))
of the number of MSA returns for such taxable
years which will be filed after such date,
exceeds 600,000 (750,000 in the case of 1999). For
purposes of the preceding sentence, the term `MSA
return' means any return on which any exclusion is
claimed under section 106(b) or any deduction is claimed
under this section.
``(B) Alternative computation of limitation.--The
numerical limitation for 1998 or 1999 is also exceeded
if the sum of--
``(i) 90 percent of the sum determined under
subparagraph (A) for such calendar year, plus
``(ii) the product of 2.5 and the number of
medical savings accounts established during the
portion of such year preceding July 1 (based on
the reports required under paragraph (4)) for
taxable years beginning in such year,
exceeds 750,000.
``(3) Previously uninsured individuals not included in
determination.--
``(A) In general.--The determination of whether any
calendar year is a cut-off year shall be made by not
counting the medical savings account of any previously
uninsured individual.
``(B) Previously uninsured individual.--For purposes
of this subsection, the term `previously uninsured
individual' means, with respect to any medical savings
account, any individual who had no health plan coverage
(other than coverage referred to in subsection
(c)(1)(B)) at any time during the 6-month period before
the date such individual's coverage under the high
deductible health plan commences.
``(4) Reporting by msa trustees.--
``(A) In general.--Not later than August 1 of 1997,
1998, and 1999, each person who is the trustee of a
medical savings account established before July 1 of
such calendar year shall make a report to the Secretary
(in such form and manner as the Secretary shall specify)
which specifies--
``(i) the number of medical savings accounts
established before such July 1 (for taxable years
beginning in such calendar year) of which such
person is the trustee,
``(ii) the name and TIN of the account holder
of each such account, and
``(iii) the number of such accounts which are
accounts of previously uninsured individuals.
``(B) Additional report for 1997.--Not later than
June 1, 1997, each person who is the trustee of a
medical savings account established before May 1, 1997,
shall make an additional report described in
subparagraph (A) but only with respect to accounts
established before May 1, 1997.
``(C) Penalty for failure to file report.--The
penalty provided in section 6693(a) shall apply to any
report required by this paragraph, except that--
``(i) such section shall be applied by
substituting `$25' for `$50', and
``(ii) the maximum penalty imposed on any
trustee shall not exceed $5,000.
``(D) Aggregation of accounts.--To the extent
practicable, in determining the number of medical
savings accounts on the basis of the reports under this
paragraph, all medical savings accounts of an individual
shall be
treated as 1 account and all accounts of individuals who
are married to each other shall be treated as 1 account.
``(5) Date of making determinations.--Any determination
under this subsection that a calendar year is a cut-off year
shall be made by the Secretary and shall be published not later
than October 1 of such year.''.
(b) Deduction Allowed Whether or Not Individual
Itemizes Other Deductions.--Subsection (a) of section 62 is amended by
inserting after paragraph (15) the following new paragraph:
``(16) Medical savings accounts.--The deduction allowed by
section 220.''.
(c) Exclusions for Employer Contributions to Medical Savings
Accounts.--
(1) Exclusion from income tax.--The text of section 106
(relating to contributions by employer to accident and health
plans) is amended to read as follows:
``(a) General Rule.--Except as otherwise provided in this section,
gross income of an employee does not include employer-provided coverage
under an accident or health plan.
``(b) Contributions to Medical Savings Accounts.--
``(1) In general.--In the case of an employee who is an
eligible individual, amounts contributed by such employee's
employer to any medical savings account of such employee shall
be treated as employer-provided coverage for medical expenses
under an accident or health plan to the extent such amounts do
not exceed the limitation under section 220(b)(1) (determined
without regard to this subsection) which is applicable to such
employee for such taxable year.
``(2) No constructive receipt.--No amount shall be included
in the gross income of any employee solely because the employee
may choose between the contributions referred to in paragraph
(1) and employer contributions to another health plan of the
employer.
``(3) Special rule for deduction of employer
contributions.--Any employer contribution to a medical savings
account, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in which
paid.
``(4) Employer msa contributions required to be shown on
return.--Every individual required to file a return under
section 6012 for the taxable year shall include on such return
the aggregate amount contributed by employers to the medical
savings accounts of such individual or such individual's spouse
for such taxable year.
``(5) MSA contributions not part of cobra coverage.--
Paragraph (1) shall not apply for purposes of section 4980B.
``(6) Definitions.--For purposes of this subsection, the
terms `eligible individual' and `medical savings account' have
the respective meanings given to such terms by section 220.
``(7) Cross reference.--
``For penalty on failure by employer to make
comparable contributions to the medical savings accounts
of comparable employees, see section 4980E.''.
(2) Exclusion from employment taxes.--
(A) Railroad retirement tax.--Subsection (e) of
section 3231 is amended by adding at the end the
following new paragraph:
``(10) Medical savings account contributions.--The term
`compensation' shall not include any payment made to or for the
benefit of an employee if at the time of such payment it is
reasonable to believe that the employee will be able to exclude
such payment from income under section 106(b).''.
(B) Unemployment tax.--Subsection (b) of section
3306 is amended by striking ``or'' at the end of
paragraph (15), by striking the period at the end of
paragraph (16) and inserting ``; or'', and by inserting
after paragraph (16) the following new paragraph:
``(17) any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe that
the employee will be able to exclude such payment from income
under section 106(b).''.
(C) Withholding tax.--Subsection (a) of section 3401
is amended by striking ``or'' at the end of paragraph
(19), by striking the period at the end of paragraph
(20) and inserting ``; or'', and by inserting after
paragraph (20) the following new paragraph:
``(21) any payment made to or for the benefit of an employee
if at the time of such payment it is reasonable to believe that
the employee will be able to exclude such payment from income
under section 106(b).''
(3) Employer contributions required to be shown on w-2.--
Subsection (a) of section 6051 is amended by striking ``and'' at
the end of paragraph (9), by striking the period at the end of
paragraph (10) and inserting ``, and'', and by inserting after
paragraph (10) the following new paragraph:
``(11) the amount contributed to any medical savings account
(as defined in section 220(d)) of such employee or such
employee's spouse.''.
(4) Penalty for failure of employer to make comparable msa
contributions.--
(A) In general.--Chapter 43 is amended by adding
after section 4980D the following new section:
``SEC. 4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE
MEDICAL SAVINGS ACCOUNT
CONTRIBUTIONS.
``(a) General Rule.--In the case of an employer who makes a
contribution to the medical savings account of any employee with respect
to coverage under a high deductible health plan of the employer during a
calendar year, there is hereby imposed a tax on the failure of such
employer to meet the requirements of subsection (d) for such calendar
year.
``(b) Amount of Tax.--The amount of the tax imposed by subsection
(a) on any failure for any calendar year is the amount equal to 35
percent of the aggregate amount contributed by the employer to medical
savings accounts of employees for taxable years of such employees ending
with or within such calendar year.
``(c) Waiver by Secretary.--In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax imposed by subsection (a) to the extent that the
payment of such tax would be excessive relative to the failure involved.
``(d) Employer Required To Make Comparable MSA Contributions for All
Participating Employees.--
``(1) In general.--An employer meets the requirements of
this subsection for any calendar year if the employer makes
available comparable contributions to the medical savings
accounts of all comparable participating employees for each
coverage period during such calendar year.
``(2) Comparable contributions.--
``(A) In general.--For purposes of paragraph (1),
the term `comparable contributions' means
contributions--
``(i) which are the same amount, or
``(ii) which are the same percentage of the
annual deductible limit under the high deductible
health plan covering the employees.
``(B) Part-year employees.--In the case of an
employee who is employed by the employer for only a
portion of the calendar year, a contribution to the
medical savings account of such employee shall be
treated as comparable if it is an amount which bears the
same ratio to the comparable amount (determined without
regard to this subparagraph) as such portion bears to
the entire calendar year.
``(3) Comparable participating employees.--For purposes of
paragraph (1), the term `comparable participating employees'
means all employees--
``(A) who are eligible individuals covered under any
high deductible health plan of the employer, and
``(B) who have the same category of coverage.
For purposes of subparagraph (B), the categories of coverage are
self-only and family coverage.
``(4) Part-time employees.--
``(A) In general.--Paragraph (3) shall be applied
separately with respect to part-time employees and other
employees.
``(B) Part-time employee.--For purposes of
subparagraph (A), the term `part-time employee' means
any employee who is customarily employed for fewer than
30 hours per week.
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 employer.
``(f) Definitions.--Terms used in this section which are also used
in section 220 have the respective meanings given such terms in section
220.''.
(B) Clerical amendment.--The table of sections for
chapter 43 is amended by adding after the item relating
to section 4980D the following new item:
``Sec. 4980E. Failure of employer to make comparable medical savings
account contributions.''.
(d) Medical Savings Account Contributions Not Available Under
Cafeteria Plans.--Subsection (f) of section 125 of such Code is amended
by inserting ``106(b),'' before ``117''.
(e) Tax on Excess Contributions.--Section 4973 (relating to tax on
excess contributions to individual retirement accounts, certain section
403(b) contracts, and certain individual retirement annuities) is
amended--
(1) by inserting ``medical savings accounts,'' after
``accounts,'' in the heading of such section,
(2) by striking ``or'' at the end of paragraph (1) of sub-
section (a),
(3) by redesignating paragraph (2) of subsection (a) as
paragraph (3) and by inserting after paragraph (1) the
following:
``(2) a medical savings account (within the meaning of
section 220(d)), or'', and
(4) by adding at the end the following new subsection:
``(d) Excess Contributions to Medical Savings Accounts.--For
purposes of this section, in the case of medical savings accounts
(within the meaning of section 220(d)), the term `excess contributions'
means the sum of--
``(1) the aggregate amount contributed for the taxable year
to the accounts (other than rollover contributions described in
section 220(f)(5)) which is neither excludable from gross income
under section 106(b) nor allowable as a deduction under section
220 for such year, and
``(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of--
``(A) the distributions out of the accounts which
were included in gross income under section 220(f)(2),
and
``(B) the excess (if any) of--
``(i) the maximum amount allowable as a
deduction under section 220(b)(1) (determined
without regard to section 106(b)) for the taxable
year, over
``(ii) the amount contributed to the accounts
for the taxable year.
For purposes of this subsection, any contribution which is distributed
out of the medical savings account in a distribution to which section
220(f)(3) applies shall be treated as an amount not contributed.''.
(f) Tax on Prohibited Transactions.--
(1) Section 4975 (relating to tax on prohibited
transactions) is amended by adding at the end of subsection (c)
the following new paragraph:
``(4) Special rule for medical savings accounts.--An
individual for whose benefit a medical savings account (within
the meaning of section 220(d)) is established shall be exempt
from the tax imposed by this section with respect to any
transaction concerning such account (which would otherwise be
taxable under this section) if, with respect to such
transaction, the account ceases to be a medical savings account
by reason of the application of section 220(e)(2) to such
account.''.
(2) Paragraph (1) of section 4975(e) is amended to read as
follows:
``(1) Plan.--For purposes of this section, the term `plan'
means--
``(A) a trust described in section 401(a) which
forms a part of a plan, or a plan described in section
403(a), which trust or plan is exempt from tax under
section 501(a),
``(B) an individual retirement account described in
section 408(a),
``(C) an individual retirement annuity described in
section 408(b),
``(D) a medical savings account described in section
220(d), or
``(E) a trust, plan, account, or annuity which, at
any time, has been determined by the Secretary to be
described in any preceding subparagraph of this
paragraph.''.
(g) Failure To Provide Reports on Medical Savings Accounts.--
(1) Subsection (a) of section 6693 (relating to failure to
provide reports on individual retirement accounts or annuities)
is amended to read as follows:
``(a) Reports.--
``(1) In general.--If a person required to file a report
under a provision referred to in paragraph (2) fails to file
such report at the time and in the manner required by such
provision, such person shall pay a penalty of $50 for each
failure unless it is shown that such failure is due to
reasonable cause.
``(2) Provisions.--The provisions referred to in this
paragraph are--
``(A) subsections (i) and (l) of section 408
(relating to individual retirement plans), and
``(B) section 220(h) (relating to medical savings
accounts).''.
(h) Exception From Capitalization of Policy Acquisition Expenses.--
Subparagraph (B) of section 848(e)(1) (defining specified insurance
contract) is amended by striking ``and'' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iv) any contract which is a medical savings
account (as defined in section 220(d)).''.
(i) Clerical Amendment.--The table of sections for part VII of
subchapter B of chapter 1 is amended by striking the last item and
inserting the following:
``Sec. 220. Medical savings accounts.
``Sec. 221. Cross reference.''.
(j) Effective <<NOTE: 26 USC 62 note.>> Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1996.
(k) Monitoring <<NOTE: 26 USC 220 note.>> of Participation in
Medical Savings Accounts.--The Secretary of the Treasury or his delegate
shall--
(1) during 1997, 1998, 1999, and 2000, regularly evaluate
the number of individuals who are maintaining medical savings
accounts and the reduction in revenues to the United States by
reason of such accounts, and
(2) provide such reports of such evaluations to Congress as
such Secretary determines appropriate.
(l) Study <<NOTE: 26 USC 220 note.>> of Effects of Medical Savings
Accounts on Small Group Market.--The Comptroller General of the United
States shall enter into a contract with an organization with expertise
in health economics, health insurance markets, and actuarial science to
conduct a comprehensive study regarding the effects of medical savings
accounts in the small group market on--
(1) selection, including adverse selection,
(2) health costs, including any impact on premiums of
individuals with comprehensive coverage,
(3) use of preventive care,
(4) consumer choice,
(5) the scope of coverage of high deductible plans purchased
in conjunction with such accounts, and
(6) other relevant items.
A report <<NOTE: Reports.>> on the results of the study conducted under
this subsection shall be submitted to the Congress no later than January
1, 1999.
Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
Employed Individuals
SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
EMPLOYED INDIVIDUALS.
(a) In General.--Paragraph (1) of section 162(l) is amended to read
as follows:
``(1) Allowance of deduction.--
``(A) In general.--In the case of an individual who
is an employee within the meaning of section 401(c)(1),
there shall be allowed as a deduction under this section
an amount equal to the applicable percentage of the
amount paid during the taxable year for insurance which
constitutes medical care for the taxpayer, his spouse,
and dependents.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage shall be
determined under the following table:
``For taxable years be The applicable percentage is--
in calendar year--
1997.............................40 percent
1998 through 2002................45 percent
2003.............................50 percent
2004.............................60 percent
2005.............................70 percent
2006 or thereafter............80 percent.''.
(b) Exclusion for Amounts Received Under Certain Self-Insured
Plans.--Paragraph (3) of section 104(a) is amended by inserting ``(or
through an arrangement having the effect of accident or health
insurance)'' after ``health insurance''.
(c) Effective Date <<NOTE: 26 USC 104 note.>> .--The amendments
made by this section shall apply to taxable years beginning after
December 31, 1996.
Subtitle C--Long-Term Care Services and Contracts
PART I--GENERAL PROVISIONS
SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.
(a) General Rule.--Chapter 79 (relating to definitions) is amended
by inserting after section 7702A the following new section:
``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.
``(a) In General.--For purposes of this title--
``(1) a qualified long-term care insurance contract shall be
treated as an accident and health insurance contract,
``(2) amounts (other than policyholder dividends, as defined
in section 808, or premium refunds) received under a qualified
long-term care insurance contract shall be treated as amounts
received for personal injuries and sickness and shall be treated
as reimbursement for expenses actually incurred for medical care
(as defined in section 213(d)),
``(3) any plan of an employer providing coverage under a
qualified long-term care insurance contract shall be treated as
an accident and health plan with respect to such coverage,
``(4) except as provided in subsection (e)(3), amounts paid
for a qualified long-term care insurance contract providing the
benefits described in subsection (b)(2)(A) shall be treated as
payments made for insurance for purposes of section
213(d)(1)(D), and
``(5) a qualified long-term care insurance contract shall be
treated as a guaranteed renewable contract subject to the rules
of section 816(e).
``(b) Qualified Long-Term Care Insurance Contract.--For purposes of
this title--
``(1) In general.--The term `qualified long-term care
insurance contract' means any insurance contract if--
``(A) the only insurance protection provided under
such contract is coverage of qualified long-term care
services,
``(B) such contract does not pay or reimburse
expenses incurred for services or items to the extent
that such expenses are reimbursable under title XVIII of
the Social Security Act or would be so reimbursable but
for the application of a deductible or coinsurance
amount,
``(C) such contract is guaranteed renewable,
``(D) such contract does not provide for a cash
surrender value or other money that can be--
``(i) paid, assigned, or pledged as collateral
for a loan, or
``(ii) borrowed,
other than as provided in subparagraph (E) or paragraph
(2)(C),
``(E) all refunds of premiums, and all policyholder
dividends or similar amounts, under such contract are to
be applied as a reduction in future premiums or to
increase future benefits, and
``(F) such contract meets the requirements of
subsection (g).
``(2) Special rules.--
``(A) Per diem, etc. payments permitted.--A contract
shall not fail to be described in subparagraph (A) or
(B) of paragraph (1) by reason of payments being made on
a per diem or other periodic basis without regard to the
expenses incurred during the period to which the
payments relate.
``(B) Special rules relating to medicare.--
``(i) Paragraph (1)(B) shall not apply to
expenses which are reimbursable under title XVIII
of the Social Security Act only as a secondary
payor.
``(ii) No provision of law shall be construed
or applied so as to prohibit the offering of a
qualified long-term care insurance contract on the
basis that the contract coordinates its benefits
with those provided under such title.
``(C) Refunds of premiums.--Paragraph (1)(E) shall
not apply to any refund on the death of the insured, or
on a complete surrender or cancellation of the contract,
which cannot exceed the aggregate premiums paid under
the contract. Any refund on a complete surrender or
cancellation of the contract shall be includible in
gross income to the extent that any deduction or
exclusion was allowable with respect to the premiums.
``(c) Qualified Long-Term Care Services.--For purposes of this
section--
``(1) In general.--The term `qualified long-term care
services' means necessary diagnostic, preventive, therapeutic,
curing, treating, mitigating, and rehabilitative services, and
maintenance or personal care services, which--
``(A) are required by a chronically ill individual,
and
``(B) are provided pursuant to a plan of care
prescribed by a licensed health care practitioner.
``(2) Chronically ill individual.--
``(A) In general.--The term `chronically ill
individual' means any individual who has been certified
by a licensed health care practitioner as--
``(i) being unable to perform (without
substantial assistance from another individual) at
least 2 activities of daily living for a period of
at least 90 days due to a loss of functional
capacity,
``(ii) having a level of disability similar
(as determined under regulations prescribed by the
Secretary in consultation with the Secretary of
Health and Human Services) to the level of
disability described in clause (i), or
``(iii) requiring substantial supervision to
protect such individual from threats to health and
safety due to severe cognitive impairment.
Such term shall not include any individual otherwise
meeting the requirements of the preceding sentence
unless within the preceding 12-month period a licensed
health care practitioner has certified that such
individual meets such requirements.
``(B) Activities of daily living.--For purposes of
subparagraph (A), each of the following is an activity
of daily living:
``(i) Eating.
``(ii) Toileting.
``(iii) Transferring.
``(iv) Bathing.
``(v) Dressing.
``(vi) Continence.
A contract shall not be treated as a qualified long-term
care insurance contract unless the determination of
whether an individual is a chronically ill individual
takes into account at least 5 of such activities.
``(3) Maintenance or personal care services.--The term
`maintenance or personal care services' means any care the
primary purpose of which is the provision of needed assistance
with any of the disabilities as a result of which the individual
is a chronically ill individual (including the protection from
threats to health and safety due to severe cognitive
impairment).
``(4) Licensed health care practitioner.--The term `licensed
health care practitioner' means any physician (as defined in
section 1861(r)(1) of the Social Security Act) and any
registered professional nurse, licensed social worker, or other
individual who meets such requirements as may be prescribed by
the Secretary.
``(d) Aggregate Payments in Excess of Limits.--
``(1) In general.--If the aggregate of--
``(A) the periodic payments received for any period
under all qualified long-term care insurance contracts
which are treated as made for qualified long-term care
services for an insured, and
``(B) the periodic payments received for such period
which are treated under section 101(g) as paid by reason
of the death of such insured,
exceeds the per diem limitation for such period, such excess
shall be includible in gross income without regard to section
72. A payment shall not be taken into account under subparagraph
(B) if the insured is a terminally ill individual (as defined in
section 101(g)) at the time the payment is received.
``(2) Per diem limitation.--For purposes of paragraph (1),
the per diem limitation for any period is an amount equal to the
excess (if any) of--
``(A) the greater of--
``(i) the dollar amount in effect for such
period under paragraph (4), or
``(ii) the costs incurred for qualified long-
term care services provided for the insured for
such period, over
``(B) the aggregate payments received as
reimbursements (through insurance or otherwise) for
qualified long-term care services provided for the
insured during such period.
``(3) Aggregation rules.--For purposes of this subsection--
``(A) all persons receiving periodic payments
described in paragraph (1) with respect to the same
insured shall be treated as 1 person, and
``(B) the per diem limitation determined under
paragraph (2) shall be allocated first to the insured
and any remaining limitation shall be allocated among
the other such persons in such manner as the Secretary
shall prescribe.
``(4) Dollar amount.--The dollar amount in effect under this
subsection shall be $175 per day (or the equivalent amount in
the case of payments on another periodic basis).
``(5) Inflation adjustment.--In the case of a calendar year
after 1997, the dollar amount contained in paragraph (4) shall
be increased at the same time and in the same manner as amounts
are increased pursuant to section 213(d)(10).
``(6) Periodic payments.--For purposes of this subsection,
the term `periodic payment' means any payment (whether on a
periodic basis or otherwise) made without regard to the extent
of the costs incurred by the payee for qualified long-term care
services.
``(e) Treatment of Coverage Provided as Part of a Life Insurance
Contract.--Except as otherwise provided in regulations prescribed by the
Secretary, in the case of any long-term care insurance coverage (whether
or not qualified) provided by a rider on or as part of a life insurance
contract--
``(1) In general.--This section shall apply as if the
portion of the contract providing such coverage is a separate
contract.
``(2) Application of 7702.--Section 7702(c)(2) (relating to
the guideline premium limitation) shall be applied by increasing
the guideline premium limitation with respect to a life
insurance contract, as of any date--
``(A) by the sum of any charges (but not premium
payments) against the life insurance contract's cash
surrender value (within the meaning of section
7702(f)(2)(A)) for such coverage made to that date under
the contract, less
``(B) any such charges the imposition of which
reduces the premiums paid for the contract (within the
meaning of section 7702(f)(1)).
``(3) Application of section 213.--No deduction shall be
allowed under section 213(a) for charges against the life
insurance contract's cash surrender value described in paragraph
(2), unless such charges are includible in income as a result of
the application of section 72(e)(10) and the rider is a
qualified long-term care insurance contract under subsection
(b).
``(4) Portion defined.--For purposes of this subsection, the
term `portion' means only the terms and benefits under a life
insurance contract that are in addition to the terms and
benefits under the contract without regard to long-term care
insurance coverage.
``(f) Treatment of Certain State-Maintained Plans.--
``(1) In general.--If--
``(A) an individual receives coverage for qualified
long-term care services under a State long-term care
plan, and
``(B) the terms of such plan would satisfy the
requirements of subsection (b) were such plan an
insurance contract,
such plan shall be treated as a qualified long-term care
insurance contract for purposes of this title.
``(2) State long-term care plan.--For purposes of paragraph
(1), the term `State long-term care plan' means any plan--
``(A) which is established and maintained by a State
or an instrumentality of a State,
``(B) which provides coverage only for qualified
long-term care services, and
``(C) under which such coverage is provided only
to--
``(i) employees and former employees of a
State (or any political subdivision or
instrumentality of a State),
``(ii) the spouses of such employees, and
``(iii) individuals bearing a relationship to
such employees or spouses which is described in
any of paragraphs (1) through (8) of section
152(a).''.
(b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is amended
by inserting ``(other than a qualified long-term care insurance
contract, as defined in section 7702B(b))'' after ``insurance
contract''.
(c) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or
Flexible Spending Arrangements.--
(1) Cafeteria plans.--Section 125(f) is amended by adding at
the end the following new sentence: ``Such term shall not
include any product which is advertised, marketed, or offered as
long-term care insurance.''.
(2) Flexible spending arrangements.--Section 106 (relating
to contributions by employer to accident and health plans), as
amended by section 301(c), is amended by adding at the end the
following new subsection:
``(c) Inclusion of Long-Term Care Benefits Provided Through Flexible
Spending Arrangements.--
``(1) In general.--Effective on and after January 1, 1997,
gross income of an employee shall include employer-provided
coverage for qualified long-term care services (as defined in
section 7702B(c)) to the extent that such coverage is provided
through a flexible spending or similar arrangement.
``(2) Flexible spending arrangement.--For purposes of this
subsection, a flexible spending arrangement is a benefit program
which provides employees with coverage under which--
``(A) specified incurred expenses may be reimbursed
(subject to reimbursement maximums and other reasonable
conditions), and
``(B) the maximum amount of reimbursement which is
reasonably available to a participant for such coverage
is less than 500 percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably
available shall be determined on the basis of the underlying
coverage.''
(d) Continuation Coverage Rules Not To Apply.--
(1) Paragraph (2) of section 4980B(g) is amended by adding
at the end the following new sentence: ``Such term shall not
include any plan substantially all of the coverage under which
is for qualified long-term care services (as defined in section
7702B(c)).''
(2) Paragraph (1) of section 607 of the Employee Retirement
Income Security Act of 1974 <<NOTE: 29 USC 1167.>> is amended
by adding at the end the following new sentence: ``Such term
shall not include any plan substantially all of the coverage
under which is for qualified long-term care services (as defined
in section 7702B(c) of such Code).''
(3) Paragraph (1) of section 2208 of the Public Health
Service Act <<NOTE: 42 USC 300bb-8.>> is amended by adding at
the end the following new sentence: ``Such term shall not
include any plan substantially all of the coverage under which
is for qualified long-term care services (as defined in section
7702B(c) of such Code).''
(e) Clerical Amendment.--The table of sections for chapter 79 is
amended by inserting after the item relating to section 7702A the
following new item:
``Sec. 7702B. Treatment of qualified long-term care insurance.''.
(f) Effective <<NOTE: 26 USC 1702B note.>> Dates.--
(1) General effective date.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by this section shall apply to
contracts issued after December 31, 1996.
(B) Reserve method.--The amendment made by
subsection (b) shall apply to contracts issued after
December 31, 1997.
(2) Continuation of existing policies.--In the case of any
contract issued before January 1, 1997, which met the long-term
care insurance requirements of the State in which the contract
was sitused at the time the contract was issued--
(A) such contract shall be treated for purposes of
the Internal Revenue Code of 1986 as a qualified long-
term care insurance contract (as defined in section
7702B(b) of such Code), and
(B) services provided under, or reimbursed by, such
contract shall be treated for such purposes as qualified
long-term care services (as defined in section 7702B(c)
of such Code).
In the case of an individual who is covered on December 31,
1996, under a State long-term care plan (as defined in section
7702B(f)(2) of such Code), the terms of such plan on such date
shall be treated for purposes of the preceding sentence as a
contract issued on such date which met the long-term care
insurance requirements of such State.
(3) Exchanges of existing policies.--If, after the date of
enactment of this Act and before January 1, 1998, a contract
providing for long-term care insurance coverage is exchanged
solely for a qualified long-term care insurance
contract (as defined in section 7702B(b) of such Code), no gain or loss
shall be recognized on the exchange. If, in addition to a qualified
long-term care insurance contract, money or other property is received
in the exchange, then any gain shall be recognized to the extent of the
sum of the money and the fair market value of the other property
received. For purposes of this paragraph, the cancellation of a contract
providing for long-term care insurance coverage and reinvestment of the
cancellation proceeds in a qualified long-term care insurance contract
within 60 days thereafter shall be treated as an exchange.
(4) Issuance of certain riders permitted.--For purposes of
applying sections 101(f), 7702, and 7702A of the Internal
Revenue Code of 1986 to any contract--
(A) the issuance of a rider which is treated as a
qualified long-term care insurance contract under
section 7702B, and
(B) the addition of any provision required to
conform any other long-term care rider to be so treated,
shall not be treated as a modification or material change of
such contract.
(5) Application of per diem limitation to existing
contracts.--The amount of per diem payments made under a
contract issued on or before July 31, 1996, with respect to an
insured which are excludable from gross income by reason of
section 7702B of the Internal Revenue Code of 1986 (as added by
this section) shall not be reduced under subsection (d)(2)(B)
thereof by reason of reimbursements received under a contract
issued on or before such date. The preceding sentence shall
cease to apply as of the date (after July 31, 1996) such
contract is exchanged or there is any contract modification
which results in an increase in the amount of such per diem
payments or the amount of such reimbursements.
(g) Long-Term <<NOTE: 26 USC 7702B note.>> Care Study Request.--The
Chairman of the Committee on Ways and Means of the House of
Representatives and the Chairman of the Committee on Finance of the
Senate shall jointly request the National Association of Insurance
Commissioners, in consultation with representatives of the insurance
industry and consumer organizations, to formulate, develop, and conduct
a study to determine the marketing and other effects of per diem limits
on certain types of long-term care policies. <<NOTE: Reports.>> If the
National Association of Insurance Commissioners agrees to the study
request, the National Association of Insurance Commissioners shall
report the results of its study to such committees not later than 2
years after accepting the request.
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL
CARE.
(a) General Rule.--Paragraph (1) of section 213(d) (defining medical
care) is amended by striking ``or'' at the end of subparagraph (B), by
redesignating subparagraph (C) as subparagraph (D), and by inserting
after subparagraph (B) the following new subparagraph:
``(C) for qualified long-term care services (as
defined in section 7702B(c)), or''.
(b) Technical Amendments.--
(1) Subparagraph (D) of section 213(d)(1) (as redesignated
by subsection (a)) is amended by inserting before the period
``or for any qualified long-term care insurance contract (as
defined in section 7702B(b))''.
(2)(A) Paragraph (1) of section 213(d) is amended by adding
at the end the following new flush sentence:
``In the case of a qualified long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (10)) shall be taken into
account under subparagraph (D).''
(B) Paragraph (2) of section 162(l) is amended by adding at
the end the following new subparagraph:
``(C) Long-term care premiums.--In the case of a
qualified long-term care insurance contract (as defined
in section 7702B(b)), only eligible long-term care
premiums (as defined in section 213(d)(10)) shall be
taken into account under paragraph (1).''
(C) Subsection (d) of section 213 is amended by adding at
the end the following new paragraphs:
``(10) Eligible long-term care premiums.--
``(A) In general.--For purposes of this section, the
term `eligible long-term care premiums' means the amount
paid during a taxable year for any qualified long-term
care insurance contract (as defined in section 7702B(b))
covering an individual, to the extent such amount does
not exceed the limitation determined under the following
table:
``In the case of an individual
with an attained age before the 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. 2,000
More than 70...................... 2,500 .
``(B) Indexing.--
``(i) In general.--In the case of any taxable
year beginning in a calendar year after 1997, each
dollar amount contained in subparagraph (A) shall
be increased by the medical care cost adjustment
of such amount for such calendar year. If any
increase determined under the preceding sentence
is not a multiple of $10, such increase shall be
rounded to the nearest multiple of $10.
``(ii) Medical care cost adjust-
ment.--For purposes of clause (i), the medical
care cost adjustment for any calendar year is the
percentage (if any) by which--
``(I) the medical care component of
the Consumer Price Index (as defined in
section 1(f)(5)) for August of the
preceding calendar year, exceeds
``(II) such component for August of
1996.
The Secretary shall, in consultation with the
Secre-
tary of Health and Human Services, prescribe an
adjustment which the Secretary determines is more
appropriate for purposes of this paragraph than
the adjustment described in the preceding
sentence, and the adjustment so prescribed shall
apply in lieu of the adjustment described in the
preceding sentence.
``(11) Certain payments to relatives treated as not paid for
medical care.--An amount paid for a qualified long-term care
service (as defined in section 7702B(c)) provided to an
individual shall be treated as not paid for medical care if such
service is provided--
``(A) by the spouse of the individual or by a
relative (directly or through a partnership,
corporation, or other entity) unless the service is
provided by a licensed professional with respect to such
service, or
``(B) by a corporation or partnership which is
related (within the meaning of section 267(b) or 707(b))
to the individual.
For purposes of this paragraph, the term `relative' means an
individual bearing a relationship to the individual which is
described in any of paragraphs (1) through (8) of section
152(a). This paragraph shall not apply for purposes of section
105(b) with respect to reimbursements through insurance.''.
(3) Paragraph (6) of section 213(d) is amended--
(A) by striking ``subparagraphs (A) and (B)'' and
inserting ``subparagraphs (A), (B), and (C)'', and
(B) by striking ``paragraph (1)(C)'' in subparagraph
(A) and inserting ``paragraph (1)(D)''.
(4) Paragraph (7) of section 213(d) is amended by striking
``subparagraphs (A) and (B)'' and inserting ``subparagraphs (A),
(B), and (C)''.
(c) Effective <<NOTE: 26 USC 162 note.>> Date.--The amendments made
by this section shall apply to taxable years beginning after December
31, 1996.
SEC. 323. REPORTING REQUIREMENTS.
(a) In General.--Subpart B of part III of subchapter A of chapter 61
is amended by adding at the end the following new section:
``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
``(a) Requirement of Reporting.--Any person who pays long-term care
benefits shall make a return, according to the forms or regulations
prescribed by the Secretary, setting forth--
``(1) the aggregate amount of such benefits paid by such
person to any individual during any calendar year,
``(2) whether or not such benefits are paid in whole or in
part on a per diem or other periodic basis without regard to the
expenses incurred during the period to which the payments
relate,
``(3) the name, address, and TIN of such individual, and
``(4) the name, address, and TIN of the chronically ill or
terminally ill individual on account of whose condition such
benefits are paid.
``(b) Statements To Be Furnished to Persons With Respect to Whom
Information Is Required.--Every person required to make a return under
subsection (a) shall furnish to each individual whose name is required
to be set forth in such return a written statement showing--
``(1) the name of the person making the payments, and
``(2) the aggregate amount of long-term care benefits paid
to the individual which are required to be shown on such return.
The written statement required under the preceding sentence shall be
furnished to the individual on or before January 31 of the year
following the calendar year for which the return under subsection (a)
was required to be made.
``(c) Long-Term Care Benefits.--For purposes of this section, the
term `long-term care benefit' means--
``(1) any payment under a product which is advertised,
marketed, or offered as long-term care insurance, and
``(2) any payment which is excludable from gross income by
reason of section 101(g).''.
(b) Penalties.--
(1) Subparagraph (B) of section 6724(d)(1) is amended by
redesignating clauses (ix) through (xiv) as clauses (x) through
(xv), respectively, and by inserting after clause (viii) the
following new clause:
``(ix) section 6050Q (relating to certain
long-term care benefits),''.
(2) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (Q) through (T) as subparagraphs (R)
through (U), respectively, and by inserting after subparagraph
(P) the following new subparagraph:
``(Q) section 6050Q(b) (relating to certain long-
term care benefits),''.
(c) Clerical Amendment.--The table of sections for subpart B of part
III of subchapter A of chapter 61 is amended by adding at the end the
following new item:
``Sec. 6050Q. Certain long-term care benefits.''.
(d) Effective <<NOTE: 26 USC 6050Q note.>> Date.--The amendments
made by this section shall apply to benefits paid after December 31,
1996.
PART II--CONSUMER PROTECTION PROVISIONS
SEC. 325. POLICY REQUIREMENTS.
Section 7702B (as added by section 321) is amended by adding at the
end the following new subsection:
``(g) Consumer Protection Provisions.--
``(1) In general.--The requirements of this subsection are
met with respect to any contract if the contract meets--
``(A) the requirements of the model regulation and
model Act described in paragraph (2),
``(B) the disclosure requirement of paragraph (3),
and
``(C) the requirements relating to nonforfeitability
under paragraph (4).
``(2) Requirements of model regulation and act.--
``(A) In general.--The requirements of this
paragraph are met with respect to any contract if such
contract meets--
``(i) Model regulation.--The following
requirements of the model regulation:
``(I) Section 7A (relating to
guaranteed renewal or
noncancellability), and the requirements
of
section 6B of the model Act relating to
such section 7A.
``(II) Section 7B (relating to
prohibitions on limitations and
exclusions).
``(III) Section 7C (relating to
extension of benefits).
``(IV) Section 7D (relating to
continuation or conversion of coverage).
``(V) Section 7E (relating to
discontinuance and replacement of
policies).
``(VI) Section 8 (relating to
unintentional lapse).
``(VII) Section 9 (relating to
disclosure), other than section 9F
thereof.
``(VIII) Section 10 (relating to
prohibitions against post-claims
underwriting).
``(IX) Section 11 (relating to
minimum standards).
``(X) Section 12 (relating to
requirement to offer inflation
protection), except that any requirement
for a signature on a rejection of
inflation protection shall permit the
signature to be on an application or on
a separate form.
``(XI) Section 23 (relating to
prohibition against preexisting
conditions and probationary periods in
replacement policies or certificates).
``(ii) Model act.--The following requirements
of the model Act:
``(I) Section 6C (relating to
preexisting conditions).
``(II) Section 6D (relating to prior
hospitalization).
``(B) Definitions.--For purposes of this paragraph--
``(i) Model provisions.--The terms `model
regulation' and `model Act' mean the long-term
care insur-
ance model regulation, and the long-term care
insurance model Act, respectively, promulgated by
the National Association of Insurance
Commissioners (as adopted as of January 1993).
``(ii) Coordination.--Any provision of the
model regulation or model Act listed under clause
(i) or (ii) of subparagraph (A) shall be treated
as including any other provision of such
regulation or Act necessary to implement the
provision.
``(iii) Determination.--For purposes of this
section and section 4980C, the determination of
whether any requirement of a model regulation or
the model Act has been met shall be made by the
Secretary.
``(3) Disclosure requirement.--The requirement of this
paragraph is met with respect to any contract if such contract
meets the requirements of section 4980C(d).
``(4) Nonforfeiture requirements.--
``(A) In general.--The requirements of this
paragraph are met with respect to any level premium
contract,
if the issuer of such contract offers to the
policyholder, including any group policyholder, a
nonforfeiture provision meeting the requirements of
subparagraph (B).
``(B) Requirements of provision.--The nonforfeiture
provision required under subparagraph (A) shall meet the
following requirements:
``(i) The nonforfeiture provision shall be
appropriately captioned.
``(ii) The nonforfeiture provision shall
provide for a benefit available in the event of a
default in the payment of any premiums and the
amount of the benefit may be adjusted subsequent
to being initially granted only as necessary to
reflect changes in claims, persistency, and
interest as reflected in changes in rates for
premium paying contracts approved by the Secretary
for the same contract form.
``(iii) The nonforfeiture provision shall
provide at least one of the following:
``(I) Reduced paid-up insurance.
``(II) Extended term insurance.
``(III) Shortened benefit period.
``(IV) Other similar offerings
approved by the Secretary.
``(5) Cross reference.--
``For coordination of the requirements of this
subsection with State requirements, see section
4980C(f).''.
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS.
(a) In General.--Chapter 43 is amended by adding at the end the
following new section:
``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
INSURANCE CONTRACTS.
``(a) General Rule.--There is hereby imposed on any person failing
to meet the requirements of subsection (c) or (d) a tax in the amount
determined under subsection (b).
``(b) Amount.--
``(1) In general.--The amount of the tax imposed by
subsection (a) shall be $100 per insured for each day any
requirement of subsection (c) or (d) is not met with respect to
each qualified long-term care insurance contract.
``(2) Waiver.--In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may
waive part or all of the tax imposed by subsection (a) to the
extent that payment of the tax would be excessive relative to
the failure involved.
``(c) Responsibilities.--The requirements of this subsection are as
follows:
``(1) Requirements of model provisions.--
``(A) Model regulation.--The following requirements
of the model regulation must be met:
``(i) Section 13 (relating to application
forms and replacement coverage).
``(ii) Section 14 (relating to reporting
requirements), except that the issuer shall also
report at least annually the number of claims
denied during the reporting period for each class
of business (expressed as a percentage of claims
denied), other than claims denied for failure to
meet the waiting period or because of any
applicable preexisting condition.
``(iii) Section 20 (relating to filing
requirements for marketing).
``(iv) Section 21 (relating to standards for
marketing), including inaccurate completion of
medical histories, other than sections 21C(1) and
21C(6) thereof, except that--
``(I) in addition to such
requirements, no person shall, in
selling or offering to sell a qualified
long-term care insurance contract,
misrepresent a material fact; and
``(II) no such requirements shall
include a requirement to inquire or
identify whether a prospective applicant
or enrollee for long-term care insurance
has accident and sickness insurance.
``(v) Section 22 (relating to appropriateness
of
recommended purchase).
``(vi) Section 24 (relating to standard format
outline of coverage).
``(vii) Section 25 (relating to requirement to
deliver shopper's guide).
``(B) Model act.--The following requirements of the
model Act must be met:
``(i) Section 6F (relating to right to
return), except that such section shall also apply
to denials of applications and any refund shall be
made within 30 days of the return or denial.
``(ii) Section 6G (relating to outline of
coverage).
``(iii) Section 6H (relating to requirements
for certificates under group plans).
``(iv) Section 6I (relating to policy
summary).
``(v) Section 6J (relating to monthly reports
on accelerated death benefits).
``(vi) Section 7 (relating to incontestability
period).
``(C) Definitions.--For purposes of this paragraph,
the terms `model regulation' and `model Act' have the
meanings given such terms by section 7702B(g)(2)(B).
``(2) Delivery of policy.--If an application for a qualified
long-term care insurance contract (or for a certificate under
such a contract for a group) is approved, the issuer shall
deliver to the applicant (or policyholder or certificateholder)
the contract (or certificate) of insurance not later than 30
days after the date of the approval.
``(3) Information on denials of claims.--If a claim under a
qualified long-term care insurance contract is denied, the
issuer shall, within 60 days of the date of a written request by
the policyholder or certificateholder (or representative)--
``(A) provide a written explanation of the reasons
for the denial, and
``(B) make available all information directly
relating to such denial.
``(d) Disclosure.--The requirements of this subsection are met if
the issuer of a long-term care insurance policy discloses in such policy
and in the outline of coverage required under subsection (c)(1)(B)(ii)
that the policy is intended to be a qualified long-term care insurance
contract under section 7702B(b).
``(e) Qualified Long-Term Care Insurance Contract Defined.--For
purposes of this section, the term `qualified long-term care insurance
contract' has the meaning given such term by section 7702B.
``(f) Coordination With State Requirements.--If a State imposes any
requirement which is more stringent than the analogous requirement
imposed by this section or section 7702B(g), the requirement imposed by
this section or section 7702B(g) shall be treated as met if the more
stringent State requirement is met.''.
(b) Conforming Amendment.--The table of sections for chapter 43 is
amended by adding at the end the following new item:
``Sec. 4980C. Requirements for issuers of qualified long-term care
insurance contracts.''.
SEC. 327. EFFECTIVE <<NOTE: 26 USC 4980C note.>> DATES.
(a) In General.--The provisions of, and amendments made by, this
part shall apply to contracts issued after December 31, 1996. The
provisions of section 321(f) (relating to transition rule) shall apply
to such contracts.
(b) Issuers.--The amendments made by section 326 shall apply to
actions taken after December 31, 1996.
Subtitle D--Treatment of Accelerated Death Benefits
SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY
RECIPIENT.
(a) In General.--Section 101 (relating to certain death benefits) is
amended by adding at the end the following new subsection:
``(g) Treatment of Certain Accelerated Death Benefits.--
``(1) In general.--For purposes of this section, the
following amounts shall be treated as an amount paid by reason
of the death of an insured:
``(A) Any amount received under a life insurance
contract on the life of an insured who is a terminally
ill individual.
``(B) Any amount received under a life insurance
contract on the life of an insured who is a chronically
ill individual.
``(2) Treatment of viatical settlements.--
``(A) In general.--If any portion of the death
benefit under a life insurance contract on the life of
an insured described in paragraph (1) is sold or
assigned to a viatical settlement provider, the amount
paid for the sale or assignment of such portion shall be
treated as an amount paid under the life insurance
contract by reason of the death of such insured.
``(B) Viatical settlement provider.--
``(i) In general.--The term `viatical
settlement provider' means any person regularly
engaged in the trade or business of purchasing, or
taking assignments of, life insurance contracts on
the lives of insureds described in paragraph (1)
if--
``(I) such person is licensed for
such purposes (with respect to insureds
described in the same subparagraph of
paragraph (1) as the insured) in the
State in which the insured resides, or
``(II) in the case of an insured who
resides in a State not requiring the
licensing of such persons for such
purposes with respect to such insured,
such person meets the requirements of
clause (ii) or (iii), whichever applies
to such insured.
``(ii) Terminally ill insureds.--A person
meets the requirements of this clause with respect
to an insured who is a terminally ill individual
if such
person--
``(I) meets the requirements of
sections 8 and 9 of the Viatical
Settlements Model Act of the National
Association of Insurance Commissioners,
and
``(II) meets the requirements of the
Model Regulations of the National
Association of Insurance Commissioners
(relating to standards for evaluation of
reasonable payments) in determining
amounts paid by such person in
connection with such purchases or
assignments.
``(iii) Chronically ill insureds.--A person
meets the requirements of this clause with respect
to an insured who is a chronically ill individual
if such
person--
``(I) meets requirements similar to
the requirements referred to in clause
(ii)(I), and
``(II) meets the standards (if any)
of the National Association of Insurance
Commissioners for evaluating the
reasonableness of amounts paid by such
person in connection with such purchases
or assignments with respect to
chronically ill individuals.
``(3) Special rules for chronically ill insureds.--In the
case of an insured who is a chronically ill individual--
``(A) In general.--Paragraphs (1) and (2) shall not
apply to any payment received for any period unless--
``(i) such payment is for costs incurred by
the payee (not compensated for by insurance or
otherwise) for qualified long-term care services
provided for the insured for such period, and
``(ii) the terms of the contract giving rise
to such payment satisfy--
``(I) the requirements of section
7702B(b)(1)(B), and
``(II) the requirements (if any)
applicable under subparagraph (B).
For purposes of the preceding sentence, the rule of
section 7702B(b)(2)(B) shall apply.
``(B) Other requirements.--The requirements
applicable under this subparagraph are--
``(i) those requirements of section 7702B(g)
and section 4980C which the Secretary specifies as
applying to such a purchase, assignment, or other
arrangement,
``(ii) standards adopted by the National
Association of Insurance Commissioners which
specifically apply to chronically ill individuals
(and, if such standards are adopted, the analogous
requirements specified under clause (i) shall
cease to apply), and
``(iii) standards adopted by the State in
which the policyholder resides (and if such
standards are adopted, the analogous requirements
specified under clause (i) and (subject to section
4980C(f)) standards under clause (ii), shall cease
to apply).
``(C) Per diem payments.--A payment shall not fail
to be described in subparagraph (A) by reason of being
made on a per diem or other periodic basis without
regard to the expenses incurred during the period to
which the payment relates.
``(D) Limitation on exclusion for periodic
payments.--
``For limitation on amount of periodic payments which
are
treated as described in paragraph (1), see section
7702B(d).''.
``(4) Definitions.--For purposes of this subsection--
``(A) Terminally ill individual.--The term
`terminally ill individual' means an individual who has
been certified by a physician as having an illness or
physical condition which can reasonably be expected to
result in death in 24 months or less after the date of
the certification.
``(B) Chronically ill individual.--The term
`chronically ill individual' has the meaning given such
term by section 7702B(c)(2); except that such term shall
not include a terminally ill individual.
``(C) Qualified long-term care services.--The term
`qualified long-term care services' has the meaning
given such term by section 7702B(c).
``(D) Physician.--The term `physician' has the
meaning given to such term by section 1861(r)(1) of the
Social Security Act (42 U.S.C. 1395x(r)(1)).
``(5) Exception for business-related policies.--This
subsection shall not apply in the case of any amount paid to any
taxpayer other than the insured if such taxpayer has an
insurable interest with respect to the life of the insured by
reason of the insured being a director, officer, or employee of
the taxpayer or by reason of the insured being financially
interested in any trade or business carried on by the
taxpayer.''.
(b) Effective <<NOTE: 26 USC 101 note.>> Date.--The amendment made
by subsection (a) shall apply to amounts received after December 31,
1996.
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED
DEATH BENEFIT RIDERS.
(a) Qualified Accelerated Death Benefit Riders Treated as Life
Insurance.--Section 818 (relating to other definitions and special
rules) is amended by adding at the end the following new subsection:
``(g) Qualified Accelerated Death Benefit Riders Treated as Life
Insurance.--For purposes of this part--
``(1) In general.--Any reference to a life insurance
contract shall be treated as including a reference to a
qualified accelerated death benefit rider on such contract.
``(2) Qualified accelerated death benefit riders.--For
purposes of this subsection, the term `qualified accelerated
death benefit rider' means any rider on a life insurance
contract if the only payments under the rider are payments
meeting the requirements of section 101(g).
``(3) Exception for long-term care riders.--Paragraph (1)
shall not apply to any rider which is treated as a long-term
care insurance contract under section 7702B.''.
(b) Effective <<NOTE: 26 USC 818 note.>> Date.--
(1) In general.--The amendment made by this section shall
take effect on January 1, 1997.
(2) Issuance of rider not treated as material change.--For
purposes of applying sections 101(f), 7702, and 7702A of the
Internal Revenue Code of 1986 to any contract--
(A) the issuance of a qualified accelerated death
benefit rider (as defined in section 818(g) of such Code
(as added by this Act)), and
(B) the addition of any provision required to
conform an accelerated death benefit rider to the
requirements of such section 818(g),
shall not be treated as a modification or material change of
such contract.
Subtitle E--State Insurance Pools
SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED
ORGANIZATIONS PROVIDING HEALTH COVERAGE
FOR HIGH-RISK INDIVIDUALS.
(a) In General.--Subsection (c) of section 501 (relating to list of
exempt organizations) is amended by adding at the end the following new
paragraph:
``(26) Any membership organization if--
``(A) such organization is established by a State
exclusively to provide coverage for medical care (as
defined in section 213(d)) on a not-for-profit basis to
individuals described in subparagraph (B) through--
``(i) insurance issued by the organization, or
``(ii) a health maintenance organization under
an arrangement with the organization,
``(B) the only individuals receiving such coverage
through the organization are individuals--
``(i) who are residents of such State, and
``(ii) who, by reason of the existence or
history of a medical condition--
``(I) are unable to acquire medical
care coverage for such condition through
insurance or from a health maintenance
organization, or
``(II) are able to acquire such
coverage only at a rate which is
substantially in excess of the rate for
such coverage through the membership
organization,
``(C) the composition of the membership in such
organization is specified by such State, and
``(D) no part of the net earnings of the
organization inures to the benefit of any private
shareholder or indi-
vidual.''.
(b) Effective <<NOTE: 26 USC 501 note.>> Date.--The amendment made
by this section shall apply to taxable years beginning after December
31, 1996.
SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED WORKMEN'S
COMPENSATION REINSURANCE ORGANIZATIONS.
(a) In General.--Subsection (c) of section 501 (relating to list of
exempt organizations), as amended by section 341, is amended by adding
at the end the following new paragraph:
``(27) Any membership organization if--
``(A) such organization is established before June
1, 1996, by a State exclusively to reimburse its members
for losses arising under workmen's compensation acts,
``(B) such State requires that the membership of
such organization consist of--
``(i) all persons who issue insurance covering
workmen's compensation losses in such State, and
``(ii) all persons and governmental entities
who self-insure against such losses, and
``(C) such organization operates as a non-profit
organization by--
``(i) returning surplus income to its members
or workmen's compensation policyholders on a
periodic basis, and
``(ii) reducing initial premiums in
anticipation of investment income.''.
(b) Effective <<NOTE: 26 USC 501 note.>> Date.--The amendment made
by this section shall apply to taxable years ending after the date of
the enactment of this Act.
Subtitle F--Organizations Subject to Section 833
SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.
(a) In General.--Section 833(c) (relating to organization to which
section applies) is amended by adding at the end the following new
paragraph:
``(4) Treatment as existing blue cross or blue shield
organization.--
``(A) In general.--Paragraph (2) shall be applied to
an organization described in subparagraph (B) as if it
were a Blue Cross or Blue Shield organization.
``(B) Applicable organization.--An organization is
described in this subparagraph if it--
``(i) is organized under, and governed by,
State laws which are specifically and exclusively
applicable to not-for-profit health insurance or
health service type organizations, and
``(ii) is not a Blue Cross or Blue Shield
organization or health maintenance
organization.''.
(b) Effective <<NOTE: 26 USC 833 note.>> Date.--The amendment made
by this section shall apply to taxable years ending after December 31,
1996.
Subtitle G--IRA Distributions to the Unemployed
SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT
ADDITIONAL TAX TO PAY FINANCIALLY
DEVASTATING MEDICAL EXPENSES.
(a) In General.--Section 72(t)(3)(A) is amended by striking
``(B),''.
(b) Distributions for Payment of Health Insurance Premiums of
Certain Unemployed Individuals.--Paragraph (2) of section 72(t) is
amended by adding at the end the following new subparagraph:
``(D) Distributions to unemployed individuals for
health insurance premiums.--
``(i) In general.--Distributions from an
individual retirement plan to an individual after
separation from employment--
``(I) if such individual has
received unemployment compensation for
12 consecutive weeks under any Federal
or State unemployment compensation law
by reason of such separation,
``(II) if such distributions are
made during any taxable year during
which such unemployment compensation is
paid or the succeeding taxable year, and
``(III) to the extent such
distributions do not exceed the amount
paid during the taxable year for
insurance described in section
213(d)(1)(D) with respect to the
individual and the individual's spouse
and dependents (as defined in section
152).
``(ii) Distributions after reemployment.--
Clause (i) shall not apply to any distribution
made after the individual has been employed for at
least 60 days after the separation from employment
to which clause (i) applies.
``(iii) Self-employed individuals.--To the
extent provided in regulations, a self-employed
individual shall be treated as meeting the
requirements of clause (i)(I) if, under Federal or
State law, the individual would have received
unemployment compensation but for the fact the
individual was self-employed.''.
(c) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) is
amended by striking ``or (C)'' and inserting ``, (C), or (D)''.
(d) Effective <<NOTE: 26 USC 72 note.>> Date.--The amendments made
by this section shall apply to distributions after December 31, 1996.
Subtitle H--Organ and Tissue Donation
Information Included With Income Tax Refund Payments
SEC. 371. ORGAN AND <<NOTE: 26 USC 6042 note.>> TISSUE DONATION
INFORMATION INCLUDED WITH INCOME TAXREFUND PAYMENTS.
(a) In General.--The Secretary of the Treasury shall, to the extent
practicable, include with the mailing of any payment of a refund of
individual income tax made during the period beginning on February 1,
1997, and ending on June 30, 1997, a copy of the document described in
subsection (b).
(b) Text of Document.--The Secretary of the Treasury shall, after
consultation with the Secretary of Health and Human Services and
organizations promoting organ and tissue (including eye) donation,
prepare a document suitable for inclusion with individual income tax
refund payments which--
(1) encourages organ and tissue donation;
(2) includes a detachable organ and tissue donor
card; and
(3) urges recipients to--
(A) sign the organ and tissue donor card;
(B) discuss organ and tissue donation with family
members and tell family members about the recipient's
desire to be an organ and tissue donor if the occasion
arises; and
(C) encourage family members to request or authorize
organ and tissue donation if the occasion arises.
TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN
REQUIREMENTS
Subtitle A--Application and Enforcement of Group Health Plan
Requirements
SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
REQUIREMENTS.
(a) In General.--The Internal Revenue Code of 1986 is
amended by adding at the end the following new subtitle:
``Subtitle K--Group Health Plan Portability, Access, and Renewability
Requirements
``Chapter 100. Group health plan portability, access, and renewability
requirements.
``CHAPTER 100--GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
REQUIREMENTS
``Sec. 9801. Increased portability through limitation on preexisting
condition exclusions.
``Sec. 9802. Prohibiting discrimination against individual participants
and beneficiaries based on health status.
``Sec. 9803. Guaranteed renewability in multiemployer plans and certain
multiple employer welfare arrangements.
``Sec. 9804. General exceptions.
``Sec. 9805. Definitions.
``Sec. 9806. Regulations.
``SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON
PREEXISTING CONDITION EXCLUSIONS.
``(a) Limitation on Preexisting Condition Exclusion Period;
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
a group health plan may, with respect to a participant or beneficiary,
impose a preexisting condition exclusion only if--
``(1) such exclusion relates to a condition (whether
physical or mental), regardless of the cause of the condition,
for which medical advice, diagnosis, care, or treatment was
recommended or received within the 6-month period ending on the
enrollment date;
``(2) such exclusion extends for a period of not more than
12 months (or 18 months in the case of a late enrollee) after
the enrollment date; and
``(3) the period of any such preexisting condition exclusion
is reduced by the length of the aggregate of the periods of
creditable coverage (if any) applicable to the participant or
beneficiary as of the enrollment date.
``(b) Definitions.--For purposes of this section--
``(1) Preexisting condition exclusion.--
``(A) In general.--The term `preexisting condition
exclusion' means, with respect to coverage, a limitation
or exclusion of benefits relating to a condition based
on the fact that the condition was present before the
date of enrollment for such coverage, whether or not any
medical advice, diagnosis, care, or treatment was
recommended or received before such date.
``(B) Treatment of genetic information.--For
purposes of this section, genetic information shall not
be
treated as a condition described in subsection (a)(1) in
the absence of a diagnosis of the condition related to
such information.
``(2) Enrollment date.--The term `enrollment date' means,
with respect to an individual covered under a group health plan,
the date of enrollment of the individual in the plan or, if
earlier, the first day of the waiting period for such
enrollment.
``(3) Late enrollee.--The term `late enrollee' means, with
respect to coverage under a group health plan, a participant or
beneficiary who enrolls under the plan other than during--
``(A) the first period in which the individual is
eligible to enroll under the plan, or
``(B) a special enrollment period under subsection
(f).
``(4) Waiting period.--The term `waiting period' means, with
respect to a group health plan and an individual who is a
potential participant or beneficiary in the plan, the period
that must pass with respect to the individual before the
individual is eligible to be covered for benefits under the
terms of the plan.
``(c) Rules Relating to Crediting Previous Coverage.--
``(1) Creditable coverage defined.--For purposes of this
part, the term `creditable coverage' means, with respect to an
individual, coverage of the individual under any of the
following:
``(A) A group health plan.
``(B) Health insurance coverage.
``(C) Part A or part B of title XVIII of the Social
Security Act.
``(D) Title XIX of the Social Security Act, other
than coverage consisting solely of benefits under
section 1928.
``(E) Chapter 55 of title 10, United States Code.
``(F) A medical care program of the Indian Health
Service or of a tribal organization.
``(G) A State health benefits risk pool.
``(H) A health plan offered under chapter 89 of
title 5, United States Code.
``(I) A public health plan (as defined in
regulations).
``(J) A health benefit plan under section 5(e) of
the Peace Corps Act (22 U.S.C. 2504(e)).
Such term does not include coverage consisting solely of
coverage of excepted benefits (as defined in section 9805(c)).
``(2) Not counting periods before significant breaks in
coverage.--
``(A) In general.--A period of creditable coverage
shall not be counted, with respect to enrollment of an
individual under a group health plan, if, after such
period and before the enrollment date, there was a 63-
day period during all of which the individual was not
covered under any creditable coverage.
``(B) Waiting period not treated as a break in
coverage.--For purposes of subparagraph (A) and
subsection (d)(4), any period that an individual is in a
waiting period for any coverage under a group health
plan or is in an affiliation period shall not be taken
into account in determining the continuous period under
subpara-
graph (A).
``(C) Affiliation period.--
``(i) In general.--For purposes of this
section, the term `affiliation period' means a
period which, under the terms of the health
insurance coverage offered by the health
maintenance organization, must expire before the
health insurance coverage becomes effective.
During such an affiliation period, the
organization is not required to provide health
care services or benefits and no premium shall be
charged to the participant or beneficiary.
``(ii) Beginning.--Such period shall begin on
the enrollment date.
``(iii) Runs concurrently with waiting
periods.--Any such affiliation period shall run
concurrently with any waiting period under the
plan.
``(3) Method of crediting coverage.--
``(A) Standard method.--Except as otherwise provided
under subparagraph (B), for purposes of applying
subsection (a)(3), a group health plan shall count a
period of creditable coverage without regard to the
specific benefits for which coverage is offered during
the period.
``(B) Election of alternative method.--A group
health plan may elect to apply subsection (a)(3) based
on coverage of any benefits within each of several
classes or categories of benefits specified in
regulations rather than as provided under subparagraph
(A). Such election shall be made on a uniform basis for
all participants and beneficiaries. Under such election
a group health plan shall count a period of creditable
coverage with respect to any class or category of
benefits if any level of benefits is covered within such
class or category.
``(C) Plan notice.--In the case of an election with
respect to a group health plan under subparagraph (B),
the plan shall--
``(i) prominently state in any disclosure
statements concerning the plan, and state to each
enrollee at the time of enrollment under the plan,
that the plan has made such election, and
``(ii) include in such statements a
description of the effect of this election.
``(4) Establishment of period.--Periods of creditable
coverage with respect to an individual shall be established
through presentation of certifications described in subsection
(e) or in such other manner as may be specified in regulations.
``(d) Exceptions.--
``(1) Exclusion not applicable to certain newborns.--Subject
to paragraph (4), a group health plan may not impose any
preexisting condition exclusion in the case of an individual
who, as of the last day of the 30-day period beginning with the
date of birth, is covered under creditable coverage.
``(2) Exclusion not applicable to certain adopted
children.--Subject to paragraph (4), a group health plan may not
impose any preexisting condition exclusion in the case of a
child who is adopted or placed for adoption before attaining 18
years of age and who, as of the last day of the 30-day period
beginning on the date of the adoption or placement for adoption,
is covered under creditable coverage. The previous sentence
shall not apply to coverage before the date of such adoption or
placement for adoption.
``(3) Exclusion not applicable to pregnancy.--For purposes
of this section, a group health plan may not impose any
preexisting condition exclusion relating to pregnancy as a
preexisting condition.
``(4) Loss if break in coverage.--Paragraphs (1) and (2)
shall no longer apply to an individual after the end of the
first 63-day period during all of which the individual was not
covered under any creditable coverage.
``(e) Certifications and Disclosure of Coverage.--
``(1) Requirement for certification of period of
creditable coverage.--
``(A) In general.--A group health plan shall provide
the certification described in subparagraph (B)--
``(i) at the time an individual ceases to be
covered under the plan or otherwise becomes
covered under a COBRA continuation provision,
``(ii) in the case of an individual becoming
covered under such a provision, at the time the
individual ceases to be covered under such
provision, and
``(iii) on the request on behalf of an
individual made not later than 24 months after the
date of cessation of the coverage described in
clause (i) or (ii), whichever is later.
The certification under clause (i) may be provided, to
the extent practicable, at a time consistent with
notices required under any applicable COBRA continuation
provision.
``(B) Certification.--The certification described in
this subparagraph is a written certification of--
``(i) the period of creditable coverage of the
individual under such plan and the coverage under
such COBRA continuation provision, and
``(ii) the waiting period (if any) (and
affiliation period, if applicable) imposed with
respect to the individual for any coverage under
such plan.
``(C) Issuer compliance.--To the extent that medical
care under a group health plan consists of health
insurance coverage offered in connection with the plan,
the plan is deemed to have satisfied the certification
requirement under this paragraph if the issuer provides
for such certification in accordance with this
paragraph.
``(2) Disclosure of information on previous benefits.--
``(A) In general.--In the case of an election
described in subsection (c)(3)(B) by a group health
plan, if the plan enrolls an individual for coverage
under the plan and the individual provides a
certification of coverage of the individual under
paragraph (1)--
``(i) upon request of such plan, the entity
which issued the certification provided by the
individual shall promptly disclose to such
requesting plan information on coverage of classes
and categories of health benefits available under
such entity's plan, and
``(ii) such entity may charge the requesting
plan or issuer for the reasonable cost of
disclosing such information.
``(3) Regulations.--The Secretary shall establish rules to
prevent an entity's failure to provide information under
paragraph (1) or (2) with respect to previous coverage of an
individual from adversely affecting any subsequent coverage of
the individual under another group health plan or health
insurance coverage.
``(f) Special Enrollment Periods.--
``(1) Individuals losing other coverage.--A group health
plan shall permit an employee who is eligible, but not enrolled,
for coverage under the terms of the plan (or a dependent of such
an employee if the dependent is eligible, but not enrolled, for
coverage under such terms) to enroll for coverage under the
terms of the plan if each of the following conditions is met:
``(A) The employee or dependent was covered under a
group health plan or had health insurance coverage at
the time coverage was previously offered to the employee
or individual.
``(B) The employee stated in writing at such time
that coverage under a group health plan or health
insurance coverage was the reason for declining
enrollment, but only if the plan sponsor (or the health
insurance issuer offering health insurance coverage in
connection with the plan) required such a statement at
such time and provided the employee with notice of such
requirement (and the consequences of such requirement)
at such time.
``(C) The employee's or dependent's coverage
described in subparagraph (A)--
``(i) was under a COBRA continuation provi-
sion and the coverage under such provision was
exhausted; or
``(ii) was not under such a provision and
either the coverage was terminated as a result of
loss of eligibility for the coverage (including as
a result of legal separation, divorce, death,
termination of employment, or reduction in the
number of hours of employment) or employer
contributions toward such coverage were
terminated.
``(D) Under the terms of the plan, the employee
requests such enrollment not later than 30 days after
the date of exhaustion of coverage described in
subparagraph (C)(i) or termination of coverage or
employer contribution described in subparagraph (C)(ii).
``(2) For dependent beneficiaries.--
``(A) In general.--If--
``(i) a group health plan makes coverage
available with respect to a dependent of an
individual,
``(ii) the individual is a participant under
the plan (or has met any waiting period applicable
to becoming a participant under the plan and is
eligible to be enrolled under the plan but for a
failure to enroll during a previous enrollment
period), and
``(iii) a person becomes such a dependent of
the individual through marriage, birth, or
adoption or placement for adoption,
the group health plan shall provide for a dependent
special enrollment period described in subparagraph (B)
during which the person (or, if not otherwise enrolled,
the individual) may be enrolled under the plan as a
dependent of the individual, and in the case of the
birth or adoption of a child, the spouse of the
individual may be enrolled as a dependent of the
individual if such spouse is otherwise eligible for
coverage.
``(B) Dependent special enrollment period.--The
dependent special enrollment period under this
subparagraph shall be a period of not less than 30 days
and shall begin on the later of--
``(i) the date dependent coverage is made
avail-
able, or
``(ii) the date of the marriage, birth, or
adoption or placement for adoption (as the case
may be) described in subparagraph (A)(iii).
``(C) No waiting period.--If an individual seeks
coverage of a dependent during the first 30 days of such
a dependent special enrollment period, the coverage of
the dependent shall become effective--
``(i) in the case of marriage, not later than
the first day of the first month beginning after
the date the completed request for enrollment is
received;
``(ii) in the case of a dependent's birth, as
of the date of such birth; or
``(iii) in the case of a dependent's adoption
or placement for adoption, the date of such
adoption or
placement for adoption.
``SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL
PARTICIPANTS AND BENEFICIARIES BASED
ON HEALTH STATUS.
``(a) In Eligibility to Enroll.--
``(1) In general.--Subject to paragraph (2), a group health
plan may not establish rules for eligibility (including
continued eligibility) of any individual to enroll under the
terms of the plan based on any of the following factors in
relation to the individual or a dependent of the individual:
``(A) Health status.
``(B) Medical condition (including both physical and
mental illnesses).
``(C) Claims experience.
``(D) Receipt of health care.
``(E) Medical history.
``(F) Genetic information.
``(G) Evidence of insurability (including conditions
arising out of acts of domestic violence).
``(H) Disability.
``(2) No application to benefits or exclusions.--To the
extent consistent with section 9801, paragraph (1) shall not be
construed--
``(A) to require a group health plan to provide
particular benefits (or benefits with respect to a
specific procedure, treatment, or service) other than
those provided under the terms of such plan; or
``(B) to prevent such a plan from establishing
limitations or restrictions on the amount, level,
extent, or nature of the benefits or coverage for
similarly situated individuals enrolled in the plan or
coverage.
``(3) Construction.--For purposes of paragraph (1), rules
for eligibility to enroll under a plan include rules defining
any applicable waiting periods for such enrollment.
``(b) In Premium Contributions.--
``(1) In general.--A group health plan may not require any
individual (as a condition of enrollment or continued enrollment
under the plan) to pay a premium or contribution which is
greater than such premium or contribution for a similarly
situated individual enrolled in the plan on the basis of any
factor described in subsection (a)(1) in relation to the
individual or to an individual enrolled under the plan as a
dependent of the individual.
``(2) Construction.--Nothing in paragraph (1) shall be
construed--
``(A) to restrict the amount that an employer may be
charged for coverage under a group health plan; or
``(B) to prevent a group health plan from
establishing premium discounts or rebates or modifying
otherwise applicable copayments or deductibles in return
for adherence to programs of health promotion and
disease prevention.
``SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND
CERTAIN MULTIPLE EMPLOYER WELFARE
ARRANGEMENTS.
``(a) In General.--A group health plan which is a multiemployer plan
(as defined in section 414(f)) or which is a multiple employer welfare
arrangement may not deny an employer continued access to the same or
different coverage under such plan, other than--
``(1) for nonpayment of contributions;
``(2) for fraud or other intentional misrepresentation of
material fact by the employer;
``(3) for noncompliance with material plan provisions;
``(4) because the plan is ceasing to offer any coverage in a
geographic area;
``(5) in the case of a plan that offers benefits through a
network plan, because there is no longer any individual enrolled
through the employer who lives, resides, or works in the service
area of the network plan and the plan applies this paragraph
uniformly without regard to the claims experience of employers
or a factor described in section 9802(a)(1) in relation to such
individuals or their dependents; or
``(6) for failure to meet the terms of an applicable
collective bargaining agreement, to renew a collective
bargaining or other agreement requiring or authorizing
contributions to the plan, or to employ employees covered by
such an agreement.
``(b) Multiple Employer Welfare Arrangement.--For purposes of
subsection (a), the term `multiple employer welfare arrangement' has the
meaning given such term by section 3(40) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of the enactment
of this section.
``SEC. 9804. GENERAL EXCEPTIONS.
``(a) Exception for Certain Plans.--The requirements of this chapter
shall not apply to--
``(1) any governmental plan, and
``(2) any group health plan for any plan year if, on the
first day of such plan year, such plan has less than 2
participants who are current employees.
``(b) Exception for Certain Benefits.--The requirements of this
chapter shall not apply to any group health plan in relation to its
provision of excepted benefits described in section 9805(c)(1).
``(c) Exception for Certain Benefits if Certain Conditions Met.--
``(1) Limited, excepted benefits.--The requirements of this
chapter shall not apply to any group health plan in relation to
its provision of excepted benefits described in section
9805(c)(2) if the benefits--
``(A) are provided under a separate policy,
certificate, or contract of insurance; or
``(B) are otherwise not an integral part of the
plan.
``(2) Noncoordinated, excepted benefits.--The requirements
of this chapter shall not apply to any group health plan in
relation to its provision of excepted benefits described in
section 9805(c)(3) if all of the following conditions are met:
``(A) The benefits are provided under a separate
policy, certificate, or contract of insurance.
``(B) There is no coordination between the provision
of such benefits and any exclusion of benefits under any
group health plan maintained by the same plan sponsor.
``(C) Such benefits are paid with respect to an
event without regard to whether benefits are provided
with respect to such an event under any group health
plan maintained by the same plan sponsor.
``(3) Supplemental excepted benefits.--The requirements of
this chapter shall not apply to any group health plan in
relation to its provision of excepted benefits described in
section 9805(c)(4) if the benefits are provided under a separate
policy, certificate, or contract of insurance.
``SEC. 9805. DEFINITIONS.
``(a) Group Health Plan.--For purposes of this chapter, the term
`group health plan' has the meaning given to such term by section
5000(b)(1).
``(b) Definitions Relating to Health Insurance.--For purposes of
this chapter--
``(1) Health insurance coverage.--
``(A) In general.--Except as provided in
subparagraph (B), the term `health insurance coverage'
means benefits consisting of medical care (provided
directly, through insurance or reimbursement, or
otherwise) under any hospital or medical service policy
or certificate, hospital or medical service plan
contract, or health maintenance organization contract
offered by a health insurance issuer.
``(B) No application to certain excepted benefits.--
In applying subparagraph (A), excepted benefits
described in subsection (c)(1) shall not be treated as
benefits consisting of medical care.
``(2) Health insurance issuer.--The term `health insurance
issuer' means an insurance company, insurance service, or
insurance organization (including a health maintenance
organization, as defined in paragraph (3)) which is licensed to
engage in the business of insurance in a State and which is
subject to State law which regulates insurance (within the
meaning of section 514(b)(2) of the Employee Retirement Income
Security Act of 1974, as in effect on the date of the enactment
of this section). Such term does not include a group health
plan.
``(3) Health maintenance organization.--The term `health
maintenance organization' means--
``(A) a federally qualified health maintenance
organization (as defined in section 1301(a) of the
Public Health Service Act (42 U.S.C. 300e(a))),
``(B) an organization recognized under State law as
a health maintenance organization, or
``(C) a similar organization regulated under State
law for solvency in the same manner and to the same
extent as such a health maintenance organization.
``(c) Excepted Benefits.--For purposes of this chapter, the term
`excepted benefits' means benefits under one or more (or any combination
thereof) of the following:
``(1) Benefits not subject to requirements.--
``(A) Coverage only for accident, or disability
income insurance, or any combination thereof.
``(B) Coverage issued as a supplement to liability
in-
surance.
``(C) Liability insurance, including general
liability insurance and automobile liability insurance.
``(D) Workers' compensation or similar insurance.
``(E) Automobile medical payment insurance.
``(F) Credit-only insurance.
``(G) Coverage for on-site medical clinics.
``(H) Other similar insurance coverage, specified in
regulations, under which benefits for medical care are
secondary or incidental to other insurance benefits.
``(2) Benefits not subject to requirements if offered
separately.--
``(A) Limited scope dental or vision benefits.
``(B) Benefits for long-term care, nursing home
care, home health care, community-based care, or any
combination thereof.
``(C) Such other similar, limited benefits as are
specified in regulations.
``(3) Benefits not subject to requirements if offered as
independent, noncoordinated benefits.--
``(A) Coverage only for a specified disease or
illness.
``(B) Hospital indemnity or other fixed indemnity
in-
surance.
``(4) Benefits not subject to requirements if offered as
separate insurance policy.--Medicare supplemental health
insurance (as defined under section 1882(g)(1) of the Social
Security Act), coverage supplemental to the coverage provided
under chapter 55 of title 10, United States Code, and similar
supplemental coverage provided to coverage under a group health
plan.
``(d) Other Definitions.--For purposes of this chapter--
``(1) COBRA continuation provision.--The term `COBRA
continuation provision' means any of the following:
``(A) Section 4980B, other than subsection (f)(1)
thereof insofar as it relates to pediatric vaccines.
``(B) Part 6 of subtitle B of title I of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1161 et seq.), other than section 609 of such
Act.
``(C) Title XXII of the Public Health Service Act.
``(2) Governmental plan.--The term `governmental plan' has
the meaning given such term by section 414(d).
``(3) Medical care.--The term `medical care' has the meaning
given such term by section 213(d) determined without regard to--
``(A) paragraph (1)(C) thereof, and
``(B) so much of paragraph (1)(D) thereof as relates
to qualified long-term care insurance.
``(4) Network plan.--The term `network plan' means health
insurance coverage of a health insurance issuer under which the
financing and delivery of medical care are provided, in whole or
in part, through a defined set of providers under contract with
the issuer.
``(5) Placed for adoption defined.--The term `placement', or
being `placed', for adoption, in connection with any placement
for adoption of a child with any person, means the assumption
and retention by such person of a legal obligation for total or
partial support of such child in anticipation of adoption of
such child. The child's placement with such person terminates
upon the termination of such legal obligation.
``SEC. 9806. REGULATIONS.
``The Secretary, consistent with section 104 of the Health Care
Portability and Accountability Act of 1996, may promulgate such
regulations as may be necessary or appropriate to carry out the
provisions of this chapter. The Secretary may promulgate any interim
final rules as the Secretary determines are appropriate to carry out
this chapter.''.
(b) Clerical Amendment.--The table of subtitles of such Code is
amended by adding at the end the following new item:
``Subtitle K. Group health plan portability, access, and renewability
requirements.''.
(c) Effective <<NOTE: 26 USC 9801 note.>> Date.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after June 30, 1997.
(2) Determination of creditable coverage.--
(A) Period of coverage.--
(i) In general.--Subject to clause (ii), no
period before July 1, 1996, shall be taken into
account under chapter 100 of the Internal Revenue
Code of 1986 (as added by this section) in
determining creditable coverage.
(ii) Special rule for certain periods.--The
Secretary of the Treasury, consistent with section
104, shall provide for a process whereby
individuals who need to establish creditable
coverage for periods before July 1, 1996, and who
would have such coverage credited but for clause
(i) may be given credit for creditable coverage
for such periods through the presentation of
documents or other means.
(B) Certifications, etc.--
(i) In general.--Subject to clauses (ii) and
(iii), subsection (e) of section 9801 of the
Internal Revenue Code of 1986 (as added by this
section) shall apply to events occurring after
June 30, 1996.
(ii) No certification required to be provided
before june 1, 1997.--In no case is a
certification required to be provided under such
subsection before June 1, 1997.
(iii) Certification only on written request
for events occurring before october 1, 1996.--In
the case of an event occurring after June 30,
1996, and before October 1, 1996, a certification
is not required to be provided under such
subsection unless an individual (with respect to
whom the certification is otherwise required to be
made) requests such certification in writing.
(C) Transitional rule.--In the case of an individual
who seeks to establish creditable coverage for any
period for which certification is not required because
it relates to an event occurring before June 30, 1996--
(i) the individual may present other credible
evidence of such coverage in order to establish
the period of creditable coverage; and
(ii) a group health plan and a health
insurance issuer shall not be subject to any
penalty or enforcement action with respect to the
plan's or issuer's crediting (or not crediting)
such coverage if the plan or issuer has sought to
comply in good faith with the applicable
requirements under the amendments made by this
section.
(3) Special rule for collective bargaining agreements.--
Except as provided in paragraph (2), in the case of a group
health plan maintained pursuant to 1 or more collective
bargaining agreements between employee representatives and one
or more employers ratified before the date of the enactment of
this Act, the amendments made by this section shall not apply to
plan years beginning before the later of--
(A) the date on which the last of the collective
bargaining agreements relating to the plan terminates
(determined without regard to any extension thereof
agreed to after the date of the enactment of this Act),
or
(B) July 1, 1997.
For purposes of subparagraph (A), any plan amendment made
pursuant to a collective bargaining agreement relating to the
plan which amends the plan solely to conform to any requirement
added by this section shall not be treated as a termination of
such collective bargaining agreement.
(4) Timely regulations.--The Secretary of the Treasury,
consistent with section 104, shall first issue by not later than
April 1, 1997, such regulations as may be necessary to carry out
the amendments made by this section.
(5) Limitation on actions.--No enforcement action shall be
taken, pursuant to the amendments made by this section, against
a group health plan or health insurance issuer with respect to a
violation of a requirement imposed by such amendments before
January 1, 1998, or, if later, the date of issuance of
regulations referred to in paragraph (4), if the plan or issuer
has sought to comply in good faith with such requirements.
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
REQUIREMENTS.
(a) In General.--Chapter 43 of the Internal Revenue Code of 1986
(relating to qualified pension, etc., plans) is amended by adding after
section 4980C the following new section:
``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
REQUIREMENTS.
``(a) General Rule.--There is hereby imposed a tax on any failure of
a group health plan to meet the requirements of chapter 100 (relating to
group health plan portability, access, and renewability requirements).
``(b) Amount of Tax.--
``(1) In general.--The amount of the tax imposed by
subsection (a) on any failure shall be $100 for each day in the
noncompliance period with respect to each individual to whom
such failure relates.
``(2) Noncompliance period.--For purposes of this section,
the term `noncompliance period' means, with respect to any
failure, the period--
``(A) beginning on the date such failure first
occurs, and
``(B) ending on the date such failure is corrected.
``(3) Minimum tax for noncompliance period where
failure discovered after notice of examination.--Notwithstanding
paragraphs (1) and (2) of subsection (c)--
``(A) In general.--In the case of 1 or more failures
with respect to an individual--
``(i) which are not corrected before the date
a notice of examination of income tax liability is
sent to the employer, and
``(ii) which occurred or continued during the
period under examination,
the amount of tax imposed by subsection (a) by reason of
such failures with respect to such individual shall not
be less than the lesser of $2,500 or the amount of tax
which would be imposed by subsection (a) without regard
to such paragraphs.
``(B) Higher minimum tax where violations are more
than de minimis.--To the extent violations for which any
person is liable under subsection (e) for any year are
more than de minimis, subparagraph (A) shall be applied
by substituting `$15,000' for `$2,500' with respect to
such person.
``(C) Exception for church plans.--This paragraph
shall not apply to any failure under a church plan (as
defined in section 414(e)).
``(c) Limitations on Amount of Tax.--
``(1) Tax not to apply where failure not discovered
exercising reasonable diligence.--No tax shall be imposed by
subsection (a) on any failure during any period for which it is
established to the satisfaction of the Secretary that the person
otherwise liable for such tax did not know, and exercising
reasonable diligence would not have known, that such failure
existed.
``(2) Tax not to apply to failures corrected within certain
periods.--No tax shall be imposed by subsection (a) on any
failure if--
``(A) such failure was due to reasonable cause and
not to willful neglect, and
``(B)(i) in the case of a plan other than a church
plan (as defined in section 414(e)), such failure is
corrected during the 30-day period beginning on the
first date the person otherwise liable for such tax
knew, or exercising reasonable diligence would have
known, that such failure existed, and
``(ii) in the case of a church plan (as so defined),
such failure is corrected before the close of the
correction period (determined under the rules of section
414(e)(4)(C)).
``(3) Overall limitation for unintentional failures.--In the
case of failures which are due to reasonable cause and not to
willful neglect--
``(A) Single employer plans.--
``(i) In general.--In the case of failures
with respect to plans other than specified
multiple employer health plans, the tax imposed by
subsection (a) for failures during the taxable
year of the employer shall not exceed the amount
equal to the lesser of--
``(I) 10 percent of the aggregate
amount paid or incurred by the employer
(or predecessor employer) during the
preceding taxable year for group health
plans, or
``(II) $500,000.
``(ii) Taxable years in the case of certain
controlled groups.--For purposes of this
subparagraph, if not all persons who are treated
as a single employer for purposes of this section
have the same taxable year, the taxable years
taken into account shall be determined under
principles similar to the principles of section
1561.
``(B) Specified multiple employer health plans.--
``(i) In general.--In the case of failures
with respect to a specified multiple employer
health plan, the tax imposed by subsection (a) for
failures during the taxable year of the trust
forming part of such plan shall not exceed the
amount equal to the
lesser of--
``(I) 10 percent of the amount paid
or incurred by such trust during such
taxable year to provide medical care (as
defined in section 9805(d)(3)) directly
or through insurance, reimbursement, or
otherwise, or
``(II) $500,000.
For purposes of the preceding sentence, all plans
of which the same trust forms a part shall be
treated as one plan.
``(ii) Special rule for employers required to
pay tax.--If an employer is assessed a tax imposed
by subsection (a) by reason of a failure with
respect to a specified multiple employer health
plan, the limit shall be determined under
subparagraph (A) (and not under this subparagraph)
and as if such plan were not a specified multiple
employer health plan.
``(4) Waiver by secretary.--In the case of a failure which
is due to reasonable cause and not to willful neglect, the
Secretary may waive part or all of the tax imposed by subsection
(a) to the extent that the payment of such tax would be
excessive relative to the failure involved.
``(d) Tax Not To Apply to Certain Insured Small Employer Plans.--
``(1) In general.--In the case of a group health plan of a
small employer which provides health insurance coverage solely
through a contract with a health insurance issuer, no tax shall
be imposed by this section on the employer on any failure which
is solely because of the health insurance coverage offered by
such issuer.
``(2) Small employer.--
``(A) In general.--For purposes of paragraph (1),
the term `small employer' means, with respect to a
calendar year and a plan year, an employer who employed
an average of at least 2 but not more than 50 employees
on business days during the preceding calendar year and
who employs at least 2 employees on the first day of the
plan year. For purposes of the preceding sentence, all
persons treated as a single employer under subsection
(b), (c), (m), or (o) of section 414 shall be treated as
one employer.
``(B) Employers not in existence in preceding
year.--In the case of an employer which was not in
existence throughout the preceding calendar year, the
determination of whether such employer is a small
employer shall be based on the average number of
employees that it is reasonably expected such employer
will employ on business days in the current calendar
year.
``(C) Predecessors.--Any reference in this paragraph
to an employer shall include a reference to any
predecessor of such employer.
``(3) Health insurance coverage; health insurance issuer.--
For purposes of paragraph (1), the terms `health insurance
coverage' and `health insurance issuer' have the respective
meanings given such terms by section 9805.
``(e) Liability for Tax.--The following shall be liable for the tax
imposed by subsection (a) on a failure:
``(1) Except as otherwise provided in this subsection, the
employer.
``(2) In the case of a multiemployer plan, the plan.
``(3) In the case of a failure under section 9803 (relating
to guaranteed renewability) with respect to a plan described in
subsection (f)(2)(B), the plan.
``(f) Definitions.--For purposes of this section--
``(1) Group health plan.--The term `group health plan' has
the meaning given such term by section 9805(a).
``(2) Specified multiple employer health plan.--The term
`specified multiple employer health plan' means a group health
plan which is--
``(A) any multiemployer plan, or
``(B) any multiple employer welfare arrangement (as
defined in section 3(40) of the Employee Retirement
Income Security Act of 1974, as in effect on the date of
the enactment of this section).
``(3) Correction.--A failure of a group health plan shall be
treated as corrected if--
``(A) such failure is retroactively undone to the
extent possible, and
``(B) the person to whom the failure relates is
placed in a financial position which is as good as such
person would have been in had such failure not
occurred.''.
(b) Clerical Amendment.--The table of sections for chapter 43 of
such Code is amended by adding after the item relating to section 4980C
the following new item:
``Sec. 4980D. Failure to meet certain group health plan requirements.''.
(c) Effective <<NOTE: 26 USC 4980D note.>> Date.--The amendments
made by this section shall apply to failures under chapter 100 of the
Internal Revenue Code of 1986 (as added by section 401 of this Act).
Subtitle B--Clarification of Certain Continuation Coverage Requirements
SEC. 421. COBRA CLARIFICATIONS.
(a) Public Health Service Act.--
(1) Period of coverage.--Section 2202(2) of the Public
Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
(A) in subparagraph (A)--
(i) by transferring the sentence immediately
preceding clause (iv) so as to appear immediately
following such clause (iv); and
(ii) in the last sentence (as so
transferred)--
(I) by striking ``an individual''
and inserting ``a qualified
beneficiary'';
(II) by striking ``at the time of a
qualifying event described in section
2203(2)'' and inserting ``at any time
during the first 60 days of continuation
coverage under this title'';
(III) by striking ``with respect to
such event,''; and
(IV) by inserting ``(with respect to
all qualified beneficiaries)'' after
``29 months'';
(B) in subparagraph (D)(i), by inserting before ``,
or'' the following: ``(other than such an exclusion or
limitation which does not apply to (or is satisfied by)
such beneficiary by reason of chapter 100 of the
Internal Revenue Code of 1986, part 7 of subtitle B of
title I of the Employee Retirement Income Security Act
of 1974, or title XXVII of this Act)''; and
(C) in subparagraph (E), by striking ``at the time
of a qualifying event described in section 2203(2)'' and
inserting ``at any time during the first 60 days of
continuation coverage under this title''.
(2) Notices.--Section 2206(3) of the Public Health Service
Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the time
of a qualifying event described in section 2203(2)'' and
inserting ``at any time during the first 60 days of continuation
coverage under this title''.
(3) Birth or adoption of a child.--Section 2208(3)(A) of the
Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended
by adding at the end thereof the following new flush sentence:
``Such term shall also include a child who is born to or placed
for adoption with the covered employee during the period of
continuation coverage under this title.''.
(b) Employee Retirement Income Security Act of 1974.--
(1) Period of coverage.--Section 602(2) of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is
amended--
(A) in the last sentence of subparagraph (A)--
(i) by striking ``an individual'' and
inserting ``a qualified beneficiary'';
(ii) by striking ``at the time of a qualifying
event described in section 603(2)'' and inserting
``at any time during the first 60 days of
continuation coverage under this part'';
(iii) by striking ``with respect to such
event''; and
(iv) by inserting ``(with respect to all
qualified beneficiaries)'' after ``29 months'';
(B) in subparagraph (D)(i), by inserting before ``,
or'' the following: ``(other than such an exclusion or
limitation which does not apply to (or is satisfied by)
such beneficiary by reason of chapter 100 of the
Internal Revenue Code of 1986, part 7 of this subtitle,
or title XXVII of the Public Health Service Act)''; and
(C) in subparagraph (E), by striking ``at the time
of a qualifying event described in section 603(2)'' and
inserting ``at any time during the first 60 days of
continuation coverage under this part''.
(2) Notices.--Section 606(a)(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended by
striking ``at the time of a qualifying event described in
section 603(2)'' and inserting ``at any time during the first 60
days of continuation coverage under this part''.
(3) Birth or adoption of a child.--Section 607(3)(A) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1167(3)) is amended by adding at the end thereof the following
new flush sentence:
``Such term shall also include a child who is born to or placed
for adoption with the covered employee during the period of
continuation coverage under this part.''.
(c) Internal Revenue Code of 1986.--
(1) Period of coverage.--Section 4980B(f)(2)(B) of the
Internal Revenue Code of 1986 is amended--
(A) in the last sentence of clause (i)--
(i) by striking ``at the time of a qualifying
event described in paragraph (3)(B)'' and
inserting ``at any time during the first 60 days
of continuation coverage under this section'';
(ii) by striking ``with respect to such
event''; and
(iii) by inserting ``(with respect to all
qualified beneficiaries)'' after ``29 months'';
(B) in clause (iv)(I), by inserting before ``, or''
the following: ``(other than such an exclusion or
limitation which does not apply to (or is satisfied by)
such beneficiary by reason of chapter 100 of this title,
part 7 of subtitle B of title I of the Employee
Retirement Income Security
Act of 1974, or title XXVII of the Public Health Service
Act)''; and
(C) in clause (v), by striking ``at the time of a
qualifying event described in paragraph (3)(B)'' and
inserting ``at any time during the first 60 days of
continuation coverage under this section''.
(2) Notices.--Section 4980B(f)(6)(C) of the Internal
Revenue Code of 1986 is amended by striking ``at the time of a
qualifying event described in paragraph (3)(B)'' and inserting
``at any time during the first 60 days of continuation coverage
under this section''.
(3) Birth or adoption of a child.--Section 4980B(g)(1)(A) of
the Internal Revenue Code of 1986 is amended by adding at the
end thereof the following new flush sentence:
``Such term shall also include a child who is born
to or placed for adoption with the covered
employee during the period of continuation
coverage under this section.''.
(d) Effective <<NOTE: 26 USC 4980B note.>> Date.--The amendments
made by this section shall become effective on January 1, 1997,
regardless of whether the qualifying event occurred before, on, or after
such date.
(e) Notification <<NOTE: 26 USC 4980B note.>> of Changes.--Not
later than November 1, 1996, each group health plan (covered under title
XXII of the Public Health Service Act, part 6 of subtitle B of title I
of the Employee Retirement Income Security Act of 1974, and section
4980B(f) of the Internal Revenue Code of 1986) shall notify each
qualified beneficiary who has elected continuation coverage under such
title, part or section of the amendments made by this section.
TITLE V--REVENUE OFFSETS
SEC. 500. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be considered to
be made to a section or other provision of the Internal Revenue Code of
1986.
Subtitle A--Company-Owned Life Insurance
SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT
TO COMPANY-OWNED LIFE INSURANCE.
(a) In General.--Paragraph (4) of section 264(a) is amended--
(1) by inserting ``, or any endowment or annuity contracts
owned by the taxpayer covering any individual,'' after ``the
life of any individual'', and
(2) by striking all that follows ``carried on by the
taxpayer'' and inserting a period.
(b) Exception for Contracts Relating to Key Persons; Permissible
Interest Rates.--Section 264 is amended--
(1) by striking ``Any'' in subsection (a)(4) and inserting
``Except as provided in subsection (d), any'', and
(2) by adding at the end the following new subsection:
``(d) Special Rules For Application of Subsection (a)(4).--
``(1) Exception for key persons.--Subsection (a)(4) shall
not apply to any interest paid or accrued on any indebtedness
with respect to policies or contracts covering an individual who
is a key person to the extent that the aggregate amount of such
indebtedness with respect to policies and contracts covering
such individual does not exceed $50,000.
``(2) Interest rate cap on key persons and pre-1986
contracts.--
``(A) In general.--No deduction shall be allowed by
reason of paragraph (1) or the last sentence of
subsection (a) with respect to interest paid or accrued
for any month beginning after December 31, 1995, to the
extent the amount of such interest exceeds the amount
which would have been determined if the applicable rate
of interest were used for such month.
``(B) Applicable rate of interest.--For purposes of
subparagraph (A)--
``(i) In general.--The applicable rate of
interest for any month is the rate of interest
described as Moody's Corporate Bond Yield Average-
Monthly Average Corporates as published by Moody's
Investors
Service, Inc., or any successor thereto, for such
month.
``(ii) Pre-1986 contracts.--In the case of
indebtedness on a contract purchased on or before
June 20, 1986--
``(I) which is a contract providing
a fixed rate of interest, the applicable
rate of interest for any month shall be
the Moody's rate described in clause (i)
for the month in which the contract was
purchased, or
``(II) which is a contract providing
a variable rate of interest, the
applicable rate of interest for any
month in an applicable period shall be
such Moody's rate for the third month
preceding the first month in such
period.
For purposes of subclause (II), the taxpayer shall
elect an applicable period for such contract on
its return of tax imposed by this chapter for its
first taxable year ending on or after October 13,
1995. Such applicable period shall be for any
number of months (not greater than 12) specified
in the election and may not be changed by the
taxpayer without the consent of the Secretary.
``(3) Key person.--For purposes of paragraph (1), the term
`key person' means an officer or 20-percent owner, except that
the number of individuals who may be treated as key persons with
respect to any taxpayer shall not exceed the greater of--
``(A) 5 individuals, or
``(B) the lesser of 5 percent of the total officers
and employees of the taxpayer or 20 individuals.
``(4) 20-percent owner.--For purposes of this subsection,
the term `20-percent owner' means--
``(A) if the taxpayer is a corporation, any person
who owns directly 20 percent or more of the outstanding
stock of the corporation or stock possessing 20 percent
or more of the total combined voting power of all stock
of the corporation, or
``(B) if the taxpayer is not a corporation, any
person who owns 20 percent or more of the capital or
profits interest in the employer.
``(5) Aggregation rules.--
``(A) In general.--For purposes of paragraph (4)(A)
and applying the $50,000 limitation in paragraph (1)--
``(i) all members of a controlled group shall
be treated as one taxpayer, and
``(ii) such limitation shall be allocated
among the members of such group in such manner as
the Secretary may prescribe.
``(B) Controlled group.--For purposes of this
paragraph, all persons treated as a single employer
under subsection (a) or (b) of section 52 or subsection
(m) or (o) of section 414 shall be treated as members of
a controlled group.''.
(c) Effective <<NOTE: 26 USC 264 note.>> Dates.--
(1) In general.--The amendments made by this section shall
apply to interest paid or accrued after October 13, 1995.
(2) Transition rule for existing indebtedness.--
(A) In general.--In the case of--
(i) indebtedness incurred before January 1,
1996, or
(ii) indebtedness incurred before January 1,
1997 with respect to any contract or policy
entered into in 1994 or 1995,
the amendments made by this section shall not apply to
qualified interest paid or accrued on such indebtedness
after October 13, 1995, and before January 1, 1999.
(B) Qualified interest.--For purposes of
subparagraph (A), the qualified interest with respect to
any indebtedness for any month is the amount of interest
(otherwise deductible) which would be paid or accrued
for such month on such indebtedness if--
(i) in the case of any interest paid or
accrued after December 31, 1995, indebtedness with
respect to no more than 20,000 insured individuals
were taken into account, and
(ii) the lesser of the following rates of
interest were used for such month:
(I) The rate of interest specified
under the terms of the indebtedness as
in effect on October 13, 1995 (and
without regard to modification of such
terms after such date).
(II) The applicable percentage of
the rate of interest described as
Moody's Corporate Bond Yield Average-
Monthly Average Corporates as published
by Moody's Investors Service, Inc., or
any successor thereto, for such month.
For purposes of clause (i), all persons treated as a
single employer under subsection (a) or (b) of section
52 of the Internal Revenue Code of 1986 or subsection
(m) or (o) of section 414 of such Code shall be treated
as 1 person. Subclause (II) of clause (ii) shall not
apply to any month before January 1, 1996.
(C) Applicable percentage.--For purposes of sub-
paragraph (B), the applicable percentage is as follows:
For calendar year: The percentage is:
1996........................................100 percent
1997.........................................90 percent
1998.........................................80 percent.
(3) Special rule for grandfathered contracts.--This section
shall not apply to any contract purchased on or before June 20,
1986, except that section 264(d)(2) of the Internal Revenue Code
of 1986 shall apply to interest paid or accrued after October
13, 1995.
(d) Spread of <<NOTE: 26 USC 264 note.>> Income Inclusion on
Surrender, Etc. of Contracts.--
(1) In general.--If any amount is received under any life
insurance policy or endowment or annuity contract described in
paragraph (4) of section 264(a) of the Internal Revenue Code of
1986--
(A) on the complete surrender, redemption, or
maturity of such policy or contract during calendar year
1996, 1997, or 1998, or
(B) in full discharge during any such calendar year
of the obligation under the policy or contract which is
in the nature of a refund of the consideration paid for
the policy or contract,
then (in lieu of any other inclusion in gross income) such
amount shall be includible in gross income ratably over the 4-
taxable year period beginning with the taxable year such amount
would (but for this paragraph) be includible. The preceding
sentence shall only apply to the extent the amount is includible
in gross income for the taxable year in which the event
described in subparagraph (A) or (B) occurs.
(2) Special rules for applying section 264.--A contract
shall not be treated as--
(A) failing to meet the requirement of section
264(c)(1) of the Internal Revenue Code of 1986, or
(B) a single premium contract under section
264(b)(1) of such Code,
solely by reason of an occurrence described in subparagraph (A)
or (B) of paragraph (1) of this subsection or solely by reason
of no additional premiums being received under the contract by
reason of a lapse occurring after October 13, 1995.
(3) Special rule for deferred acquisition costs.--In the
case of the occurrence of any event described in subparagraph
(A) or (B) of paragraph (1) of this subsection with respect to
any policy or contract--
(A) section 848 of the Internal Revenue Code of 1986
shall not apply to the unamortized balance (if any) of
the specified policy acquisition expenses attributable
to such policy or contract immediately before the
insurance company's taxable year in which such event
occurs, and
(B) there shall be allowed as a deduction to such
company for such taxable year under chapter 1 of such
Code an amount equal to such unamortized balance.
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON
INDIVIDUALS WHO LOSE UNITED STATES
CITIZENSHIP.
(a) In General.--Subsection (a) of section 877 is amended to read as
follows:
``(a) Treatment of Expatriates.--
``(1) In general.--Every nonresident alien individual who,
within the 10-year period immediately preceding the close of the
taxable year, lost United States citizenship, unless such loss
did not have for one of its principal purposes the avoidance of
taxes under this subtitle or subtitle B, shall be taxable for
such taxable year in the manner provided in subsection (b) if
the tax imposed pursuant to such subsection exceeds the tax
which, without regard to this section, is imposed pursuant to
section 871.
``(2) Certain individuals treated as having tax avoidance
purpose.--For purposes of paragraph (1), an individual shall be
treated as having a principal purpose to avoid such taxes if--
``(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period
of 5 taxable years ending before the date of the loss of
United States citizenship is greater than $100,000, or
``(B) the net worth of the individual as of such
date is $500,000 or more.
In the case of the loss of United States citizenship in any
calendar year after 1996, such $100,000 and $500,000 amounts
shall be increased by an amount equal to such dollar amount
multiplied by the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting `1994'
for `1992' in subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$1,000.''.
(b) Exceptions.--
(1) In general.--Section 877 is amended by striking
subsection (d), by redesignating subsection (c) as subsection
(d), and by inserting after subsection (b) the following new
subsection:
``(c) Tax Avoidance Not Presumed in Certain Cases.--
``(1) In general.--Subsection (a)(2) shall not apply to an
individual if--
``(A) such individual is described in a subparagraph
of paragraph (2) of this subsection, and
``(B) within the 1-year period beginning on the date
of the loss of United States citizenship, such
individual submits a ruling request for the Secretary's
determination as to whether such loss has for one of its
principal purposes the avoidance of taxes under this
subtitle or subtitle B.
``(2) Individuals described.--
``(A) Dual citizenship, etc.--An individual is
described in this subparagraph if--
``(i) the individual became at birth a citizen
of the United States and a citizen of another
country and continues to be a citizen of such
other country, or
``(ii) the individual becomes (not later than
the close of a reasonable period after loss of
United States citizenship) a citizen of the
country in which--
``(I) such individual was born,
``(II) if such individual is
married, such indi-
vidual's spouse was born, or
``(III) either of such individual's
parents were born.
``(B) Long-term foreign residents.--An individual is
described in this subparagraph if, for each year in the
10-year period ending on the date of loss of United
States citizenship, the individual was present in the
United States for 30 days or less. The rule of section
7701(b)(3)(D)(ii) shall apply for purposes of this
subparagraph.
``(C) Renunciation upon reaching age of majority.--
An individual is described in this subparagraph if the
individual's loss of United States citizenship occurs
before such individual attains age 18\1/2\.
``(D) Individuals specified in regulations.--An
individual is described in this subparagraph if the
indi-
vidual is described in a category of individuals
prescribed by regulation by the Secretary.''.
(2) Technical amendment.--Paragraph (1) of section 877(b) of
such Code is amended by striking ``subsection (c)'' and
inserting ``subsection (d)''.
(c) Treatment of Property Disposed of in Nonrecognition
Transactions; Treatment of Distributions From Certain Controlled Foreign
Corporations.--Subsection (d) of section 877, as redesignated by
subsection (b), is amended to read as follows:
``(d) Special Rules for Source, Etc.--For purposes of subsection
(b)--
``(1) Source rules.--The following items of gross income
shall be treated as income from sources within the United
States:
``(A) Sale of property.--Gains on the sale or
exchange of property (other than stock or debt
obligations) located in the United States.
``(B) Stock or debt obligations.--Gains on the sale
or exchange of stock issued by a domestic corporation or
debt obligations of United States persons or of the
United States, a State or political subdivision thereof,
or the District of Columbia.
``(C) Income or gain derived from controlled
foreign corporation.--Any income or gain derived from
stock in a foreign corporation but only--
``(i) if the individual losing United States
citizenship owned (within the meaning of section
958(a)), or is considered as owning (by applying
the ownership rules of section 958(b)), at any
time during the 2-year period ending on the date
of the loss of United States citizenship, more
than 50 percent of--
``(I) the total combined voting
power of all classes of stock entitled
to vote of such corpora-
tion, or
``(II) the total value of the stock
of such corporation, and
``(ii) to the extent such income or gain does
not exceed the earnings and profits attributable
to such stock which were earned or accumulated
before the loss of citizenship and during periods
that the ownership requirements of clause (i) are
met.
``(2) Gain recognition on certain exchanges.--
``(A) In general.--In the case of any exchange of
property to which this paragraph applies,
notwithstanding any other provision of this title, such
property shall be treated as sold for its fair market
value on the date of such exchange, and any gain shall
be recognized for the taxable year which includes such
date.
``(B) Exchanges to which paragraph applies.--This
paragraph shall apply to any exchange during the 10-year
period described in subsection (a) if--
``(i) gain would not (but for this paragraph)
be recognized on such exchange in whole or in part
for purposes of this subtitle,
``(ii) income derived from such property was
from sources within the United States (or, if no
income was so derived, would have been from such
sources), and
``(iii) income derived from the property
acquired in the exchange would be from sources
outside the United States.
``(C) Exception.--Subparagraph (A) shall not apply
if the individual enters into an agreement with the
Secretary which specifies that any income or gain
derived from the property acquired in the exchange (or
any other property which has a basis determined in whole
or part by reference to such property) during such 10-
year period shall be treated as from sources within the
United States. If the property transferred in the
exchange is disposed of by the person acquiring such
property, such agreement shall terminate and any gain
which was not recognized by reason of such agreement
shall be recognized as of the date of such disposition.
``(D) Secretary may extend period.--To the extent
provided in regulations prescribed by the Secretary,
subparagraph (B) shall be applied by substituting the
15-year period beginning 5 years before the loss of
United States citizenship for the 10-year period
referred to therein.
``(E) Secretary may require recognition of gain in
certain cases.--To the extent provided in regulations
prescribed by the Secretary--
``(i) the removal of appreciated tangible
personal property from the United States, and
``(ii) any other occurrence which (without
recognition of gain) results in a change in the
source of the income or gain from property from
sources within the United States to sources
outside the United States,
shall be treated as an exchange to which this paragraph
applies.
``(3) Substantial diminishing of risks of ownership.--For
purposes of determining whether this section applies to any gain
on the sale or exchange of any property, the running of the 10-
year period described in subsection (a) shall be
suspended for any period during which the individual's risk of
loss with respect to the property is substantially diminished
by--
``(A) the holding of a put with respect to such
property (or similar property),
``(B) the holding by another person of a right to
acquire the property, or
``(C) a short sale or any other transaction.
``(4) Treatment of property contributed to controlled
foreign corporations.--
``(A) In general.--If--
``(i) an individual losing United States
citizenship contributes property to any
corporation which, at the time of the
contribution, is described in subparagraph (B),
and
``(ii) income derived from such property was
from sources within the United States (or, if no
income was so derived, would have been from such
sources),
during the 10-year period referred to in subsection (a),
any income or gain on such property (or any other
property which has a basis determined in whole or part
by reference to such property) received or accrued by
the corporation shall be treated as received or accrued
directly by such individual and not by such corporation.
The preceding sentence shall not apply to the extent the
property has been treated under subparagraph (C) as
having been sold by such corporation.
``(B) Corporation described.--A corporation is
described in this subparagraph with respect to an
individual if, were such individual a United States
citizen--
``(i) such corporation would be a controlled
foreign corporation (as defined in 957), and
``(ii) such individual would be a United
States shareholder (as defined in section 951(b))
with respect to such corporation.
``(C) Disposition of stock in corporation.--If stock
in the corporation referred to in subparagraph (A) (or
any other stock which has a basis determined in whole or
part by reference to such stock) is disposed of during
the 10-year period referred to in subsection (a) and
while the property referred to in subparagraph (A) is
held by such corporation, a pro rata share of such
property (determined on the basis of the value of such
stock) shall be treated as sold by the corporation
immediately before such disposition.
``(D) Anti-abuse rules.--The Secretary shall
prescribe such regulations as may be necessary to
prevent the avoidance of the purposes of this paragraph,
including where--
``(i) the property is sold to the corporation,
and
``(ii) the property taken into account under
subparagraph (A) is sold by the corporation.
``(E) Information reporting.--The Secretary shall
require such information reporting as is necessary to
carry out the purposes of this paragraph.''.
(d) Credit for Foreign Taxes Imposed on United States Source
Income.--
(1) Subsection (b) of section 877 is amended by adding at
the end the following new sentence: ``The tax imposed solely by
reason of this section shall be reduced (but not below zero) by
the amount of any income, war profits, and excess profits taxes
(within the meaning of section 903) paid to any foreign country
or possession of the United States on any income of the taxpayer
on which tax is imposed solely by reason of this section.''
(2) Subsection (a) of section 877, as amended by subsection
(a), is amended by inserting ``(after any reduction in such tax
under the last sentence of such subsection)'' after ``such
subsection''.
(e) Comparable Estate and Gift Tax Treatment.--
(1) Estate tax.--
(A) In general.--Subsection (a) of section 2107 is
amended to read as follows:
``(a) Treatment of Expatriates.--
``(1) Rate of tax.--A tax computed in accordance with the
table contained in section 2001 is hereby imposed
on the transfer of the taxable estate, determined as provided in section
2106, of every decedent nonresident not a citizen of the United States
if, within the 10-year period ending with the date of death, such
decedent lost United States citizenship, unless such loss did not have
for one of its principal purposes the avoidance of taxes under this
subtitle or subtitle A.
``(2) Certain individuals treated as having tax
avoidance purpose.--
``(A) In general.--For purposes of paragraph (1), an
individual shall be treated as having a principal
purpose to avoid such taxes if such individual is so
treated under section 877(a)(2).
``(B) Exception.--Subparagraph (A) shall not apply
to a decedent meeting the requirements of section
877(c)(1).''.
(B) Credit for foreign death taxes.--Subsection (c)
of section 2107 is amended by redesignating paragraph
(2) as paragraph (3) and by inserting after paragraph
(1) the following new paragraph:
``(2) Credit for foreign death taxes.--
``(A) In general.--The tax imposed by subsection (a)
shall be credited with the amount of any estate,
inheritance, legacy, or succession taxes actually paid
to any foreign country in respect of any property which
is included in the gross estate solely by reason of
subsection (b).
``(B) Limitation on credit.--The credit allowed by
subparagraph (A) for such taxes paid to a foreign
country shall not exceed the lesser of--
``(i) the amount which bears the same ratio to
the amount of such taxes actually paid to such
foreign country in respect of property included in
the gross estate as the value of the property
included in the gross estate solely by reason of
subsection (b) bears to the value of all property
subjected to such taxes by such foreign country,
or
``(ii) such property's proportionate share of
the excess of--
``(I) the tax imposed by subsection
(a), over
``(II) the tax which would be
imposed by section 2101 but for this
section.
``(C) Proportionate share.--For purposes of
subparagraph (B), a property's proportionate share is
the percentage of the value of the property which is
included in the gross estate solely by reason of
subsection (b) bears to the total value of the gross
estate.''.
(C) Expansion of inclusion in gross estate of stock
of foreign corporations.--Paragraph (2) of section
2107(b) is amended by striking ``more than 50 per-
cent of'' and all that follows and inserting ``more than
50 percent of--
``(A) the total combined voting power of all classes
of stock entitled to vote of such corporation, or
``(B) the total value of the stock of such
corporation,''.
(2) Gift tax.--
(A) In general.--Paragraph (3) of section 2501(a) is
amended to read as follows:
``(3) Exception.--
``(A) Certain individuals.--Paragraph (2) shall not
apply in the case of a donor who, within the 10-year
period ending with the date of transfer, lost United
States citizenship, unless such loss did not have for
one of its principal purposes the avoidance of taxes
under this subtitle or subtitle A.
``(B) Certain individuals treated as having tax
avoidance purpose.--For purposes of subparagraph (A), an
individual shall be treated as having a
principal purpose to avoid such taxes if such individual is so treated
under section 877(a)(2).
``(C) Exception for certain individuals.--
Subparagraph (B) shall not apply to a decedent meeting
the requirements of section 877(c)(1).
``(D) Credit for foreign gift taxes.--The tax
imposed by this section solely by reason of this
paragraph shall be credited with the amount of any gift
tax actually paid to any foreign country in respect of
any gift which is taxable under this section solely by
reason of this paragraph.''.
(f) Comparable Treatment of Lawful Permanent Residents Who Cease To
Be Taxed as Residents.--
(1) In general.--Section 877 is amended by redesignating
subsection (e) as subsection (f) and by inserting after
subsection (d) the following new subsection:
``(e) Comparable Treatment of Lawful Permanent Residents Who Cease
To Be Taxed as Residents.--
``(1) In general.--Any long-term resident of the United
States who--
``(A) ceases to be a lawful permanent resident of
the United States (within the meaning of section
7701(b)(6)), or
``(B) commences to be treated as a resident of a
foreign country under the provisions of a tax treaty
between the United States and the foreign country and
who does not waive the benefits of such treaty
applicable to residents of the foreign country,
shall be treated for purposes of this section and sections 2107,
2501, and 6039F in the same manner as if such resident were a
citizen of the United States who lost United States citizenship
on the date of such cessation or commencement.
``(2) Long-term resident.--For purposes of this subsection,
the term `long-term resident' means any individual (other than a
citizen of the United States) who is a lawful permanent resident
of the United States in at least 8 taxable years during the
period of 15 taxable years ending with the taxable year during
which the event described in subparagraph (A) or (B) of
paragraph (1) occurs. For purposes of the preceding sentence, an
individual shall not be treated as a lawful permanent resident
for any taxable year if such individual is treated as a resident
of a foreign country for the taxable year under the provisions
of a tax treaty between the United States and the foreign
country and does not waive the benefits of such treaty
applicable to residents of the foreign country.
``(3) Special rules.--
``(A) Exceptions not to apply.--Subsection (c) shall
not apply to an individual who is treated as provided in
paragraph (1).
``(B) Step-up in basis.--Solely for purposes of
determining any tax imposed by reason of this
subsection, property which was held by the long-term
resident on the date the individual first became a
resident of the United States shall be treated as having
a basis on such date of not less than the fair market
value of such property on such date. The preceding
sentence shall not apply if the individual elects not to
have such sentence apply. Such an election, once made,
shall be irrevocable.
``(4) Authority to exempt individuals.--This subsection
shall not apply to an individual who is described in a category
of individuals prescribed by regulation by the Secretary.
``(5) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out this subsection,
including regulations providing for the application of this
subsection in cases where an alien individual becomes a resident
of the United States during the 10-year period after being
treated as provided in paragraph (1).''.
(2) Conforming amendments.--
(A) Section 2107 is amended by striking subsection
(d), by redesignating subsection (e) as subsection (d),
and by inserting after subsection (d) (as so
redesignated) the following new subsection:
``(e) Cross Reference.--
``For comparable treatment of long-term lawful permanent
residents who ceased to be taxed as residents,
see section 877(e).''.
(B) Paragraph (3) of section 2501(a) (as amended by
subsection (e)) is amended by adding at the end the
following new subparagraph:
``(E) Cross reference.--
``For comparable treatment of long-term lawful permanent
residents who ceased to be taxed as residents,
see section 877(e).''.
(g) Effective <<NOTE: 26 USC 877 note.>> Date.--
(1) In general.--The amendments made by this section shall
apply to--
(A) individuals losing United States citizenship
(within the meaning of section 877 of the Internal
Revenue Code of 1986) on or after February 6, 1995, and
(B) long-term residents of the United States with
respect to whom an event described in subparagraph (A)
or (B) of section 877(e)(1) of such Code occurs on or
after February 6, 1995.
(2) Ruling requests.--In no event shall the 1-year period
referred to in section 877(c)(1)(B) of such Code, as amended by
this section, expire before the date which is 90 days after the
date of the enactment of this Act.
(3) Special rule.--
(A) In general.--In the case of an individual who
performed an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the
Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-
(4)) before February 6, 1995, but who did not, on or
before such date, furnish to the United States
Department of State a signed statement of voluntary
relinquishment of United States nationality confirming
the performance of such act, the amendments made by this
section and section 512 shall apply to such individual
except that the 10-year period described in section
877(a) of such Code shall not expire before the end of
the 10-year period beginning on the date such statement
is so furnished.
(B) Exception.--Subparagraph (A) shall not apply if
the individual establishes to the satisfaction of the
Secretary of the Treasury that such loss of United
States citizenship occurred before February 6, 1994.
SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
CITIZENSHIP.
(a) In General.--Subpart A of part III of subchapter A of chapter 61
is amended by inserting after section 6039E the following new section:
``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
CITIZENSHIP.
``(a) In General.--Notwithstanding any other provision of law, any
individual who loses United States citizenship (within
the meaning of section 877(a)) shall provide a statement which includes
the information described in subsection (b). Such statement shall be--
``(1) provided not later than the earliest date of any act
referred to in subsection (c), and
``(2) provided to the person or court referred to in
subsection (c) with respect to such act.
``(b) Information To Be Provided.--Information required under
subsection (a) shall include--
``(1) the taxpayer's TIN,
``(2) the mailing address of such individual's principal
foreign residence,
``(3) the foreign country in which such individual is
residing,
``(4) the foreign country of which such individual is a
citizen,
``(5) in the case of an individual having a net worth of at
least the dollar amount applicable under section 877(a)(2)(B),
information detailing the assets and liabilities of such
individual, and
``(6) such other information as the Secretary may prescribe.
``(c) Acts Described.--For purposes of this section, the acts
referred to in this subsection are--
``(1) the individual's renunciation of his United States
nationality before a diplomatic or consular officer of the
United States pursuant to paragraph (5) of section 349(a) of the
Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
``(2) the individual's furnishing to the United States
Department of State a signed statement of voluntary
relinquishment of United States nationality confirming the
performance of an act of expatriation specified in paragraph
(1), (2), (3), or (4) of section 349(a) of the Immigration and
Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
``(3) the issuance by the United States Department of State
of a certificate of loss of nationality to the individual, or
``(4) the cancellation by a court of the United States of a
naturalized citizen's certificate of naturalization.
``(d) Penalty.--Any individual failing to provide a statement
required under subsection (a) shall be subject to a penalty for each
year (of the 10-year period beginning on the date of loss of United
States citizenship) during any portion of which such failure continues
in an amount equal to the greater of--
``(1) 5 percent of the tax required to be paid under section
877 for the taxable year ending during such year, or
``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not
to willful neglect.
``(e) Information To Be Provided to Secretary.--Notwithstanding any
other provision of law--
``(1) any Federal agency or court which collects (or is
required to collect) the statement under subsection (a) shall
provide to the Secretary--
``(A) a copy of any such statement, and
``(B) the name (and any other identifying
information) of any individual refusing to comply with
the provisions of subsection (a),
``(2) the Secretary of State shall provide to the Secretary
a copy of each certificate as to the loss of American
nationality under section 358 of the Immigration and Nationality
Act which is approved by the Secretary of State, and
``(3) the Federal agency primarily responsible for
administering the immigration laws shall provide to the
Secretary the name of each lawful permanent resident of the
United States (within the meaning of section 7701(b)(6)) whose
status as such has been revoked or has been administratively or
judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days after
the close of each calendar quarter, the Secretary shall publish in the
Federal Register the name of each individual losing United States
citizenship (within the meaning of section 877(a)) with respect to whom
the Secretary receives information under the preceding sentence during
such quarter.
``(f) Reporting by Long-Term Lawful Permanent Residents Who Cease To
Be Taxed as Residents.--In lieu of applying the last sentence of
subsection (a), any individual who is required to provide a statement
under this section by reason of section 877(e)(1) shall provide such
statement with the return of tax imposed by chapter 1 for the taxable
year during which the event described in such section occurs.
``(g) Exemption.--The Secretary may by regulations exempt any class
of individuals from the requirements of this section if he determines
that applying this section to such individuals is not necessary to carry
out the purposes of this section.''.
(b) Clerical Amendment.--The table of sections for such subpart A is
amended by inserting after the item relating to section 6039E the
following new item:
``Sec. 6039F. Information on individuals losing United States
citizenship.''.
(c) Effective <<NOTE: 26 USC 6039F note.>> Date.--The amendments
made by this section shall apply to--
(1) individuals losing United States citizenship (within the
meaning of section 877 of the Internal Revenue Code of 1986) on
or after February 6, 1995, and
(2) long-term residents of the United States with respect to
whom an event described in subparagraph (A) or (B) of section
877(e)(1) of such Code occurs on or after such date.
In no event shall any statement required by such amendments be due
before the 90th day after the date of the enactment of this Act.
SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND
RESIDENTS LIVING ABROAD.
Not later than 90 days after the date of the enactment of this Act,
the Secretary of the Treasury shall prepare and submit to the Committee
on Ways and Means of the House of Representatives and the Committee on
Finance of the Senate a report--
(1) describing the compliance with subtitle A of the
Internal Revenue Code of 1986 by citizens and lawful permanent
residents of the United States (within the meaning of section
7701(b)(6) of such Code) residing outside the United States, and
(2) recommending measures to improve such compliance
(including improved coordination between executive branch
agencies).
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
Allocation Rules
SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO
INTEREST ALLOCATION RULES.
(a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform
Act of 1986 (Public Law 99-514, 100 Stat. 2548) <<NOTE: 26 USC 864
note.>> is hereby repealed.
(b) Effective <<NOTE: 26 USC 864 note.>> Date.--
(1) In general.--The amendment made by this section shall
apply to taxable years beginning after December 31, 1995.
(2) Special rule.--In the case of the first taxable year
beginning after December 31, 1995, the pre-effective date
portion of the interest expense of the corporation referred to
in such paragraph (5) of such section 1215(c) for such taxable
year shall be allocated and apportioned without regard to such
amendment. For purposes of the preceding sentence, the pre-
effective date portion is the amount which bears the same ratio
to the interest expense for such taxable year as the number of
days during such taxable year before the date of the enactment
of this Act bears to 366.
Approved August 21, 1996.
LEGISLATIVE HISTORY--H.R. 3103 (S. 1028) (S. 1698):
---------------------------------------------------------------------------
HOUSE REPORTS: Nos. 104-496, Pt. 1 (Comm. on Ways and Means) and 104-736
(Comm. of Conference).
SENATE REPORTS: No. 104-156 accompanying S. 1028 (Comm. on Labor and
Human Resources).
CONGRESSIONAL RECORD, Vol. 142 (1996):
Mar. 28, considered and passed House.
Apr. 18, 23, considered and passed Senate, amended, in lieu
of S. 1028.
Aug. 1, House agreed to conference report.
Aug. 2, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
Aug. 21, Presidential remarks and statement.
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