S. 1698 (104th): Health Insurance Reform Act of 1996

104th Congress, 1995–1996. Text as of Apr 25, 1996 (Placed on Calendar in the Senate).

Status & Summary | PDF | Source: GPO

S 1698 PCS

Calendar No. 379

104th CONGRESS

2d Session

S. 1698

Entitled the ‘Health Insurance Reform Act of 1996’.

IN THE SENATE OF THE UNITED STATES

April 24, 1996

Mr. DASCHLE introduced the following bill; which was read the first time

April 25, 1996

Read the second time and placed on the calendar


A BILL

Entitled the ‘Health Insurance Reform Act of 1996’.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Health Insurance Reform Act of 1996’.

    (b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

      Sec. 1. Short title; table of contents.

      Sec. 2. Definitions.

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

Subtitle A--Group Market Rules

      Sec. 101. Guaranteed availability of health coverage.

      Sec. 102. Guaranteed renewability of health coverage.

      Sec. 103. Portability of health coverage and limitation on preexisting condition exclusions.

      Sec. 104. Special enrollment periods.

      Sec. 105. Disclosure of information.

Subtitle B--Individual Market Rules

      Sec. 110. Individual health plan portability.

      Sec. 111. Guaranteed renewability of individual health coverage.

      Sec. 112. State flexibility in individual market reforms.

      Sec. 113. Definition.

Subtitle C--COBRA Clarifications

      Sec. 121. COBRA clarifications.

Subtitle D--Private Health Plan Purchasing Cooperatives

      Sec. 131. Private health plan purchasing cooperatives.

TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

      Sec. 201. Applicability.

      Sec. 202. Enforcement of standards.

TITLE III--MISCELLANEOUS PROVISIONS

      Sec. 301. HMOs allowed to offer plans with deductibles to individuals with medical savings accounts.

      Sec. 302. Health coverage availability study.

      Sec. 303. Reimbursement of telemedicine.

      Sec. 304. Sense of the Committee concerning medicare.

      Sec. 305. Parity for mental health services.

      Sec. 306. Waiver of foreign country residence requirement with respect to international medical graduates.

      Sec. 307. Organ and tissue donation information included with income tax refund payments.

      Sec. 308. Sense of the Senate regarding adequate health care coverage for all children and pregnant women.

      Sec. 309. Sense of the Senate regarding available treatments.

      Sec. 310. Medical volunteers.

      Sec. 311. Effective date.

      Sec. 312. Severability.

TITLE IV--TAX-RELATED HEALTH PROVISIONS

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

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

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

Subtitle B--Long-Term Care Provisions

Chapter 1--Long-Term Care Services and Contracts

SUBCHAPTER A--GENERAL PROVISIONS

      Sec. 411. Treatment of long-term care insurance.

      Sec. 412. Qualified long-term care services treated as medical care.

      Sec. 413. Certain exchanges of life insurance contracts for qualified long-term care insurance contracts not taxable.

      Sec. 414. Exception from penalty tax for amounts withdrawn from certain retirement plans for qualified long-term care insurance.

      Sec. 415. Reporting requirements.

SUBCHAPTER B--CONSUMER PROTECTION PROVISIONS

      Sec. 421. Policy requirements.

      Sec. 422. Requirements for issuers of long-term care insurance policies.

      Sec. 423. Coordination with State requirements.

      Sec. 424. Effective dates.

Chapter 2--Treatment Of Accelerated Death Benefits

      Sec. 431. Treatment of accelerated death benefits by recipient.

      Sec. 432. Tax treatment of companies issuing qualified accelerated death benefit riders.

Subtitle C--High-Risk Pools

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

Subtitle D--Penalty-Free IRA Distributions

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

Subtitle E--Revenue Offsets

Chapter 1--Treatment Of Individuals Who Expatriate

      Sec. 471. Revision of tax rules on expatriation.

      Sec. 472. Information on individuals expatriating.

      Sec. 473. Report on tax compliance by United States citizens and residents living abroad.

Chapter 2--Company-Owned Insurance

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

TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

      Sec. 500. Amendments.

Subtitle A--Fraud and Abuse Control Program

      Sec. 501. Fraud and abuse control program.

      Sec. 502. Medicare integrity program.

      Sec. 503. Beneficiary incentive programs.

      Sec. 504. Application of certain health anti-fraud and abuse sanctions to fraud and abuse against Federal health care programs.

      Sec. 505. Guidance regarding application of health care fraud and abuse sanctions.

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

      Sec. 511. Mandatory exclusion from participation in medicare and State health care programs.

      Sec. 512. Establishment of minimum period of exclusion for certain individuals and entities subject to permissive exclusion from medicare and State health care programs.

      Sec. 513. Permissive exclusion of individuals with ownership or control interest in sanctioned entities.

      Sec. 514. Sanctions against practitioners and persons for failure to comply with statutory obligations.

      Sec. 515. Intermediate sanctions for medicare health maintenance organizations.

      Sec. 516. Additional exceptions to anti-kickback penalties for risk-sharing arrangements.

      Sec. 517. Effective date.

Subtitle C--Data Collection and Miscellaneous Provisions

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

Subtitle D--Civil Monetary Penalties

      Sec. 531. Social Security Act civil monetary penalties.

Subtitle E--Amendments to Criminal Law

      Sec. 541. Health care fraud.

      Sec. 542. Forfeitures for Federal health care offenses.

      Sec. 543. Injunctive relief relating to Federal health care offenses.

      Sec. 544. False statements.

      Sec. 545. Obstruction of criminal investigations of Federal health care offenses.

      Sec. 546. Theft or embezzlement.

      Sec. 547. Laundering of monetary instruments.

      Sec. 548. Authorized investigative demand procedures.

TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

      Sec. 600. References.

Subtitle A--Foreign Trust Tax Compliance

      Sec. 601. Improved information reporting on foreign trusts.

      Sec. 602. Modifications of rules relating to foreign trusts having one or more United States beneficiaries.

      Sec. 603. Foreign persons not to be treated as owners under grantor trust rules.

      Sec. 604. Information reporting regarding foreign gifts.

      Sec. 605. Modification of rules relating to foreign trusts which are not grantor trusts.

      Sec. 606. Residence of estates and trusts, etc.

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

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

Subtitle C--Other Provisions

      Sec. 621. Extension of medicare secondary payor provisions.

      Sec. 622. Annual adjustment factors for operating costs only; restraint on rent increases.

      Sec. 623. Foreclosure avoidance and borrower assistance.

SEC. 2. DEFINITIONS.

    As used in this Act:

      (1) BENEFICIARY- The term ‘beneficiary’ has the meaning given such term under section 3(8) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(8)).

      (2) EMPLOYEE- The term ‘employee’ has the meaning given such term under section 3(6) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(6)).

      (3) EMPLOYER- The term ‘employer’ has the meaning given such term under section 3(5) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(5)), except that such term shall include only employers of two or more employees.

      (4) EMPLOYEE HEALTH BENEFIT PLAN-

        (A) IN GENERAL- The term ‘employee health benefit plan’ means any employee welfare benefit plan, governmental plan, or church plan (as defined under paragraphs (1), (32), and (33) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002 (1), (32), and (33))), or any health benefit plan under section 5(e) of the Peace Corps Act (22 U.S.C. 2504(e)), that provides or pays for health benefits (such as provider and hospital benefits) for participants and beneficiaries whether--

          (i) directly;

          (ii) through a group health plan offered by a health plan issuer as defined in paragraph (8); or

          (iii) otherwise.

        (B) RULE OF CONSTRUCTION- An employee health benefit plan shall not be construed to be a group health plan, an individual health plan, or a health plan issuer.

        (C) ARRANGEMENTS NOT INCLUDED- Such term does not include the following, or any combination thereof:

          (i) Coverage only for accident, or disability income insurance, or any combination thereof.

          (ii) Medicare supplemental health insurance (as defined under section 1882(g)(1) of the Social Security Act).

          (iii) Coverage issued as a supplement to liability insurance.

          (iv) Liability insurance, including general liability insurance and automobile liability insurance.

          (v) Workers compensation or similar insurance.

          (vi) Automobile medical payment insurance.

          (vii) Coverage for a specified disease or illness.

          (viii) Hospital or fixed indemnity insurance.

          (ix) Short-term limited duration insurance.

          (x) Credit-only, dental-only, or vision-only insurance.

          (xi) A health insurance policy providing benefits only for long-term care, nursing home care, home health care, community-based care, or any combination thereof.

      (5) FAMILY-

        (A) IN GENERAL- The term ‘family’ means an individual, the individual’s spouse, and the child of the individual (if any).

        (B) CHILD- For purposes of subparagraph (A), the term ‘child’ means any individual who is a child within the meaning of section 151(c)(3) of the Internal Revenue Code of 1986.

      (6) GROUP HEALTH PLAN-

        (A) IN GENERAL- The term ‘group health plan’ means any contract, policy, certificate or other arrangement offered by a health plan issuer to a group purchaser that provides or pays for health benefits (such as provider and hospital benefits) in connection with an employee health benefit plan.

        (B) ARRANGEMENTS NOT INCLUDED- Such term does not include the following, or any combination thereof:

          (i) Coverage only for accident, or disability income insurance, or any combination thereof.

          (ii) Medicare supplemental health insurance (as defined under section 1882(g)(1) of the Social Security Act).

          (iii) Coverage issued as a supplement to liability insurance.

          (iv) Liability insurance, including general liability insurance and automobile liability insurance.

          (v) Workers compensation or similar insurance.

          (vi) Automobile medical payment insurance.

          (vii) Coverage for a specified disease or illness.

          (viii) Hospital or fixed indemnity insurance.

          (ix) Short-term limited duration insurance.

          (x) Credit-only, dental-only, or vision-only insurance.

          (xi) A health insurance policy providing benefits only for long-term care, nursing home care, home health care, community-based care, or any combination thereof.

      (7) GROUP PURCHASER- The term ‘group purchaser’ means any person (as defined under paragraph (9) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(9)) or entity that purchases or pays for health benefits (such as provider or hospital benefits) on behalf of two or more participants or beneficiaries in connection with an employee health benefit plan. A health plan purchasing cooperative established under section 131 shall not be considered to be a group purchaser.

      (8) HEALTH PLAN ISSUER- The term ‘health plan issuer’ means any entity that is licensed (prior to or after the date of enactment of this Act) by a State to offer a group health plan or an individual health plan.

      (9) PARTICIPANT- The term ‘participant’ has the meaning given such term under section 3(7) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(7)).

      (10) PLAN SPONSOR- The term ‘plan sponsor’ has the meaning given such term under section 3(16)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(16)(B)).

      (11) SECRETARY- The term ‘Secretary’, unless specifically provided otherwise, means the Secretary of Labor.

      (12) STATE- The term ‘State’ means each of the several States, the District of Columbia, Puerto Rico, the United States Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

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

Subtitle A--Group Market Rules

SEC. 101. GUARANTEED AVAILABILITY OF HEALTH COVERAGE.

    (a) IN GENERAL-

      (1) NONDISCRIMINATION- Except as provided in subsection (b), section 102 and section 103--

        (A) a health plan issuer offering a group health plan may not decline to offer whole group coverage to a group purchaser desiring to purchase such coverage; and

        (B) an employee health benefit plan or a health plan issuer offering a group health plan may establish, under the terms of such plan, eligibility, enrollment, or premium contribution requirements for individual participants or beneficiaries, except that such requirements shall not be based on health status, medical condition, claims experience, receipt of health care, medical history, evidence of insurability (including conditions arising out of acts of domestic violence), genetic information, or disability.

      (2) HEALTH PROMOTION AND DISEASE PREVENTION- Nothing in this subsection shall prevent an employee health benefit plan or a health plan issuer from establishing premium discounts or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion and disease prevention.

    (b) APPLICATION OF CAPACITY LIMITS-

      (1) IN GENERAL- Subject to paragraph (2), a health plan issuer offering a group health plan may cease offering coverage to group purchasers under the plan if--

        (A) the health plan issuer ceases to offer coverage to any additional group purchasers; and

        (B) the health plan issuer can demonstrate to the applicable certifying authority (as defined in section 202(d)), if required, that its financial or provider capacity to serve previously covered participants and beneficiaries (and additional participants and beneficiaries who will be expected to enroll because of their affiliation with a group purchaser or such previously covered participants or beneficiaries) will be impaired if the health plan issuer is required to offer coverage to additional group purchasers.

      Such health plan issuer shall be prohibited from offering coverage after a cessation in offering coverage under this paragraph for a 6-month period or until the health plan issuer can demonstrate to the applicable certifying authority (as defined in section 202(d)) that the health plan issuer has adequate capacity, whichever is later.

      (2) FIRST-COME-FIRST-SERVED- A health plan issuer offering a group health plan is only eligible to exercise the limitations provided for in paragraph (1) if the health plan issuer offers coverage to group purchasers under such plan on a first-come-first-served basis or other basis established by a State to ensure a fair opportunity to enroll in the plan and avoid risk selection.

    (c) CONSTRUCTION-

      (1) MARKETING OF GROUP HEALTH PLANS- Nothing in this section shall be construed to prevent a State from requiring health plan issuers offering group health plans to actively market such plans.

      (2) INVOLUNTARY OFFERING OF GROUP HEALTH PLANS- Nothing in this section shall be construed to require a health plan issuer to involuntarily offer group health plans in a particular market or to require a health plan issuer to involuntarily issue a group health plan to a group health plan purchaser in a particular market if the group health plan was specifically designed for a different market. For the purposes of this paragraph, the term ‘market’ means either the large employer market or the small employer market (as defined under applicable State law, or if not so defined, an employer with more than one employee and not more than 50 employees).

SEC. 102. GUARANTEED RENEWABILITY OF HEALTH COVERAGE.

    (a) IN GENERAL-

      (1) GROUP PURCHASER- Subject to subsections (b) and (c), a group health plan shall be renewed or continued in force by a health plan issuer at the option of the group purchaser, except that the requirement of this subparagraph shall not apply in the case of--

        (A) the nonpayment of premiums or contributions by the group purchaser in accordance with the terms of the group health plan or where the health plan issuer has not received timely premium payments;

        (B) fraud or misrepresentation of material fact on the part of the group purchaser;

        (C) the termination of the group health plan in accordance with subsection (b); or

        (D) the failure of the group purchaser to meet contribution or participation requirements in accordance with paragraph (3).

      (2) PARTICIPANT- Subject to subsections (b) and (c), coverage under an employee health benefit plan or group health plan shall be renewed or continued in force, if the group purchaser elects to continue to provide coverage under such plan, at the option of the participant (or beneficiary where such right exists under the terms of the plan or under applicable law), except that the requirement of this paragraph shall not apply in the case of--

        (A) the nonpayment of premiums or contributions by the participant or beneficiary in accordance with the terms of the employee health benefit plan or group health plan or where such plan has not received timely premium payments;

        (B) fraud or misrepresentation of material fact on the part of the participant or beneficiary relating to an application for coverage or claim for benefits;

        (C) the termination of the employee health benefit plan or group health plan;

        (D) loss of eligibility for continuation coverage as described in part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1161 et seq.); or

        (E) failure of a participant or beneficiary to meet requirements for eligibility for coverage under an employee health benefit plan or group health plan that are not prohibited by this Act.

      (3) RULES OF CONSTRUCTION- Nothing in this subsection, nor in section 101(a), shall be construed to--

        (A) preclude a health plan issuer from establishing employer contribution rules or group participation rules for group health plans as allowed under applicable State law;

        (B) preclude a plan defined in section 3(37) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1102(37)) from establishing employer contribution rules or group participation rules; or

        (C) permit individuals to decline coverage under an employee health benefit plan if such right is not otherwise available under such plan.

    (b) TERMINATION OF GROUP HEALTH PLANS-

      (1) PARTICULAR TYPE OF GROUP HEALTH PLAN NOT OFFERED- In any case in which a health plan issuer decides to discontinue offering a particular type of group health plan, a group health plan of such type may be discontinued by the health plan issuer only if--

        (A) the health plan issuer provides notice to each group purchaser covered under a group health plan of this type (and participants and beneficiaries covered under such group health plan) of such discontinuation at least 90 days prior to the date of the discontinuation of such plan;

        (B) the health plan issuer offers to each group purchaser covered under a group health plan of this type, the option to purchase any other group health plan currently being offered by the health plan issuer; and

        (C) in exercising the option to discontinue a group health plan of this type and in offering one or more replacement plans, the health plan issuer acts uniformly without regard to the health status or insurability of participants or beneficiaries covered under the group health plan, or new participants or beneficiaries who may become eligible for coverage under the group health plan.

      (2) DISCONTINUANCE OF ALL GROUP HEALTH PLANS-

        (A) IN GENERAL- In any case in which a health plan issuer elects to discontinue offering all group health plans in a State, a group health plan may be discontinued by the health plan issuer only if--

          (i) the health plan issuer provides notice to the applicable certifying authority (as defined in section 202(d)) and to each group purchaser (and participants and beneficiaries covered under such group health plan) of such discontinuation at least 180 days prior to the date of the expiration of such plan; and

          (ii) all group health plans issued or delivered for issuance in the State are discontinued and coverage under such plans is not renewed.

        (B) APPLICATION OF PROVISIONS- The provisions of this paragraph and paragraph (3) may be applied separately by a health plan issuer--

          (i) to all group health plans offered to small employers (as defined under applicable State law, or if not so defined, an employer with not more than 50 employees); or

          (ii) to all other group health plans offered by the health plan issuer in the State.

      (3) PROHIBITION ON MARKET REENTRY- In the case of a discontinuation under paragraph (2), the health plan issuer may not provide for the issuance of any group health plan in the market sector (as described in paragraph (2)(B)) in which issuance of such group health plan was discontinued in the State involved during the 5-year period beginning on the date of the discontinuation of the last group health plan not so renewed.

    (c) TREATMENT OF NETWORK PLANS-

      (1) GEOGRAPHIC LIMITATIONS- A network plan (as defined in paragraph (2)) may deny continued participation under such plan to participants or beneficiaries who neither live, reside, nor work in an area in which such network plan is offered, but only if such denial is applied uniformly, without regard to health status or the insurability of particular participants or beneficiaries.

      (2) NETWORK PLAN- As used in paragraph (1), the term ‘network plan’ means an employee health benefit plan or a group health plan that arranges for the financing and delivery of health care services to participants or beneficiaries covered under such plan, in whole or in part, through arrangements with providers.

    (d) COBRA COVERAGE- Nothing in subsection (a)(2)(E) or subsection (c) shall be construed to affect any right to COBRA continuation coverage as described in part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1161 et seq.).

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

    (a) IN GENERAL- An employee health benefit plan or a health plan issuer offering a group health plan may, with respect to a participant or beneficiary, impose a limitation or exclusion of benefits, otherwise available under the terms of the plan only if--

      (1) such limitation or exclusion is a limitation or exclusion of benefits relating to the treatment of a preexisting condition; and

      (2) such limitation or exclusion extends for a period of not more than 12 months after the date of enrollment in the plan.

    (b) CREDITING OF PREVIOUS QUALIFYING COVERAGE-

      (1) IN GENERAL- Subject to paragraph (4), an employee health benefit plan or a health plan issuer offering a group health plan shall provide that if a participant or beneficiary is in a period of previous qualifying coverage as of the date of enrollment under such plan, any period of exclusion or limitation of coverage with respect to a preexisting condition shall be reduced by 1 month for each month in which the participant or beneficiary was in the period of previous qualifying coverage. With respect to a participant or beneficiary described in subsection (e)(2)(A) who maintains continuous coverage, no limitation or exclusion of benefits relating to treatment of a preexisting condition may be applied to a child within the child’s first 12 months of life or within 12 months after the placement of a child for adoption.

      (2) DISCHARGE OF DUTY- An employee health benefit plan shall provide documentation of coverage to participants and beneficiaries whose coverage is terminated under the plan. Pursuant to regulations promulgated by the Secretary, the duty of an employee health benefit plan to verify previous qualifying coverage with respect to a participant or beneficiary is effectively discharged when such employee health benefit plan provides documentation to a participant or beneficiary that includes the following information:

        (A) the dates that the participant or beneficiary was covered under the plan; and

        (B) the benefits and cost-sharing arrangement available to the participant or beneficiary under such plan.

      An employee health benefit plan shall retain the documentation provided to a participant or beneficiary under subparagraphs (A) and (B) for at least the 12-month period following the date on which the participant or beneficiary ceases to be covered under the plan. Upon request, an employee health benefit plan shall provide a second copy of such documentation to such participant or beneficiary within the 12-month period following the date of such ineligibility.

      (3) DEFINITIONS- As used in this section:

        (A) PREVIOUS QUALIFYING COVERAGE- The term ‘previous qualifying coverage’ means the period beginning on the date--

          (i) a participant or beneficiary is enrolled under an employee health benefit plan or a group health plan, and ending on the date the participant or beneficiary is not so enrolled; or

          (ii) an individual is enrolled under an individual health plan (as defined in section 113) or under a public or private health plan established under Federal or State law, and ending on the date the individual is not so enrolled;

        for a continuous period of more than 30 days (without regard to any waiting period).

        (B) LIMITATION OR EXCLUSION OF BENEFITS RELATING TO TREATMENT OF A PREEXISTING CONDITION- The term ‘limitation or exclusion of benefits relating to treatment of a preexisting condition’ means a limitation or exclusion of benefits imposed on an individual based on a preexisting condition of such individual.

      (4) EFFECT OF PREVIOUS COVERAGE- An employee health benefit plan or a health plan issuer offering a group health plan may impose a limitation or exclusion of benefits relating to the treatment of a preexisting condition, subject to the limits in subsection (a), only to the extent that such service or benefit was not previously covered under the group health plan, employee health benefit plan, or individual health plan in which the participant or beneficiary was enrolled immediately prior to enrollment in the plan involved.

    (c) LATE ENROLLEES- Except as provided in section 104, with respect to a participant or beneficiary enrolling in an employee health benefit plan or a group health plan during a time that is other than the first opportunity to enroll during an enrollment period of at least 30 days, coverage with respect to benefits or services relating to the treatment of a preexisting condition in accordance with subsections (a) and (b) may be excluded, except the period of such exclusion may not exceed 18 months beginning on the date of coverage under the plan.

    (d) AFFILIATION PERIODS- With respect to a participant or beneficiary who would otherwise be eligible to receive benefits under an employee health benefit plan or a group health plan but for the operation of a preexisting condition limitation or exclusion, if such plan does not utilize a limitation or exclusion of benefits relating to the treatment of a preexisting condition, such plan may impose an affiliation period on such participant or beneficiary not to exceed 60 days (or in the case of a late participant or beneficiary described in subsection (c), 90 days) from the date on which the participant or beneficiary would otherwise be eligible to receive benefits under the plan. An employee health benefit plan or a health plan issuer offering a group health plan may also use alternative methods to address adverse selection as approved by the applicable certifying authority (as defined in section 202(d)). During such an affiliation period, the plan may not be required to provide health care services or benefits and no premium shall be charged to the participant or beneficiary.

    (e) PREEXISTING CONDITION-

      (1) IN GENERAL- For purposes of this section, the term ‘preexisting condition’ means a condition, regardless of the cause of the condition, for which medical advice, diagnosis, care, or treatment was recommended or received within the 6-month period ending on the day before the effective date of the coverage (without regard to any waiting period).

      (2) BIRTH, ADOPTION AND PREGNANCY EXCLUDED- The term ‘preexisting condition’ does not apply to--

        (A) an individual who, within 30 days of the date of the birth or placement for adoption of a child (as determined under section 609(c)(3)(B) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1169(c)(3)(B)), was covered under the plan; or

        (B) pregnancy.

    (f) STATE FLEXIBILITY- Nothing in this section shall be construed to preempt State laws that--

      (1) require health plan issuers to impose a limitation or exclusion of benefits relating to the treatment of a preexisting condition for periods that are shorter than those provided for under this section; or

      (2) allow individuals, participants, and beneficiaries to be considered to be in a period of previous qualifying coverage if such individual, participant, or beneficiary experiences a lapse in coverage that is greater than the 30-day period provided for under subsection (b)(3); or

      (3) require health plan issuers to have a lookback period that is shorter than the period described in subsection (e)(1);

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

SEC. 104. SPECIAL ENROLLMENT PERIODS.

    In the case of a participant, beneficiary or family member who--

      (1) through marriage, separation, divorce, death, birth or placement of a child for adoption, experiences a change in family composition affecting eligibility under a group health plan, individual health plan, or employee health benefit plan;

      (2) experiences a change in employment status, as described in section 603(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1163(2)), that causes the loss of eligibility for coverage, other than COBRA continuation coverage under a group health plan, individual health plan, or employee health benefit plan; or

      (3) experiences a loss of eligibility under a group health plan, individual health plan, or employee health benefit plan because of a change in the employment status of a family member;

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

SEC. 105. DISCLOSURE OF INFORMATION.

    (a) DISCLOSURE OF INFORMATION BY HEALTH PLAN ISSUERS-

      (1) IN GENERAL- In connection with the offering of any group health plan to a small employer (as defined under applicable State law, or if not so defined, an employer with not more than 50 employees), a health plan issuer shall make a reasonable disclosure to such employer, as part of its solicitation and sales materials, of--

        (A) the provisions of such group health plan concerning the health plan issuer’s right to change premium rates and the factors that may affect changes in premium rates;

        (B) the provisions of such group health plan relating to renewability of coverage;

        (C) the provisions of such group health plan relating to any preexisting condition provision; and

        (D) descriptive information about the benefits and premiums available under all group health plans for which the employer is qualified.

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

      (2) EXCEPTION- With respect to the requirement of paragraph (1), any information that is proprietary and trade secret information under applicable law shall not be subject to the disclosure requirements of such paragraph.

      (3) CONSTRUCTION- Nothing in this subsection shall be construed to preempt State reporting and disclosure requirements to the extent that such requirements are not preempted under section 514 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1144).

    (b) DISCLOSURE OF INFORMATION TO PARTICIPANTS AND BENEFICIARIES-

      (1) IN GENERAL- Section 104(b)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) is amended in the matter following subparagraph (B)--

        (A) by striking ‘102(a)(1),’ and inserting ‘102(a)(1) that is not a material reduction in covered services or benefits provided,’; and

        (B) by adding at the end thereof the following new sentences: ‘If there is a modification or change described in section 102(a)(1) that is a material reduction in covered services or benefits provided, a summary description of such modification or change shall be furnished to participants not later than 60 days after the date of the adoption of the modification or change. In the alternative, the plan sponsors may provide such description at regular intervals of not more than 90 days. The Secretary shall issue regulations within 180 days after the date of enactment of the Health Insurance Reform Act of 1996, providing alternative mechanisms to delivery by mail through which employee health benefit plans may notify participants of material reductions in covered services or benefits.’.

      (2) PLAN DESCRIPTION AND SUMMARY- Section 102(b) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1022(b)) is amended--

        (A) by inserting ‘including the office or title of the individual who is responsible for approving or denying claims for coverage of benefits’ after ‘type of administration of the plan’;

        (B) by inserting ‘including the name of the organization responsible for financing claims’ after ‘source of financing of the plan’; and

        (C) by inserting ‘including the office, contact, or title of the individual at the Department of Labor through which participants may seek assistance or information regarding their rights under this Act and the Health Insurance Reform Act of 1996 with respect to health benefits that are not offered through a group health plan.’ after ‘benefits under the plan’.

Subtitle B--Individual Market Rules

SEC. 110. INDIVIDUAL HEALTH PLAN PORTABILITY.

    (a) LIMITATION ON REQUIREMENTS-

      (1) IN GENERAL- Except as provided in subsections (c) and (d), a health plan issuer described in paragraph (3) may not, with respect to an eligible individual (described in subsection (b)) desiring to enroll in an individual health plan--

        (A) decline to offer coverage to, or deny enrollment of, such individual; or

        (B) impose a limitation or exclusion of benefits, otherwise available under such plan, for which coverage was available under the group health plan or employee health benefit plan in which the individual was previously enrolled.

      (2) HEALTH PROMOTION AND DISEASE PREVENTION- Nothing in this subsection shall be construed to prevent a health plan issuer offering an individual health plan from establishing premium discounts or modifying otherwise applicable copayments or deductibles in return for adherence to programs of health promotion or disease prevention.

      (3) HEALTH PLAN ISSUER- A health plan issuer described in this paragraph is a health plan issuer that issues or renews individual health plans.

      (4) PREMIUMS- Nothing in this subsection shall be construed to affect the determination of a health plan issuer as to the amount of the premium payable under an individual health plan under applicable State law.

    (b) DEFINITION OF ELIGIBLE INDIVIDUAL- As used in subsection (a)(1), the term ‘eligible individual’ means an individual who--

      (1) was a participant or beneficiary enrolled under one or more group health plans or employee health benefit plans for not less than 18 months (without a lapse of more than 30 days) immediately prior to the date on which such individual applies for enrollment in the individual health plan;

      (2) is not eligible for coverage under a group health plan or an employee health benefit plan;

      (3) has not had coverage terminated under a group health plan or employee health benefit plan for failure to make required premium payments or contributions, or for fraud or misrepresentation of material fact; and

      (4) has, if applicable, elected coverage and exhausted the maximum period of coverage as described in section 602(2)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)(A)) or under a State program providing an extension of such coverage.

    (c) APPLICATION OF CAPACITY LIMITS-

      (1) IN GENERAL- Subject to paragraph (2), a health plan issuer offering coverage to individuals under an individual health plan may cease enrolling individuals under the plan if--

        (A) the health plan issuer ceases to enroll any new individuals; and

        (B) the health plan issuer can demonstrate to the applicable certifying authority (as defined in section 202(d)), if required, that its financial or provider capacity to serve previously covered individuals will be impaired if the health plan issuer is required to enroll additional individuals.

      Such a health plan issuer shall be prohibited from offering coverage after a cessation in offering coverage under this paragraph for a 6-month period or until the health plan issuer can demonstrate to the applicable certifying authority (as defined in section 202(d)) that the health plan issuer has adequate capacity, whichever is later.

      (2) FIRST-COME-FIRST-SERVED- A health plan issuer offering coverage to individuals under an individual health plan is only eligible to exercise the limitations provided for in paragraph (1) if the health plan issuer provides for enrollment of individuals under such plan on a first-come-first-served basis or other basis established by a State to ensure a fair opportunity to enroll in the plan and avoid risk selection.

    (d) MARKET REQUIREMENTS-

      (1) IN GENERAL- The provisions of subsection (a) shall not be construed to require that a health plan issuer offering group health plans to group purchasers offer individual health plans to individuals.

      (2) CONVERSION POLICIES- A health plan issuer offering group health plans to group purchasers under this Act shall not be deemed to be a health plan issuer offering an individual health plan solely because such health plan issuer offers a conversion policy.

      (3) MARKETING OF PLANS- Nothing in this section shall be construed to prevent a State from requiring health plan issuers offering coverage to individuals under an individual health plan to actively market such plan.

      (4) CONSTRUCTION- Nothing in this Act shall be construed to require that a State replace or dissolve high risk pools or other similar State mechanisms which are designed to provide individuals in such State with access to health benefits.

SEC. 111. GUARANTEED RENEWABILITY OF INDIVIDUAL HEALTH COVERAGE.

    (a) IN GENERAL- Subject to subsections (b) and (c), coverage for individuals under an individual health plan shall be renewed or continued in force by a health plan issuer at the option of the individual, except that the requirement of this subsection shall not apply in the case of--

      (1) the nonpayment of premiums or contributions by the individual in accordance with the terms of the individual health plan or where the health plan issuer has not received timely premium payments;

      (2) fraud or misrepresentation of material fact on the part of the individual; or

      (3) the termination of the individual health plan in accordance with subsection (b).

    (b) TERMINATION OF INDIVIDUAL HEALTH PLANS-

      (1) PARTICULAR TYPE OF INDIVIDUAL HEALTH PLAN NOT OFFERED- In any case in which a health plan issuer decides to discontinue offering a particular type of individual health plan to individuals, an individual health plan may be discontinued by the health plan issuer only if--

        (A) the health plan issuer provides notice to each individual covered under the plan of such discontinuation at least 90 days prior to the date of the expiration of the plan;

        (B) the health plan issuer offers to each individual covered under the plan the option to purchase any other individual health plan currently being offered by the health plan issuer to individuals; and

        (C) in exercising the option to discontinue the individual health plan and in offering one or more replacement plans, the health plan issuer acts uniformly without regard to the health status or insurability of particular individuals.

      (2) DISCONTINUANCE OF ALL INDIVIDUAL HEALTH PLANS- In any case in which a health plan issuer elects to discontinue all individual health plans in a State, an individual health plan may be discontinued by the health plan issuer only if--

        (A) the health plan issuer provides notice to the applicable certifying authority (as defined in section 202(d)) and to each individual covered under the plan of such discontinuation at least 180 days prior to the date of the discontinuation of the plan; and

        (B) all individual health plans issued or delivered for issuance in the State are discontinued and coverage under such plans is not renewed.

      (3) PROHIBITION ON MARKET REENTRY- In the case of a discontinuation under paragraph (2), the health plan issuer may not provide for the issuance of any individual health plan in the State involved during the 5-year period beginning on the date of the discontinuation of the last plan not so renewed.

    (c) TREATMENT OF NETWORK PLANS-

      (1) GEOGRAPHIC LIMITATIONS- A health plan issuer which offers a network plan (as defined in paragraph (2)) may deny continued participation under the plan to individuals who neither live, reside, nor work in an area in which the individual health plan is offered, but only if such denial is applied uniformly, without regard to health status or the insurability of particular individuals.

      (2) NETWORK PLAN- As used in paragraph (1), the term ‘network plan’ means an individual health plan that arranges for the financing and delivery of health care services to individuals covered under such health plan, in whole or in part, through arrangements with providers.

SEC. 112. STATE FLEXIBILITY IN INDIVIDUAL MARKET REFORMS.

    (a) ADOPTION OF ALTERNATIVE MECHANISMS-

      (1) IN GENERAL- A State, in accordance with this section, may adopt alternative mechanisms (public or private) that are designed to provide access to affordable health benefits for individuals meeting the requirements of sections 110(b) and 111 (such as mechanisms providing for guaranteed issue, open enrollment by one or more health plan issuers, high-risk pools, mandatory conversion policies, or any combination thereof).

      (2) PROCEDURE FOR STATE ELECTION- If, not later than 6 months after the date of enactment of this Act, the Governor of a State notifies the Secretary of Health and Human Services that--

        (A) the State has adopted an alternative mechanism that achieves the goals of sections 110 and 111; or

        (B) the State intends to implement an alternative mechanism that is designed to achieve the goals of sections 110 and 111;

      such State alternative mechanism shall, except as provided in paragraphs (3) and (4), apply in lieu of the standards described in sections 110 and 111.

      (3) NONAPPLICATION OF MECHANISM- A State alternative mechanism adopted under paragraph (1) shall be presumed to achieve the goals of sections 110 and 111 and shall apply in lieu of such sections, unless the Secretary of Health and Human Services, in consultation with the Governor and Insurance Commissioner or chief insurance regulatory official of the State, finds that the State alternative mechanism fails to--

        (A) offer coverage to those individuals who meet the requirements of sections 110(b) and 111;

        (B) prohibit a limitation or exclusion of benefits relating to treatment of a preexisting condition that was covered under the previous group health plan or employee health benefit plan of an individual who meets the requirements of sections 110(b) and 111;

        (C) offer individuals who meet the requirements of sections 110(b) and 111 a choice of individual health plans, including at least one plan comparable to comprehensive plans offered in the individual market in such State or a plan comparable to a standard option plan available under the group or individual health insurance laws of such State; or

        (D) except as provided in paragraph (4), implement a risk spreading mechanism, cross subsidy mechanism, risk adjustment mechanism, rating limitation or other mechanism (such as mechanisms described in the NAIC Model Health Plan for Uninsurable Individuals Act) designed to reduce the variation among the cost of such plans and other individual health plans offered by the carrier or available in such State.

      (4) CHOICE OF PLANS- The Secretary of Health and Human Services shall waive the requirement in subparagraph (D) of paragraph (3) with respect to a State if individuals who meet the requirements of sections 110(b) and 111 in such State are provided with a choice of all individual health plans otherwise available in the individual market.

      (5) FUTURE ADOPTION OF MECHANISMS- With respect to a State that implements an alternative mechanism under paragraph (1) after the period referred to in paragraph (2)--

        (A) the State shall provide notice to the Secretary that such alternative mechanism achieves the goals of sections 110 and 111;

        (B) the State alternative mechanism shall apply in lieu of sections 110 and 111;

        (C) except as provided in subsections (d) and (e), the Secretary may make a determination as provided for in paragraph (3); and

        (D) the procedures described in subsection (c) shall apply.

    (b) TIMEFRAME FOR SECRETARIAL DETERMINATION-

      (1) IN GENERAL- With respect to a State election under subsection (a)(2)(B), the Secretary of Health and Human Services shall not make a determination under subsection (a)(3) until the expiration of the 12-month period beginning on the date on which such notification is made, or until January 1, 1998, whichever is later.

      (2) RULE APPLICABLE TO CERTAIN STATES- With respect to a State that makes an election under subsection (a)(2)(B) and that has a legislature that does not meet within the 12-month period beginning on the date of enactment of this Act, the Secretary of Health and Human Services shall not make a determination under subsection (a) prior to January 1, 1999.

    (c) NOTICE TO STATE- If the Secretary of Health and Human Services determines that a State alternative mechanism fails to meet the criteria described in subsection (a)(3), or that such mechanism is no longer being implemented, the Secretary of Health and Human Services shall notify the Governor of such State of such preliminary determination and permit the State a reasonable opportunity in which to modify the alternative mechanism or to adopt another mechanism that is designed to meet the goals of sections 110 and 111. If, after an opportunity to modify such State alternative mechanism, the mechanism fails to meet the criteria described in subsection (a)(3), the Secretary shall notify the Governor of such State that sections 110 and 111 shall apply in the State.

    (d) ADOPTION OF NAIC MODEL- If, not later than 9 months after the date of enactment of this Act--

      (1) the National Association of Insurance Commissioners (hereafter referred to as the ‘NAIC’), through a process which the Secretary of Health and Human Services determines has included consultation with representatives of the insurance industry and consumer groups, has adopted a model act or acts including provisions addressing portability from a group health plan or employee health benefit plan into the individual health insurance market; and

      (2) the Secretary of Health and Human Services determines, within 30 days of the adoption of such NAIC model act or acts, that such act or acts comply with the goals of sections 110 and 111;

    a State that elects to adopt such model act or acts shall be deemed to have met the requirements of sections 110 and 111 and shall not be subject to a determination under subsection (a)(3).

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

SEC. 113. DEFINITION.

    (a) IN GENERAL- As used in this title, the term ‘individual health plan’ means any contract, policy, certificate or other arrangement offered to individuals by a health plan issuer that provides or pays for health benefits (such as provider and hospital benefits) and that is not a group health plan under section 2(6).

    (b) ARRANGEMENTS NOT INCLUDED- Such term does not include the following, or any combination thereof:

      (1) Coverage only for accident, or disability income insurance, or any combination thereof.

      (2) Medicare supplemental health insurance (as defined under section 1882(g)(1) of the Social Security Act).

      (3) Coverage issued as a supplement to liability insurance.

      (4) Liability insurance, including general liability insurance and automobile liability insurance.

      (5) Workers’ compensation or similar insurance.

      (6) Automobile medical payment insurance.

      (7) Coverage for a specified disease or illness.

      (8) Hospital or fixed indemnity insurance.

      (9) Short-term limited duration insurance.

      (10) Credit-only, dental-only, or vision-only insurance.

      (11) A health insurance policy providing benefits only for long-term care, nursing home care, home health care, community-based care, or any combination thereof.

Subtitle C--COBRA Clarifications

SEC. 121. COBRA CLARIFICATIONS.

    (a) PUBLIC HEALTH SERVICE ACT-

      (1) PERIOD OF COVERAGE- Section 2202(2) of the Public Health Service Act (42 U.S.C. 300bb-2(2)) is amended--

        (A) in subparagraph (A)--

          (i) by transferring the sentence immediately preceding clause (iv) so as to appear immediately following such clause (iv); and

          (ii) in the last sentence (as so transferred)--

            (I) by inserting ‘, or a beneficiary-family member of the individual,’ after ‘an individual’; and

            (II) by striking ‘at the time of a qualifying event described in section 2203(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this title’;

        (B) in subparagraph (D)(i), by inserting before ‘, or’ the following: ‘, except that the exclusion or limitation contained in this clause shall not be considered to apply to a plan under which a preexisting condition or exclusion does not apply to an individual otherwise eligible for continuation coverage under this section because of the provision of the Health Insurance Reform Act of 1996’; and

        (C) in subparagraph (E), by striking ‘at the time of a qualifying event described in section 2203(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this title’.

      (2) NOTICES- Section 2206(3) of the Public Health Service Act (42 U.S.C. 300bb-6(3)) is amended by striking ‘at the time of a qualifying event described in section 2203(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this title’.

      (3) BIRTH OR ADOPTION OF A CHILD- Section 2208(3)(A) of the Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended by adding at the end thereof the following new flush sentence:

      ‘Such term shall also include a child who is born to or placed for adoption with the covered employee during the period of continued coverage under this title.’.

    (b) EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974-

      (1) PERIOD OF COVERAGE- Section 602(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is amended--

        (A) in the last sentence of subparagraph (A)--

          (i) by inserting ‘, or a beneficiary-family member of the individual,’ after ‘an individual’; and

          (ii) by striking ‘at the time of a qualifying event described in section 603(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this part’;

        (B) in subparagraph (D)(i), by inserting before ‘, or’ the following: ‘, except that the exclusion or limitation contained in this clause shall not be considered to apply to a plan under which a preexisting condition or exclusion does not apply to an individual otherwise eligible for continuation coverage under this section because of the provision of the Health Insurance Reform Act of 1996’; and

        (C) in subparagraph (E), by striking ‘at the time of a qualifying event described in section 603(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this part’.

      (2) NOTICES- Section 606(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1166(3)) is amended by striking ‘at the time of a qualifying event described in section 603(2)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this part’.

      (3) BIRTH OR ADOPTION OF A CHILD- Section 607(3)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1167(3)) is amended by adding at the end thereof the following new flush sentence:

      ‘Such term shall also include a child who is born to or placed for adoption with the covered employee during the period of continued coverage under this part.’.

    (c) INTERNAL REVENUE CODE OF 1986-

      (1) PERIOD OF COVERAGE- Section 4980B(f)(2)(B) of the Internal Revenue Code of 1986 is amended--

        (A) in the last sentence of clause (i) by striking ‘at the time of a qualifying event described in paragraph (3)(B)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this section’;

        (B) in clause (iv)(I), by inserting before ‘, or’ the following: ‘, except that the exclusion or limitation contained in this subclause shall not be considered to apply to a plan under which a preexisting condition or exclusion does not apply to an individual otherwise eligible for continuation coverage under this subsection because of the provision of the Health Insurance Reform Act of 1995’; and

        (C) in clause (v), by striking ‘at the time of a qualifying event described in paragraph (3)(B)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this section’.

      (2) NOTICES- Section 4980B(f)(6)(C) of the Internal Revenue Code of 1986 is amended by striking ‘at the time of a qualifying event described in paragraph (3)(B)’ and inserting ‘at any time during the initial 18-month period of continuing coverage under this section’.

      (3) BIRTH OR ADOPTION OF A CHILD- Section 4980B(g)(1)(A) of the Internal Revenue Code of 1986 is amended by adding at the end thereof the following new flush sentence:

          ‘Such term shall also include a child who is born to or placed for adoption with the covered employee during the period of continued coverage under this section.’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to qualifying events occurring on or after the date of the enactment of this Act for plan years beginning after December 31, 1997.

    (e) NOTIFICATION OF CHANGES- Not later than 60 days prior to the date on which this section becomes effective, each group health plan (covered under title XXII of the Public Health Service Act, part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, and section 4980B(f) of the Internal Revenue Code of 1986) shall notify each qualified beneficiary who has elected continuation coverage under such title, part or section of the amendments made by this section.

Subtitle D--Private Health Plan Purchasing Cooperatives

SEC. 131. PRIVATE HEALTH PLAN PURCHASING COOPERATIVES.

    (a) DEFINITION- As used in this Act, the term ‘health plan purchasing cooperative’ means a group of employees or a group of individuals and employers that, on a voluntary basis and in accordance with this section, form a cooperative for the purpose of purchasing individual health plans or group health plans offered by health plan issuers.

    (b) CERTIFICATION-

      (1) REQUIREMENT- If a group described in subsection (a), desires to form a health plan purchasing cooperative in accordance with this section and such group appropriately notifies the State and the Secretary of such desire, the State, upon a determination that such group meets the requirements of this section, shall certify the group as a health plan purchasing cooperative. The State shall make a determination of whether such group meets the requirements of this section in a timely fashion and shall oversee the operations of such cooperative in order to ensure continued compliance with the requirements of this section. Each such cooperative shall also be registered with the Secretary.

      (2) STATE REFUSAL TO CERTIFY-

        (A) IN GENERAL- If a State fails to implement a program for certifying health plan purchasing cooperatives in accordance with the standards under this Act, the Secretary shall certify and oversee the operations of such cooperatives in such State.

        (B) EXCEPTION- The Secretary shall not certify a health plan purchasing cooperative described in this section if, upon the submission of an application by the State to the Secretary, the Secretary determines that under a State law in effect on the date of enactment of this Act, all small employers have a means readily available that ensures--

          (i) that individuals and employees have a choice of multiple, unaffiliated health plan issuers;

          (ii) that health plan coverage is subject to State premium rating requirements that are not based on the factors described in subsection (f)(3) and that contains a mandatory minimum loss ratio; and

          (iii) that comparative health plan materials are disseminated consistent with subsection (e)(1)(D);

        and that otherwise meets the objectives of this Act.

      (3) INTERSTATE COOPERATIVES- For purposes of this section, a health plan purchasing cooperative operating in more than one State shall be certified by the State in which the cooperative is domiciled. States may enter into cooperative agreements for the purpose of overseeing the operation of such cooperatives. For purposes of this subsection, a cooperative shall be considered to be domiciled in the State in which most of the members of the cooperative reside.

    (c) BOARD OF DIRECTORS-

      (1) IN GENERAL- Each health plan purchasing cooperative shall be governed by a Board of Directors that shall be responsible for ensuring the performance of the duties of the cooperative under this section. The Board shall be composed of a broad cross-section of representatives of employers, employees, and individuals participating in the cooperative.

      (2) LIMITATION ON COMPENSATION- A health plan purchasing cooperative may not provide compensation to members of the Board of Directors. The cooperative may provide reimbursements to such members for the reasonable and necessary expenses incurred by the members in the performance of their duties as members of the Board.

    (d) MEMBERSHIP AND MARKETING AREA-

      (1) MEMBERSHIP- A health plan purchasing cooperative may establish limits on the maximum size of employers who may become members of the cooperative, and may determine whether to permit individuals to become members. Upon the establishment of such membership requirements, the cooperative shall, except as provided in subparagraph (B), accept all employers (or individuals) residing within the area served by the cooperative who meet such requirements as members on a first come, first-served basis, or on another basis established by the State to ensure equitable access to the cooperative.

      (2) MARKETING AREA- A State may establish rules regarding the geographic area that must be served by health plan purchasing cooperatives to ensure that cooperatives do not discriminate on the basis of the health status or insurability of the populations that reside in the area served. A State may not use such rules to arbitrarily limit the number of health plan purchasing cooperatives.

    (e) DUTIES AND RESPONSIBILITIES-

      (1) IN GENERAL- A health plan purchasing cooperative shall--

        (A) objectively evaluate potential health plan issuers and enter into agreements with multiple, unaffiliated health plan issuers, except that the requirement of this subparagraph shall not apply in regions (such as remote or frontier areas) in which compliance with such requirement is not possible;

        (B) enter into agreements with employers and individuals who become members of the cooperative;

        (C) participate in any program of risk-adjustment or reinsurance, or any similar program, that is established by the State;

        (D) prepare and disseminate comparative health plan materials (including information about cost, quality, benefits, and other information concerning group health plans and individual health plans offered through the cooperative);

        (E) broadly solicit and actively market to all eligible employers and individuals residing within the service area; and

        (F) act as an ombudsman for group health plan or individual health plan enrollees.

      (2) PERMISSIBLE ACTIVITIES- A health plan purchasing cooperative may perform such other functions as necessary to further the purposes of this Act, including--

        (A) collecting and distributing premiums and performing other administrative functions;

        (B) collecting and analyzing surveys of enrollee satisfaction;

        (C) charging membership fee to enrollees (such fees may not be based on health status) and charging participation fees to health plan issuers;

        (D) cooperating with (or accepting as members) employers who provide health benefits directly to participants and beneficiaries only for the purpose of negotiating with providers; and

        (E) negotiating with health care providers and health plan issuers.

    (f) LIMITATIONS ON COOPERATIVE ACTIVITIES- A health plan purchasing cooperative shall not--

      (1) perform any activity relating to the licensing of health plan issuers;

      (2) assume financial risk directly or indirectly on behalf of members of a health plan purchasing cooperative relating to any group health plan or individual health plan;

      (3) establish eligibility, enrollment, or premium contribution requirements for individual participants or beneficiaries based on health status, medical condition, claims experience, receipt of health care, medical history, evidence of insurability, genetic information, or disability;

      (4) operate on a for-profit or other basis where the legal structure of the cooperative permits profits to be made and not returned to the members of the cooperative, except that a for-profit health plan purchasing cooperative may be formed by a nonprofit organization or organizations--

        (A) in which membership in such organization is not based on health status, medical condition, claims experience, receipt of health care, medical history, evidence of insurability, genetic information, or disability; and

        (B) that accepts as members all employers or individuals on a first-come, first-served basis, subject to any established limit on the maximum size of an employer that may become a member; or

      (5) perform any other activities that conflict or are inconsistent with the performance of its duties under this Act.

    (g) CONFLICT OF INTEREST-

      (1) PROHIBITION- No individual, partnership, or corporation shall serve on the board of a health plan purchasing cooperative, be employed by such a cooperative, receive compensation from such a cooperative, or initiate or finance such a cooperative if such individual, partnership, or corporation--

        (A) fails to discharge the duties and responsibilities of such individual, partnership or corporation in a manner that is solely in the interest of the members of the cooperative; or

        (B) derives personal benefit (other than in the form of ordinary compensation received) from the sale of, or has a financial interest in, health plans, services or products sold by or distributed through that cooperative.

      (2) CONTRACTS WITH THIRD PARTIES- Nothing in paragraph (1) shall be construed to prohibit the board of directors of a health plan purchasing cooperative, or its officers, at the initiative and under this direction of the board, from contracting with third parties to provide administrative, marketing, consultive, or other services to the cooperative.

    (h) LIMITED PREEMPTION OF CERTAIN STATE LAWS-

      (1) IN GENERAL- With respect to a health plan purchasing cooperative that meets the requirements of this section, State fictitious group laws shall be preempted.

      (2) HEALTH PLAN ISSUERS-

        (A) RATING- Except as provided in subparagraph (B), a health plan issuer offering a group health plan or individual health plan through a health plan purchasing cooperative that meets the requirements of this section shall comply with all State rating requirements that would otherwise apply if the health plan were offered outside of the cooperative.

        (B) EXCEPTION- A State shall permit a health plan issuer to reduce premium rates negotiated with a health plan purchasing cooperative that meets the requirements of this section to reflect savings derived from administrative costs, marketing costs, profit margins, economies of scale, or other factors, except that any such reduction in premium rates may not be based on the health status, demographic factors, industry type, duration, or other indicators of health risk of the members of the cooperative.

        (C) BENEFITS- Except as provided in subparagraph (D), a health plan issuer offering a group health plan or individual health plan through a health plan purchasing cooperative shall comply with all State mandated benefit laws that require the offering of any services, category of care, or services of any class or type of provider.

        (D) EXCEPTION- In those States that have enacted laws authorizing the issuance of alternative benefit plans to small employers, health plan issuers may offer such alternative benefit plans through a health plan purchasing cooperative that meets the requirements of this section.

    (i) RULES OF CONSTRUCTION- Nothing in this section shall be construed to--

      (1) require that a State organize, operate, or otherwise create health plan purchasing cooperatives;

      (2) otherwise require the establishment of health plan purchasing cooperatives;

      (3) require individuals, plan sponsors, or employers to purchase group health plans or individual health plans through a health plan purchasing cooperative;

      (4) preempt a State from requiring licensure for individuals who are involved in directly supplying advice or selling health plans on behalf of a purchasing cooperative;

      (5) require that a health plan purchasing cooperative be the only type of purchasing arrangement permitted to operate in a State;

      (6) confer authority upon a State that the State would not otherwise have to regulate health plan issuers or employee health benefits plans;

      (7) confer authority upon a State (or the Federal Government) that the State (or Federal Government) would not otherwise have to regulate group purchasing arrangements, coalitions, association plans, or other similar entities that do not desire to become a health plan purchasing cooperative in accordance with this section; or

      (8) except as specifically provided otherwise in this subsection, prevent the application of State laws and regulations otherwise applicable to health plan issuers offering group health plans or individual health plans through a health plan purchasing cooperative.

    (j) APPLICATION OF ERISA- For purposes of enforcement only, the requirements of parts 4 and 5 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1101) shall apply to a health plan purchasing cooperative as if such plan were an employee welfare benefit plan.

TITLE II--APPLICATION AND ENFORCEMENT OF STANDARDS

SEC. 201. APPLICABILITY.

    (a) CONSTRUCTION-

      (1) ENFORCEMENT-

        (A) IN GENERAL- A requirement or standard imposed under this Act on a group health plan or individual health plan offered by a health plan issuer shall be deemed to be a requirement or standard imposed on the health plan issuer. Such requirements or standards shall be enforced by the State insurance commissioner for the State involved or the official or officials designated by the State to enforce the requirements of this Act. In the case of a group health plan offered by a health plan issuer in connection with an employee health benefit plan, the requirements or standards imposed under this Act shall be enforced with respect to the health plan issuer by the State insurance commissioner for the State involved or the official or officials designated by the State to enforce the requirements of this Act.

        (B) LIMITATION- Except as provided in subsection (c), the Secretary shall not enforce the requirements or standards of this Act as they relate to health plan issuers, group health plans, or individual health plans. In no case shall a State enforce the requirements or standards of this Act as they relate to employee health benefit plans.

      (2) PREEMPTION OF STATE LAW- Nothing in this Act shall be construed to prevent a State from establishing, implementing, or continuing in effect standards and requirements--

        (A) not prescribed in this Act; or

        (B) related to the issuance, renewal, or portability of health insurance or the establishment or operation of group purchasing arrangements, that are consistent with, and are not in direct conflict with, this Act and provide greater protection or benefit to participants, beneficiaries or individuals.

    (b) RULE OF CONSTRUCTION- Nothing in this Act shall be construed to affect or modify the provisions of section 514 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1144).

    (c) CONTINUATION- Nothing in this Act shall be construed as requiring a group health plan or an employee health benefit plan to provide benefits to a particular participant or beneficiary, to all participants or beneficiaries, or to any class or group of participants or beneficiaries, in excess of or other than those provided under the terms of such plan.

SEC. 202. ENFORCEMENT OF STANDARDS.

    (a) HEALTH PLAN ISSUERS- Each State shall require that each group health plan and individual health plan issued, sold, renewed, offered for sale or operated in such State by a health plan issuer meet the standards established under this Act pursuant to an enforcement plan filed by the State with the Secretary. A State shall submit such information as required by the Secretary demonstrating effective implementation of the State enforcement plan.

    (b) EMPLOYEE HEALTH BENEFIT PLANS- With respect to employee health benefit plans, the Secretary shall enforce the reform standards established under this Act in the same manner as provided for under sections 502, 504, 506, and 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil penalties contained in paragraphs (1) and (2) of section 502(c) of such Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any information required by the Secretary to be disclosed and reported under this section.

    (c) FAILURE TO IMPLEMENT PLAN- In the case of the failure of a State to substantially enforce the standards and requirements set forth in this Act with respect to group health plans and individual health plans as provided for under the State enforcement plan filed under subsection (a), the Secretary, in consultation with the Secretary of Health and Human Services, shall implement an enforcement plan meeting the standards of this Act in such State. In the case of a State that fails to substantially enforce the standards and requirements set forth in this Act, each health plan issuer operating in such State shall be subject to civil enforcement as provided for under sections 502, 504, 506, and 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1132, 1134, 1136, and 1140). The civil penalties contained in paragraphs (1) and (2) of section 502(c) of such Act (29 U.S.C. 1132(c)(1) and (2)) shall apply to any information required by the Secretary to be disclosed and reported under this section.

    (d) APPLICABLE CERTIFYING AUTHORITY- As used in this title, the term ‘applicable certifying authority’ means, with respect to--

      (1) health plan issuers, the State insurance commissioner or official or officials designated by the State to enforce the requirements of this Act for the State involved; and

      (2) an employee health benefit plan, the Secretary.

    (e) REGULATIONS- The Secretary may promulgate such regulations as may be necessary or appropriate to carry out this Act.

    (f) TECHNICAL AMENDMENT- Section 508 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1138) is amended by inserting ‘and under the Health Insurance Reform Act of 1996’ before the period.

TITLE III--MISCELLANEOUS PROVISIONS

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

    (a) IN GENERAL- Section 1301(b) of the Public Health Service Act (42 U.S.C. 300e(b)) is amended by adding at the end the following new paragraph:

      ‘(6)(A) If a member certifies that a medical savings account has been established for the benefit of such member, a health maintenance organization may, at the request of such member reduce the basic health services payment otherwise determined under paragraph (1) by requiring the payment of a deductible by the member for basic health services.

      ‘(B) For purposes of this paragraph, the term ‘medical savings account’ means an account which, by its terms, allows the deposit of funds and the use of such funds and income derived from the investment of such funds for the payment of the deductible described in subparagraph (A).’.

    (b) MEDICAL SAVINGS ACCOUNTS- It is the sense of the Committee on Labor and Human Resources of the Senate that the establishment of medical savings accounts, including those defined in section 1301(b)(6)(B) of the Public Health Service Act (42 U.S.C. 300e(b)(6)(B)), should be encouraged as part of any health insurance reform legislation passed by the Senate through the use of tax incentives relating to contributions to, the income growth of, and the qualified use of, such accounts.

    (c) SENSE OF THE SENATE- It is the sense of the Senate that the Congress should take measures to further the purposes of this Act, including any necessary changes to the Internal Revenue Code of 1986 to encourage groups and individuals to obtain health coverage, and to promote access, equity, portability, affordability, and security of health benefits.

SEC. 302. HEALTH COVERAGE AVAILABILITY STUDY.

    (a) IN GENERAL- The Secretary of Health and Human Services, in consultation with the Secretary, representatives of State officials, consumers, and other representatives of individuals and entities that have expertise in health insurance and employee benefits, shall conduct a three-part study, and prepare and submit reports, in accordance with this section.

    (b) EVALUATION OF AVAILABILITY- Not later than January 1, 1998, the Secretary of Health and Human Services shall prepare and submit to the appropriate committees of Congress a report, concerning--

      (1) an evaluation, based on the experience of States, expert opinions, and such additional data as may be available, of the various mechanisms used to ensure the availability of reasonably priced health coverage to employers purchasing group coverage and to individuals purchasing coverage on a non-group basis; and

      (2) whether standards that limit the variation in premiums will further the purposes of this Act.

    (c) EVALUATION OF EFFECTIVENESS- Not later than January 1, 1999, the Secretary of Health and Human Services shall prepare and submit to the appropriate committees of Congress a report, concerning the effectiveness of the provisions of this Act and the various State laws, in ensuring the availability of reasonably priced health coverage to employers purchasing group coverage and individuals purchasing coverage on a non-group basis.

    (d) EVALUATION OF ACCESS AND CHOICE- Not later than June 1, 1998, the Secretary of Health and Human Services shall prepare and submit to the appropriate committees of Congress a report concerning--

      (1) an evaluation of the extent to which patients have direct access to, and choice of, health care provider, including specialty providers, within a network of providers, as well as the opportunity to utilize providers outside of the network, under the various types of coverage offered under the provisions of this Act;

      (2) an evaluation of the cost to the insurer of providing out-of-network access to providers, and the feasibility of providing out-of-network access in all health plans offered under provisions of this Act; and

      (3) an evaluation of the percent of premium dollar utilized for medical care and administration of the various types of coverage offered, including coverage which permits out-of-network access and choice of provider, under provisions of this Act.

SEC. 303. REIMBURSEMENT OF TELEMEDICINE.

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

SEC. 304. SENSE OF THE COMMITTEE CONCERNING MEDICARE.

    (a) FINDINGS- The Committee on Labor and Human Resources of the Senate finds that the Public Trustees of Medicare concluded in their 1995 Annual Report that--

      (1) the Medicare program is clearly unsustainable in its present form;

      (2) ‘the Hospital Insurance Trust Fund, which pays inpatient hospital expenses, will be able to pay benefits for only about 7 years and is severely out of financial balance in the long range’; and

      (3) the Public Trustees ‘strongly recommend that the crisis presented by the financial condition of the Medicare trust fund be urgently addressed on a comprehensive basis, including a review of the programs’s financing methods, benefit provisions, and delivery mechanisms’.

    (b) SENSE OF THE COMMITTEE- It is the Sense of the Committee on Labor and Human Resources of the Senate that the Senate should take measures necessary to reform the Medicare program, to provide increased choice for seniors, and to respond to the findings of the Public Trustees by protecting the short-term solvency and long-term sustainability of the Medicare program.

SEC. 305. PARITY FOR MENTAL HEALTH SERVICES.

    (a) PROHIBITION- An employee health benefit plan, or a health plan issuer offering a group health plan or an individual health plan, shall not impose treatment limitations or financial requirements on the coverage of mental health services if similar limitations or requirements are not imposed on coverage for services for other conditions.

    (b) RULE OF CONSTRUCTION- Nothing in subsection (a) shall be construed as prohibiting an employee health benefit plan, or a health plan issuer offering a group health plan or an individual health plan, from requiring preadmission screening prior to the authorization of services covered under the plan or from applying other limitations that restrict coverage for mental health services to those services that are medically necessary.

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

    (a) EXTENSION OF WAIVER PROGRAM- Section 220(c) of the Immigration and Nationality Technical Corrections Act of 1994 (8 U.S.C. 1182 note) is amended by striking ‘June 1, 1996’ and inserting ‘June 1, 2002’.

    (b) CONDITIONS ON FEDERALLY REQUESTED WAIVERS- Section 212(e) of the Immigration and Nationality Act (8 U.S.C. 1184(e)) is amended by inserting after ‘except that in the case of a waiver requested by a State Department of Public Health or its equivalent’ the following: ‘or in the case of a waiver requested by an interested United States Government agency on behalf of an alien described in clause (iii)’.

    (c) RESTRICTIONS ON FEDERALLY REQUESTED WAIVERS- Section 214(k) (8 U.S.C. 1184(k)) is amended to read as follows:

    ‘(k)(1) In the case of a request by an interested State agency or by an interested United States Government agency for a waiver of the two-year foreign residence requirement under section 212(e) with respect to an alien described in clause (iii) of that section, the Attorney General shall not grant such waiver unless--

      ‘(A) in the case of an alien who is otherwise contractually obligated to return to a foreign country, the government of such country furnishes the Director of the United States Information Agency with a statement in writing that it has no objection to such waiver; and

      ‘(B)(i) in the case of a request by an interested State agency--

        ‘(I) the alien demonstrates a bona fide offer of full-time employment, agrees to begin employment with the health facility or organization named in the waiver application within 90 days of receiving such waiver, and agrees to work for a total of not less than three years (unless the Attorney General determines that extenuating circumstances exist, such as closure of the facility or hardship to the alien would justify a lesser period of time); and

        ‘(II) the alien’s employment continues to benefit the public interest; or

      ‘(ii) in the case of a request by an interested United States Government agency--

        ‘(I) the alien demonstrates a bona fide offer of full-time employment that has been found to be in the public interest, agrees to begin employment with the health facility or organization named in the waiver application within 90 days of receiving such waiver, and agrees to work for a total of not less than three years (unless the Attorney General determines that extenuating circumstances exist, such as closure of the facility or hardship to the alien would justify a lesser period of time); and

        ‘(II) the alien’s employment continues to benefit the public interest;

      ‘(C) in the case of a request by an interested State agency, the alien agrees to practice medicine in accordance with paragraph (2) for a total of not less than three years only in the geographic area or areas which are designated by the Secretary of Health and Human Services as having a shortage of health care professionals; and

      ‘(D) in the case of a request by an interested State agency, the grant of such a waiver would not cause the number of waivers allotted for that State for that fiscal year to exceed 20.

    ‘(2)(A) Notwithstanding section 248(2) the Attorney General may change the status of an alien that qualifies under this subsection and section 212(e) to that of an alien described in section 101(a)(15)(H)(i)(b).

    ‘(B) No person who has obtained a change of status under subparagraph (A) and who has failed to fulfill the terms of the contract with the health facility or organization named in the waiver application shall be eligible to apply for an immigrant visa, for permanent residence, or for any other change of nonimmigrant status until it is established that such person has resided and been physically present in the country of his nationality or his last residence for an aggregate of at least two years following departure from the United States.

    ‘(3) Notwithstanding any other provisions of this subsection, the two-year foreign residence requirement under section 212(e) shall apply with respect to an alien in clause (iii) of that section who has not otherwise been accorded status under section 101(a)(27)(H)--

      ‘(A) in the case of a request by an interested State agency, if at any time the alien practices medicine in an area other than an area described in paragraph (1)(C); and

      ‘(B) in the case of a request by an interested United States Government agency, if at any time the alien engages in employment for a health facility or organization not named in the waiver application.’.

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

    (a) IN GENERAL- The Secretary of the Treasury shall include with any payment of a refund of individual income tax made during the period beginning on February 1, 1997, and ending on June 30, 1997, a copy of the document described in subsection (b).

    (b) TEXT OF DOCUMENT- The Secretary of the Treasury shall, after consultation with the Secretary of Health and Human Services and organizations promoting organ and tissue (including eye) donation, prepare a document suitable for inclusion with individual income tax refund payments which--

      (1) encourages organ and tissue donation;

      (2) includes a detachable organ and tissue donor card; and

      (3) urges recipients to--

        (A) sign the organ and tissue donor card;

        (B) discuss organ and tissue donation with family members and tell family members about the recipient’s desire to be an organ and tissue donor if the occasion arises; and

        (C) encourage family members to request or authorize organ and tissue donation if the occasion arises.

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

    (a) FINDINGS- The Senate finds the following:

      (1) The health care coverage of mothers and children in the United States is unacceptable, with more than 9,300,000 children and 500,000 expectant mothers having no health insurance.

      (2) Among industrial nations, the United States ranks 1st in wealth but 18th in infant mortality, and 14th among such nations in maternal mortality.

      (3) 22 percent of pregnant women do not have prenatal care in the first trimester, and 22 percent of all poor children are uninsured, despite the medicaid program under title XIX of the Social Security Act.

      (4) Of the 1,100,000 net increase in uninsured persons from 1992 to 1993, 84 percent or 922,500 were children.

      (5) Since 1987, the number of children covered by employment based health insurance has decreased, and many children lack health insurance despite the relative affordability of providing insurance for children.

      (6) Health care coverage for children is relatively inexpensive and in 1993 the medicaid program spent an average of $1,012 per child compared to $8,220 per elderly adult.

      (7) Uninsured children are generally children of lower income workers, who are less likely than higher income workers to have health insurance for their families because they are less likely to work for a firm that offers insurance, and if such insurance is offered, it is often too costly for lower income workers to purchase.

      (8) In 1993, 61 percent of uninsured children were in families with at least one parent working full time for the entire year the child was uninsured, and about 57 percent of uninsured children had a family income at or below 150 percent of the Federal poverty level.

      (9) If Congress eliminates the Federal guarantee of medicaid, an estimated 4,900,000 children may lose their guarantee of health care coverage, and those same children may be added to the currently projected 12,600,000 children who will be uninsured by the year 2002.

      (10) Studies have shown that uninsured children are less likely than insured children to receive needed health and preventive care, which can affect their health status adversely throughout their lives, with such children less likely to have routine doctor visits, receive care for injuries, and have a regular source of medical care.

      (11) The families of uninsured children are more likely to take the children to an emergency room than to a private physician or health maintenance organization.

      (12) Children without health insurance are less likely to be appropriately immunized or receive other preventive care for childhood illnesses.

      (13) Ensuring the health of children clearly increases their chances to become productive members of society and averts more serious or more expensive health conditions later in life, and ensuring that all pregnant women receive competent prenatal care also saves social costs.

      (14) Although the United States has made great improvements in health care coverage through the medicaid program, it is still the only developed nation that does not ensure that all of its children and pregnant women have health care coverage.

      (15) The United States should not accept a status quo in which children in many neighborhoods are more likely to have access to drugs and guns than to doctors, or accept a status quo in which health care is ensured for all prisoners but not for all children.

    (b) SENSE OF THE SENATE- It is the sense of the Senate that the issue of adequate health care for our mothers and children is important to the future of the United States, and in consideration of the importance of such issue, the Senate should pass health care legislation that will ensure health care coverage for all of the United States’s pregnant women and children.

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

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

SEC. 310. MEDICAL VOLUNTEERS.

    (a) SHORT TITLE- This title may be cited as the ‘Medical Volunteer Act’.

    (b) TORT CLAIM IMMUNITY-

      (1) GENERAL RULE- A health care professional who provides a health care service to a medically underserved person without receiving compensation for such health care service, shall be regarded, for purposes of any medical malpractice claim that may arise in connection with the provision of such service, as an employee of the Federal Government for purposes of the Federal tort claims provisions in title 28, United States Code.

      (2) COMPENSATION- For purposes of paragraph (1), a health care professional shall be deemed to have provided a health care service without compensation only if, prior to furnishing a health care service, the health care professional--

        (A) agrees to furnish the health care service without charge to any person, including any health insurance plan or program under which the recipient is covered; and

        (B) provides the recipient of the health care service with adequate notice (as determined by the Secretary) of the limited liability of the health care professional with respect to the service.

    (c) PREEMPTION- The provisions of this section shall preempt any State law to the extent that such law is inconsistent with such provisions. The provisions of this section shall not preempt any State law that provides greater incentives or protections to a health care professional rendering a health care service.

    (d) DEFINITIONS- For purposes of this section:

      (1) HEALTH CARE PROFESSIONAL- The term ‘health care professional’ means a person who, at the time the person provides a health care service, is licensed or certified by the appropriate authorities for practice in a State to furnish health care services.

      (2) HEALTH CARE SERVICE- The term ‘health care service’ means any medical assistance to the extent it is included in the plan submitted under title XIX of the Social Security Act for the State in which the service was provided.

      (3) MEDICALLY UNDERSERVED PERSON- The term ‘medically underserved person’ means a person who resides in--

        (A) a medically underserved area as defined for purposes of determining a medically underserved population under section 330 of the Public Health Service Act (42 U.S.C. 254c); or

        (B) a health professional shortage area as defined in section 332 of such Act (42 U.S.C. 254e);

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

      (4) SECRETARY- The term ‘Secretary’ means the Secretary of the Department of Health and Human Services.

SEC. 311. EFFECTIVE DATE.

    Except as otherwise provided for in this Act, the provisions of this Act shall apply as follows:

      (1) With respect to group health plans, such provisions shall apply to plans offered, sold, issued, renewed, in effect, or operated on or after January 1, 1997.

      (2) With respect to individual health plans, such provisions shall apply to plans offered, sold, issued, renewed, in effect, or operated on or after the date that is 6 months after the date of enactment of this Act, or January 1, 1997, whichever is later.

      (3) With respect to employee health benefit plans, such provisions shall apply to such plans on the first day of the first plan year beginning on or after January 1, 1997.

SEC. 312. SEVERABILITY.

    If any provision of this Act or the application of such provision to any person or circumstance is held to be unconstitutional, the remainder of this Act and the application of the provisions of such to any person or circumstance shall not be affected thereby.

TITLE IV--TAX-RELATED HEALTH PROVISIONS

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

    (a) SHORT TITLE- This title may be cited as the ‘Health Insurance and Long-Term Care Affordability Act of 1996’.

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

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

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

    (a) IN GENERAL- Section 162(l) (relating to special rules for health insurance costs of self-employed individuals) is amended--

      (1) by striking ‘30 percent’ in paragraph (1) and inserting ‘the applicable percentage’, and

      (2) by adding at the end the following new paragraph:

      ‘(6) APPLICABLE PERCENTAGE- For purposes of this subsection, the term ‘applicable percentage’ means the percentage determined in accordance with the following table:

‘In the case of taxable years

The applicable

beginning in:

percentage is:

1997

35

1998

40

1999

45

2000

50

2001

55

2002

60

2003

65

2004

70

2005

75

2006 and thereafter

80.’.

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996.

Subtitle B--Long-Term Care Provisions

CHAPTER 1--LONG-TERM CARE SERVICES AND CONTRACTS

Subchapter A--General Provisions

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

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

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

    ‘(a) IN GENERAL- For purposes of this title--

      ‘(1) a qualified long-term care insurance contract shall be treated as an accident and health insurance contract,

      ‘(2) amounts (other than policyholder dividends, as defined in section 808, or premium refunds) received under a qualified long-term care insurance contract shall be treated as amounts received for personal injuries and sickness and shall be treated as reimbursement for expenses actually incurred for medical care (as defined in section 213(d)),

      ‘(3) any plan of an employer providing coverage under a qualified long-term care insurance contract shall be treated as an accident and health plan with respect to such coverage,

      ‘(4) except as provided in subsection (e)(3), amounts paid for a qualified long-term care insurance contract providing the benefits described in subsection (b)(2)(A) shall be treated as payments made for insurance for purposes of section 213(d)(1)(D), and

      ‘(5) a qualified long-term care insurance contract shall be treated as a guaranteed renewable contract subject to the rules of section 816(e).

    ‘(b) QUALIFIED LONG-TERM CARE INSURANCE CONTRACT- For purposes of this title--

      ‘(1) IN GENERAL- The term ‘qualified long-term care insurance contract’ means any insurance contract if--

        ‘(A) the only insurance protection provided under such contract is coverage of qualified long-term care services,

        ‘(B) such contract does not pay or reimburse expenses incurred for services or items to the extent that such expenses are reimbursable under title XVIII of the Social Security Act or would be so reimbursable but for the application of a deductible or coinsurance amount,

        ‘(C) such contract is guaranteed renewable,

        ‘(D) such contract does not provide for a cash surrender value or other money that can be--

          ‘(i) paid, assigned, or pledged as collateral for a loan, or

          ‘(ii) borrowed,

        other than as provided in subparagraph (E) or paragraph (2)(C), and

        ‘(E) all refunds of premiums, and all policyholder dividends or similar amounts, under such contract are to be applied as a reduction in future premiums or to increase future benefits.

      ‘(2) SPECIAL RULES-

        ‘(A) PER DIEM, ETC. PAYMENTS PERMITTED- A contract shall not fail to be described in subparagraph (A) or (B) of paragraph (1) by reason of payments being made on a per diem or other periodic basis without regard to the expenses incurred during the period to which the payments relate.

        ‘(B) SPECIAL RULES RELATING TO MEDICARE-

          ‘(i) Paragraph (1)(B) shall not apply to expenses which are reimbursable under title XVIII of the Social Security Act only as a secondary payor.

          ‘(ii) No provision of law shall be construed or applied so as to prohibit the offering of a qualified long-term care insurance contract on the basis that the contract coordinates its benefits with those provided under such title.

        ‘(C) REFUNDS OF PREMIUMS- Paragraph (1)(E) shall not apply to any refund on the death of the insured, or on a complete surrender or cancellation of the contract, which cannot exceed the aggregate premiums paid under the contract. Any refund on a complete surrender or cancellation of the contract shall be includible in gross income to the extent that any deduction or exclusion was allowable with respect to the premiums.

    ‘(c) QUALIFIED LONG-TERM CARE SERVICES- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘qualified long-term care services’ means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which--

        ‘(A) are required by a chronically ill individual, and

        ‘(B) are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

      ‘(2) CHRONICALLY ILL INDIVIDUAL-

        ‘(A) IN GENERAL- The term ‘chronically ill individual’ means any individual who has been certified by a licensed health care practitioner as--

          ‘(i) being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity,

          ‘(ii) having a level of disability similar (as determined by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or

          ‘(iii) requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.

        Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the preceding 12-month period a licensed health care practitioner has certified that such individual meets such requirements.

        ‘(B) ACTIVITIES OF DAILY LIVING- For purposes of subparagraph (A), each of the following is an activity of daily living:

          ‘(i) Eating.

          ‘(ii) Toileting.

          ‘(iii) Transferring.

          ‘(iv) Bathing.

          ‘(v) Dressing.

          ‘(vi) Continence.

        Nothing in this section shall be construed to require a contract to take into account all of the preceding activities of daily living.

      ‘(3) MAINTENANCE OR PERSONAL CARE SERVICES- The term ‘maintenance or personal care services’ means any care the primary purpose of which is the provision of needed assistance with any of the disabilities as a result of which the individual is a chronically ill individual (including the protection from threats to health and safety due to severe cognitive impairment).

      ‘(4) LICENSED HEALTH CARE PRACTITIONER- The term ‘licensed health care practitioner’ means any physician (as defined in section 1861(r)(1) of the Social Security Act (42 U.S.C. 1395x(r)(1)) and any registered professional nurse, licensed social worker, or other individual who meets such requirements as may be prescribed by the Secretary.

    ‘(d) AGGREGATE PAYMENTS IN EXCESS OF LIMITS-

      ‘(1) IN GENERAL- If the aggregate amount of periodic payments under all qualified long-term care insurance contracts with respect to an insured for any period exceeds the dollar amount in effect for such period under paragraph (3), such excess payments shall be treated as made for qualified long-term care services only to the extent of the costs incurred by the payee (not otherwise compensated for by insurance or otherwise) for qualified long-term care services provided during such period for such insured.

      ‘(2) PERIODIC PAYMENTS- For purposes of paragraph (1), the term ‘periodic payment’ means any payment (whether on a periodic basis or otherwise) made without regard to the extent of the costs incurred by the payee for qualified long-term care services.

      ‘(3) DOLLAR AMOUNT- The dollar amount in effect under this subsection shall be $175 per day (or the equivalent amount in the case of payments on another periodic basis).

      ‘(4) INFLATION ADJUSTMENT- In the case of a calendar year after 1997, the dollar amount contained in paragraph (3) shall be increased at the same time and in the same manner as amounts are increased pursuant to section 213(d)(11).

    ‘(e) TREATMENT OF COVERAGE PROVIDED AS PART OF A LIFE INSURANCE CONTRACT- Except as otherwise provided in regulations prescribed by the Secretary, in the case of any long-term care insurance coverage (whether or not qualified) provided by a rider on or as a part of a life insurance contract--

      ‘(1) IN GENERAL- This section shall apply as if the portion of the contract providing such coverage is a separate contract.

      ‘(2) APPLICATION OF 7702- Section 7702(c)(2) (relating to the guideline premium limitation) shall be applied by increasing the guideline premium limitation with respect to a life insurance contract, as of any date--

        ‘(A) by the sum of any charges (but not premium payments) against the life insurance contract’s cash surrender value (within the meaning of section 7702(f)(2)(A)) for such coverage made to that date under the contract, less

        ‘(B) any such charges the imposition of which reduces the premiums paid for the contract (within the meaning of section 7702(f)(1)).

      ‘(3) APPLICATION OF SECTION 213- No deduction shall be allowed under section 213(a) for charges against the life insurance contract’s cash surrender value described in paragraph (2), unless such charges are includible in income as a result of the application of section 72(e)(10) and the rider is a qualified long-term care insurance contract under subsection (b).

      ‘(4) PORTION DEFINED- For purposes of this subsection, the term ‘portion’ means only the terms and benefits under a life insurance contract that are in addition to the terms and benefits under the contract without regard to the coverage under a qualified long-term care insurance contract.’.

    (b) RESERVE METHOD- Clause (iii) of section 807(d)(3)(A) is amended by inserting ‘(other than a qualified long-term care insurance contract, as defined in section 7702B(b))’ after ‘insurance contract’.

    (c) LONG-TERM CARE INSURANCE NOT PERMITTED UNDER CAFETERIA PLANS OR FLEXIBLE SPENDING ARRANGEMENTS-

      (1) CAFETERIA PLANS- Section 125(f) is amended by adding at the end the following new sentence: ‘Such term shall not include any long-term care insurance contract (as defined in section 4980C).’.

      (2) FLEXIBLE SPENDING ARRANGEMENTS- The text of section 106 (relating to contributions by employer to accident and health plans) is amended to read as follows:

    ‘(a) GENERAL RULE- Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan.

    ‘(b) INCLUSION OF LONG-TERM CARE BENEFITS PROVIDED THROUGH FLEXIBLE SPENDING ARRANGEMENTS-

      ‘(1) IN GENERAL- Effective on and after January 1, 1997, gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such coverage is provided through a flexible spending or similar arrangement.

      ‘(2) FLEXIBLE SPENDING ARRANGEMENT- For purposes of this subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which--

        ‘(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and

        ‘(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage.

      In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage.’.

    (d) CONTINUATION COVERAGE EXCISE TAX NOT TO APPLY- Subsection (f) of section 4980B is amended by adding at the end the following new paragraph:

      ‘(9) CONTINUATION OF LONG-TERM CARE COVERAGE NOT REQUIRED- A group health plan shall not be treated as failing to meet the requirements of this subsection solely by reason of failing to provide coverage under any qualified long-term care insurance contract (as defined in section 7702B(b)).’.

    (e) AMOUNTS PAID TO SPOUSE OR RELATIVES TREATED AS NOT PAID FOR MEDICAL CARE- Section 213(d) is amended by adding at the end the following new paragraph:

      ‘(10) CERTAIN PAYMENTS TO SPOUSE OR RELATIVES TREATED AS NOT PAID FOR MEDICAL CARE- An amount paid for a qualified long-term care service (as defined in section 7702B(c)) provided to an individual shall be treated as not paid for medical care if such service is provided--

        ‘(A) by the spouse of the individual or a relative (directly or through a partnership, corporation, or other entity) unless the spouse or relative is a licensed professional with respect to such services, or

        ‘(B) by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual.

      For purposes of this paragraph, the term ‘relative’ means an individual bearing a relationship to the individual which is described in any of paragraphs (1) through (8) of section 152(a). This paragraph shall not apply for purposes of section 105(b) with respect to reimbursements through insurance.’.

    (f) CLERICAL AMENDMENT- The table of sections for chapter 79 is amended by inserting after the item relating to section 7702A the following new item:

      ‘Sec. 7702B. Treatment of qualified long-term care insurance.’.

    (g) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to contracts issued after December 31, 1996.

      (2) CONTINUATION OF EXISTING POLICIES- In the case of any contract issued before January 1, 1997, which met the long-term care insurance requirements of the State in which the contract was issued at the time the contract was issued--

        (A) such contract shall be treated for purposes of the Internal Revenue Code of 1986 as a qualified long-term care insurance contract (as defined in section 7702B(b) of such Code), and

        (B) services provided under, or reimbursed by, such contract shall be treated for such purposes as qualified long-term care services (as defined in section 7702B(c) of such Code).

      (3) EXCHANGES OF EXISTING POLICIES- If, after the date of enactment of this Act and before January 1, 1998, a contract providing for long-term care insurance coverage is exchanged solely for a qualified long-term care insurance contract (as defined in section 7702B(b) of such Code), no gain or loss shall be recognized on the exchange. If, in addition to a qualified long-term care insurance contract, money or other property is received in the exchange, then any gain shall be recognized to the extent of the sum of the money and the fair market value of the other property received. For purposes of this paragraph, the cancellation of a contract providing for long-term care insurance coverage and reinvestment of the cancellation proceeds in a qualified long-term care insurance contract within 60 days thereafter shall be treated as an exchange.

      (4) ISSUANCE OF CERTAIN RIDERS PERMITTED- For purposes of applying sections 101(f), 7702, and 7702A of the Internal Revenue Code of 1986 to any contract--

        (A) the issuance of a rider which is treated as a qualified long-term care insurance contract under section 7702B, and

        (B) the addition of any provision required to conform any other long-term care rider to be so treated,

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

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

    (a) GENERAL RULE- Paragraph (1) of section 213(d) (defining medical care) is amended by striking ‘or’ at the end of subparagraph (B), by redesignating subparagraph (C) as subparagraph (D), and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) for qualified long-term care services (as defined in section 7702B(c)), or’.

    (b) TECHNICAL AMENDMENTS-

      (1) Subparagraph (D) of section 213(d)(1) (as redesignated by subsection (a)) is amended by striking ‘subparagraphs (A) and (B)’ and inserting ‘subparagraphs (A), (B), and (C)’.

      (2)(A) Paragraph (1) of section 213(d) is amended by adding at the end the following new flush sentence:

      ‘In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (11)) shall be taken into account under subparagraph (D).’.

      (B) Subsection (d) of section 213 is amended by adding at the end the following new paragraph:

      ‘(11) Eligible long-term care premiums-

        ‘(A) IN GENERAL- For purposes of this section, the term ‘eligible long-term care premiums’ means the amount paid during a taxable year for any qualified long-term care insurance contract (as defined in section 7702B(b)) covering an individual, to the extent such amount does not exceed the limitation determined under the following table:

‘In the case of an individual

--

with an attained age before the

--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 ADJUSTMENT- For purposes of clause (i), the medical care cost adjustment for any calendar year is the percentage (if any) by which--

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

            ‘(II) such component for August of 1996.

          The Secretary shall, in consultation with the Secretary of Health and Human Services, prescribe an adjustment which the Secretary determines is more appropriate for purposes of this paragraph than the adjustment described in the preceding sentence, and the adjustment so prescribed shall apply in lieu of the adjustment described in the preceding sentence.’.

      (3) Paragraph (6) of section 213(d) is amended--

        (A) by striking ‘subparagraphs (A) and (B)’ and inserting ‘subparagraphs (A), (B), and (C)’, and

        (B) by striking ‘paragraph (1)(C)’ in subparagraph (A) and inserting ‘paragraph (1)(D)’.

      (4) Paragraph (7) of section 213(d) is amended by striking ‘subparagraphs (A) and (B)’ and inserting ‘subparagraphs (A), (B), and (C)’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996.

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

    (a) IN GENERAL- Subsection (a) of section 1035 (relating to certain exchanges of insurance contracts) is amended by striking the period at the end of paragraph (3) and inserting ‘; or’, and by adding at the end the following new paragraph:

      ‘(4) a contract of life insurance or an endowment or annuity contract for a qualified long-term care insurance contract (as defined in section 7702B(b)).’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 1997.

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

    (a) IN GENERAL- Paragraph (2) of section 72(t) is amended by adding at the end the following new subparagraph:

        ‘(D) PREMIUMS FOR QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS- Distributions to an individual from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), to the extent such distributions do not exceed the premiums for a qualified long-term care insurance contract (as defined in section 7702B(b)) for such individual or the spouse of such individual. In applying subparagraph (B), such premiums shall be treated as amounts not paid for medical care.’.

    (b) Distributions Permitted From Certain Plans To Pay Long-term Care Premiums-

      (1) Section 401(k)(2)(B)(i) is amended by striking ‘or’ at the end of subclause (III), by striking ‘and’ at the end of subclause (IV) and inserting ‘or’, and by inserting after subclause (IV) the following new subclause:

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

      (2) Section 403(b)(11) is amended by striking ‘or’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, or’, and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) for the payment of premiums for a long-term care insurance contract (as defined in section 7702B(b)) for coverage of the employee or the spouse of the employee.’.

      (3) Subparagraph (A) of section 457(d)(1) is amended by striking ‘or’ at the end of clause (ii), by striking ‘and’ at the end of clause (iii) and inserting ‘or’, and by inserting after clause (iii) the following new clause:

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

    (c) CONFORMING AMENDMENT- Section 72t(2)(B) is amended by striking ‘subparagraph (A) or (C))’ and inserting ‘subparagraph (A), (C), or (D))’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to payments and distributions after December 31, 1996.

SEC. 415. REPORTING REQUIREMENTS.

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

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

    ‘(a) REQUIREMENT OF REPORTING- Any person who pays long-term care benefits shall make a return, according to the forms or regulations prescribed by the Secretary, setting forth--

      ‘(1) the aggregate amount of such benefits paid by such person to any individual during any calendar year, and

      ‘(2) the name, address, and TIN of such individual.

    ‘(b) STATEMENTS TO BE FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED- Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing--

      ‘(1) the name of the person making the payments, and

      ‘(2) the aggregate amount of long-term care benefits paid to the individual which are required to be shown on such return.

    The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.

    ‘(c) LONG-TERM CARE BENEFITS- For purposes of this section, the term ‘long-term care benefit’ means any amount paid under a long-term care insurance policy (within the meaning of section 4980C(e)).’.

    (b) PENALTIES-

      (1) Subparagraph (B) of section 6724(d)(1) is amended by redesignating clauses (ix) through (xiv) as clauses (x) through (xv), respectively, and by inserting after clause (viii) the following new clause:

          ‘(ix) section 6050Q (relating to certain long-term care benefits),’.

      (2) Paragraph (2) of section 6724(d) is amended by redesignating subparagraphs (Q) through (T) as subparagraphs (R) through (U), respectively, and by inserting after subparagraph (P) the following new subparagraph:

        ‘(Q) section 6050Q(b) (relating to certain long-term care benefits),’.

    (c) CLERICAL AMENDMENT- The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by adding at the end the following new item:

      ‘Sec. 6050Q. Certain long-term care benefits.’.

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

Subchapter B--Consumer Protection Provisions

SEC. 421. POLICY REQUIREMENTS.

    Section 7702B (as added by section 411) is amended by adding at the end the following new subsection:

    ‘(f) CONSUMER PROTECTION PROVISIONS-

      ‘(1) IN GENERAL- The requirements of this subsection are met with respect to any contract if any long-term care insurance policy issued under the contract meets--

        ‘(A) the requirements of the model regulation and model Act described in paragraph (2),

        ‘(B) the disclosure requirement of paragraph (3), and

        ‘(C) the requirements relating to nonforfeitability under paragraph (4).

      ‘(2) REQUIREMENTS OF MODEL REGULATION AND ACT-

        ‘(A) IN GENERAL- The requirements of this paragraph are met with respect to any policy if such policy meets--

          ‘(i) MODEL REGULATION- The following requirements of the model regulation:

            ‘(I) Section 7A (relating to guaranteed renewal or noncancellability), and the requirements of section 6B of the model Act relating to such section 7A.

            ‘(II) Section 7B (relating to prohibitions on limitations and exclusions).

            ‘(III) Section 7C (relating to extension of benefits).

            ‘(IV) Section 7D (relating to continuation or conversion of coverage).

            ‘(V) Section 7E (relating to discontinuance and replacement of policies).

            ‘(VI) Section 8 (relating to unintentional lapse).

            ‘(VII) Section 9 (relating to disclosure), other than section 9F thereof.

            ‘(VIII) Section 10 (relating to prohibitions against post-claims underwriting).

            ‘(IX) Section 11 (relating to minimum standards).

            ‘(X) Section 12 (relating to requirement to offer inflation protection), except that any requirement for a signature on a rejection of inflation protection shall permit the signature to be on an application or on a separate form.

            ‘(XI) Section 23 (relating to prohibition against preexisting conditions and probationary periods in replacement policies or certificates).

          ‘(ii) MODEL ACT- The following requirements of the model Act:

            ‘(I) Section 6C (relating to preexisting conditions).

            ‘(II) Section 6D (relating to prior hospitalization).

        ‘(B) DEFINITIONS- For purposes of this paragraph--

          ‘(i) MODEL PROVISIONS- The terms ‘model regulation’ and ‘model Act’ mean the long-term care insurance model regulation, and the long-term care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as adopted as of January 1993).

          ‘(ii) COORDINATION- Any provision of the model regulation or model Act listed under clause (i) or (ii) of subparagraph (A) shall be treated as including any other provision of such regulation or Act necessary to implement the provision.

      ‘(3) DISCLOSURE REQUIREMENT- The requirement of this paragraph is met with respect to any policy if such policy meets the requirements of section 4980C(d)(1).

      ‘(4) NONFORFEITURE REQUIREMENTS-

        ‘(A) IN GENERAL- The requirements of this paragraph are met with respect to any level premium long-term care insurance policy, if the issuer of such policy offers to the policyholder, including any group policyholder, a nonforfeiture provision meeting the requirements of subparagraph (B).

        ‘(B) REQUIREMENTS OF PROVISION- The nonforfeiture provision required under subparagraph (A) shall meet the following requirements:

          ‘(i) The nonforfeiture provision shall be appropriately captioned.

          ‘(ii) The nonforfeiture provision shall provide for a benefit available in the event of a default in the payment of any premiums and the amount of the benefit may be adjusted subsequent to being initially granted only as necessary to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying policies approved by the appropriate State regulatory authority for the same policy form.

          ‘(iii) The nonforfeiture provision shall provide at least one of the following:

            ‘(I) Reduced paid-up insurance.

            ‘(II) Extended term insurance.

            ‘(III) Shortened benefit period.

            ‘(IV) Other similar offerings approved by the Secretary.

      ‘(5) LONG-TERM CARE INSURANCE POLICY DEFINED- For purposes of this subsection, the term ‘long-term care insurance policy’ has the meaning given such term by section 4980C(e).’.

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

    (a) IN GENERAL- Chapter 43 is amended by adding at the end the following new section:

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

    ‘(a) GENERAL RULE- There is hereby imposed on any person failing to meet the requirements of subsection (c) or (d) a tax in the amount determined under subsection (b).

    ‘(b) AMOUNT-

      ‘(1) IN GENERAL- The amount of the tax imposed by subsection (a) shall be $100 per policy for each day any requirements of subsection (c) or (d) are not met with respect to each long-term care insurance policy.

      ‘(2) WAIVER- In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that payment of the tax would be excessive relative to the failure involved.

    ‘(c) RESPONSIBILITIES- The requirements of this subsection are as follows:

      ‘(1) REQUIREMENTS OF MODEL PROVISIONS-

        ‘(A) MODEL REGULATION- The following requirements of the model regulation must be met:

          ‘(i) Section 13 (relating to application forms and replacement coverage).

          ‘(ii) Section 14 (relating to reporting requirements), except that the issuer shall also report at least annually the number of claims denied during the reporting period for each class of business (expressed as a percentage of claims denied), other than claims denied for failure to meet the waiting period or because of any applicable preexisting condition.

          ‘(iii) Section 20 (relating to filing requirements for marketing).

          ‘(iv) Section 21 (relating to standards for marketing), including inaccurate completion of medical histories, other than sections 21C(1) and 21C(6) thereof, except that--

            ‘(I) in addition to such requirements, no person shall, in selling or offering to sell a long-term care insurance policy, misrepresent a material fact; and

            ‘(II) no such requirements shall include a requirement to inquire or identify whether a prospective applicant or enrollee for long-term care insurance has accident and sickness insurance.

          ‘(v) Section 22 (relating to appropriateness of recommended purchase).

          ‘(vi) Section 24 (relating to standard format outline of coverage).

          ‘(vii) Section 25 (relating to requirement to deliver shopper’s guide).

        ‘(B) MODEL ACT- The following requirements of the model Act must be met:

          ‘(i) Section 6F (relating to right to return), except that such section shall also apply to denials of applications and any refund shall be made within 30 days of the return or denial.

          ‘(ii) Section 6G (relating to outline of coverage).

          ‘(iii) Section 6H (relating to requirements for certificates under group plans).

          ‘(iv) Section 6I (relating to policy summary).

          ‘(v) Section 6J (relating to monthly reports on accelerated death benefits).

          ‘(vi) Section 7 (relating to incontestability period).

        ‘(C) DEFINITIONS- For purposes of this paragraph, the terms ‘model regulation’ and ‘model Act’ have the meanings given such terms by section 7702B(f)(2)(B).

      ‘(2) DELIVERY OF POLICY- If an application for a long-term care insurance policy (or for a certificate under a group long-term care insurance policy) is approved, the issuer shall deliver to the applicant (or policyholder or certificateholder) the policy (or certificate) of insurance not later than 30 days after the date of the approval.

      ‘(3) INFORMATION ON DENIALS OF CLAIMS- If a claim under a long-term care insurance policy is denied, the issuer shall, within 60 days of the date of a written request by the policyholder or certificateholder (or representative)--

        ‘(A) provide a written explanation of the reasons for the denial, and

        ‘(B) make available all information directly relating to such denial.

    ‘(d) DISCLOSURE- The requirements of this subsection are met if the issuer of a long-term care insurance policy discloses in such policy and in the outline of coverage required under subsection (c)(1)(B)(ii) that the policy is intended to be a qualified long-term care insurance contract under section 7702B(b).

    ‘(e) LONG-TERM CARE INSURANCE POLICY DEFINED- For purposes of this section, the term ‘long-term care insurance policy’ means any product which is advertised, marketed, or offered as long-term care insurance.’.

    (b) CONFORMING AMENDMENT- The table of sections for chapter 43 is amended by adding at the end the following new item:

      ‘Sec. 4980C. Requirements for issuers of long-term care insurance policies.’.

SEC. 423. COORDINATION WITH STATE REQUIREMENTS.

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

SEC. 424. EFFECTIVE DATES.

    (a) IN GENERAL- The provisions of, and amendments made by, this subchapter shall apply to contracts issued after December 31, 1996. The provisions of section 411(g) of this Act (relating to transition rule) shall apply to such contracts.

    (b) ISSUERS- The amendments made by section 422 shall apply to actions taken after December 31, 1996.

CHAPTER 2--TREATMENT OF ACCELERATED DEATH BENEFITS

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

    (a) IN GENERAL- Section 101 (relating to certain death benefits) is amended by adding at the end the following new subsection:

    ‘(g) TREATMENT OF CERTAIN ACCELERATED DEATH BENEFITS-

      ‘(1) IN GENERAL- For purposes of this section, the following amounts shall be treated as an amount paid by reason of the death of an insured:

        ‘(A) Any amount received under a life insurance contract on the life of an insured who is a terminally ill individual.

        ‘(B) Any amount received under a life insurance contract on the life of an insured who is a chronically ill individual (as defined in section 7702B(c)(2)) but only if such amount is received under a rider or other provision of such contract which is treated as a qualified long-term care insurance contract under section 7702B.

      ‘(2) TREATMENT OF VIATICAL SETTLEMENTS-

        ‘(A) IN GENERAL- In the case of a life insurance contract on the life of an insured described in paragraph (1), if--

          ‘(i) any portion of such contract is sold to any viatical settlement provider, or

          ‘(ii) any portion of the death benefit is assigned to such a provider,

        the amount paid for such sale or assignment shall be treated as an amount paid under the life insurance contract by reason of the death of such insured.

        ‘(B) VIATICAL SETTLEMENT PROVIDER- The term ‘viatical settlement provider’ means any person regularly engaged in the trade or business of purchasing, or taking assignments of, life insurance contracts on the lives of insureds described in paragraph (1) if--

          ‘(i) such person is licensed for such purposes in the State in which the insured resides, or

          ‘(ii) in the case of an insured who resides in a State not requiring the licensing of such persons for such purposes--

            ‘(I) such person meets the requirements of sections 8 and 9 of the Viatical Settlements Model Act of the National Association of Insurance Commissioners, and

            ‘(II) meets the requirements of the Model Regulations of the National Association of Insurance Commissioners (relating to standards for evaluation of reasonable payments) in determining amounts paid by such person in connection with such purchases or assignments.

      ‘(3) DEFINITIONS- For purposes of this subsection--

        ‘(A) TERMINALLY ILL INDIVIDUAL- The term ‘terminally ill individual’ means an individual who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death in 24 months or less after the date of the certification.

        ‘(B) PHYSICIAN- The term ‘physician’ has the meaning given to such term by section 1861(r)(1) of the Social Security Act (42 U.S.C. 1395x(r)(1)).

      ‘(4) EXCEPTION FOR BUSINESS-RELATED POLICIES- This subsection shall not apply in the case of any amount paid to any taxpayer other than the insured if such taxpayer has an insurable interest with respect to the life of the insured by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured being financially interested in any trade or business carried on by the taxpayer.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to amounts received after December 31, 1996.

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

    (a) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED AS LIFE INSURANCE- Section 818 (relating to other definitions and special rules) is amended by adding at the end the following new subsection:

    ‘(g) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS TREATED AS LIFE INSURANCE- For purposes of this part--

      ‘(1) IN GENERAL- Any reference to a life insurance contract shall be treated as including a reference to a qualified accelerated death benefit rider on such contract.

      ‘(2) QUALIFIED ACCELERATED DEATH BENEFIT RIDERS- For purposes of this subsection, the term ‘qualified accelerated death benefit rider’ means any rider on a life insurance contract if the only payments under the rider are payments meeting the requirements of section 101(g).

      ‘(3) EXCEPTION FOR LONG-TERM CARE RIDERS- Paragraph (1) shall not apply to any rider which is treated as a long-term care insurance contract under section 7702B.’.

    (b) EFFECTIVE DATE-

      (1) IN GENERAL- The amendment made by this section shall take effect on January 1, 1997.

      (2) ISSUANCE OF RIDER NOT TREATED AS MATERIAL CHANGE- For purposes of applying sections 101(f), 7702, and 7702A of the Internal Revenue Code of 1986 to any contract--

        (A) the issuance of a qualified accelerated death benefit rider (as defined in section 818(g) of such Code (as added by this Act)), and

        (B) the addition of any provision required to conform an accelerated death benefit rider to the requirements of such section 818(g),

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

Subtitle C--High-Risk Pools

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

    (a) IN GENERAL- Subsection (c) of section 501 (relating to list of exempt organizations) is amended by adding at the end the following new paragraph:

      ‘(26) Any membership organization if--

        ‘(A) such organization is established by a State exclusively to provide coverage for medical care (as defined in section 213(d)) on a not-for-profit basis to individuals described in subparagraph (B) through--

          ‘(i) insurance issued by the organization, or

          ‘(ii) a health maintenance organization under an arrangement with the organization,

        ‘(B) the only individuals receiving such coverage through the organization are individuals--

          ‘(i) who are residents of such State, and

          ‘(ii) who, by reason of the existence or history of a medical condition, are unable to acquire medical care coverage for such condition through insurance or from a health maintenance organization or are able to acquire such coverage only at a rate which is substantially in excess of the rate for such coverage through the membership organization,

        ‘(C) the composition of the membership in such organization is specified by such State, and

        ‘(D) no part of the net earnings of the organization inures to the benefit of any private shareholder or individual.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 1996.

Subtitle D--Penalty-Free IRA Distributions

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

    (a) IN GENERAL- Section 72(t)(3)(A) is amended by striking ‘(B),’.

    (b) PENALTY-FREE DISTRIBUTIONS FOR PAYMENT OF HEALTH INSURANCE PREMIUMS OF CERTAIN UNEMPLOYED INDIVIDUALS- Paragraph (2) of section 72(t), as amended by section 414, is amended by adding at the end the following new subparagraph:

        ‘(E) DISTRIBUTIONS TO UNEMPLOYED INDIVIDUALS FOR HEALTH INSURANCE PREMIUMS- Distributions from an individual retirement plan to an individual after separation from employment--

          ‘(i) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation,

          ‘(ii) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and

          ‘(iii) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in section 213(d)(1)(D) with respect to the individual and the individual’s spouse and dependents (as defined in section 152).

        To the extent provided in regulations, a self-employed individual shall be treated as meeting the requirements of clause (i) if, under Federal or State law, the individual would have received unemployment compensation but for the fact the individual was self-employed.’.

    (c) CONFORMING AMENDMENT- Subparagraph (B) of section 72(t)(2), as amended by section 414, is amended by striking ‘or (D)’ and inserting ‘, (D), or (E)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996.

Subtitle E--Revenue Offsets

CHAPTER 1--TREATMENT OF INDIVIDUALS WHO EXPATRIATE

SEC. 471. REVISION OF TAX RULES ON EXPATRIATION.

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

‘SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

    ‘(a) GENERAL RULES- For purposes of this subtitle--

      ‘(1) MARK TO MARKET- Except as provided in subsection (f), all property of a covered expatriate to which this section applies shall be treated as sold on the expatriation date for its fair market value.

      ‘(2) RECOGNITION OF GAIN OR LOSS- In the case of any sale under paragraph (1)--

        ‘(A) notwithstanding any other provision of this title, any gain arising from such sale shall be taken into account for the taxable year of the sale unless such gain is excluded from gross income under part III of subchapter B, and

        ‘(B) any loss arising from such sale shall be taken into account for the taxable year of the sale to the extent otherwise provided by this title, except that section 1091 shall not apply (and section 1092 shall apply) to any such loss.

      ‘(3) EXCLUSION FOR CERTAIN GAIN- The amount which would (but for this paragraph) be includible in the gross income of any individual by reason of this section shall be reduced (but not below zero) by $600,000. For purposes of this paragraph, allocable expatriation gain taken into account under subsection (f)(2) shall be treated in the same manner as an amount required to be includible in gross income.

      ‘(4) ELECTION TO CONTINUE TO BE TAXED AS UNITED STATES CITIZEN-

        ‘(A) IN GENERAL- If an expatriate elects the application of this paragraph--

          ‘(i) this section (other than this paragraph) shall not apply to the expatriate, but

          ‘(ii) the expatriate shall be subject to tax under this title, with respect to property to which this section would apply but for such election, in the same manner as if the individual were a United States citizen.

        ‘(B) LIMITATION ON AMOUNT OF ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAXES- The aggregate amount of taxes imposed under subtitle B with respect to any transfer of property by reason of an election under subparagraph (A) shall not exceed the amount of income tax which would be due if the property were sold for its fair market value immediately before the time of the transfer or death (taking into account the rules of paragraph (2)).

        ‘(C) REQUIREMENTS- Subparagraph (A) shall not apply to an individual unless the individual--

          ‘(i) provides security for payment of tax in such form and manner, and in such amount, as the Secretary may require,

          ‘(ii) consents to the waiver of any right of the individual under any treaty of the United States which would preclude assessment or collection of any tax which may be imposed by reason of this paragraph, and

          ‘(iii) complies with such other requirements as the Secretary may prescribe.

        ‘(D) ELECTION- An election under subparagraph (A) shall apply to all property to which this section would apply but for the election and, once made, shall be irrevocable. Such election shall also apply to property the basis of which is determined in whole or in part by reference to the property with respect to which the election was made.

    ‘(b) ELECTION TO DEFER TAX-

      ‘(1) IN GENERAL- If the taxpayer elects the application of this subsection with respect to any property--

        ‘(A) no amount shall be required to be included in gross income under subsection (a)(1) with respect to the gain from such property for the taxable year of the sale, but

        ‘(B) the taxpayer’s tax for the taxable year in which such property is disposed of shall be increased by the deferred tax amount with respect to the property.

      Except to the extent provided in regulations, subparagraph (B) shall apply to a disposition whether or not gain or loss is recognized in whole or in part on the disposition.

      ‘(2) DEFERRED TAX AMOUNT-

        ‘(A) IN GENERAL- For purposes of paragraph (1), the term ‘deferred tax amount’ means, with respect to any property, an amount equal to the sum of--

          ‘(i) the difference between the amount of tax paid for the taxable year described in paragraph (1)(A) and the amount which would have been paid for such taxable year if the election under paragraph (1) had not applied to such property, plus

          ‘(ii) an amount of interest on the amount described in clause (i) determined for the period--

            ‘(I) beginning on the 91st day after the expatriation date, and

            ‘(II) ending on the due date for the taxable year described in paragraph (1)(B),

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

        For purposes of clause (ii), the due date is the date prescribed by law (determined without regard to extension) for filing the return of the tax imposed by this chapter for the taxable year.

        ‘(B) ALLOCATION OF LOSSES- For purposes of subparagraph (A), any losses described in subsection (a)(2)(B) shall be allocated ratably among the gains described in subsection (a)(2)(A).

      ‘(3) SECURITY-

        ‘(A) IN GENERAL- No election may be made under paragraph (1) with respect to any property unless adequate security is provided with respect to such property.

        ‘(B) ADEQUATE SECURITY- For purposes of subparagraph (A), security with respect to any property shall be treated as adequate security if--

          ‘(i) it is a bond in an amount equal to the deferred tax amount under paragraph (2)(A) for the property, or

          ‘(ii) the taxpayer otherwise establishes to the satisfaction of the Secretary that the security is adequate.

      ‘(4) WAIVER OF CERTAIN RIGHTS- No election may be made under paragraph (1) unless the taxpayer consents to the waiver of any right under any treaty of the United States which would preclude assessment or collection of any tax imposed by reason of this section.

      ‘(5) DISPOSITIONS- For purposes of this subsection, a taxpayer making an election under this subsection with respect to any property shall be treated as having disposed of such property--

        ‘(A) immediately before death if such property is held at such time, and

        ‘(B) at any time the security provided with respect to the property fails to meet the requirements of paragraph (3) and the taxpayer does not correct such failure within the time specified by the Secretary.

      ‘(6) ELECTIONS- An election under paragraph (1) shall only apply to property described in the election and, once made, is irrevocable. An election may be under paragraph (1) with respect to an interest in a trust with respect to which gain is required to be recognized under subsection (f)(1).

    ‘(c) COVERED EXPATRIATE- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘covered expatriate’ means an expatriate--

        ‘(A) whose average annual net income tax (as defined in section 38(c)(1)) for the period of 5 taxable years ending before the expatriation date is greater than $100,000, or

        ‘(B) whose net worth as of such date is $500,000 or more.

      If the expatriation date is after 1996, such $100,000 and $500,000 amounts shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘1995’ for ‘1992’ in subparagraph (B) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $1,000.

      ‘(2) EXCEPTIONS- An individual shall not be treated as a covered expatriate if--

        ‘(A) the individual--

          ‘(i) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and

          ‘(ii) has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 8 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs, or

        ‘(B)(i) the individual’s relinquishment of United States citizenship occurs before such individual attains age 18 1/2 , and

        ‘(ii) the individual has been a resident of the United States (as so defined) for not more than 5 taxable years before the date of relinquishment.

    ‘(d) PROPERTY TO WHICH SECTION APPLIES- For purposes of this section--

      ‘(1) IN GENERAL- Except as otherwise provided by the Secretary, this section shall apply to--

        ‘(A) any interest in property held by a covered expatriate on the expatriation date the gain from which would be includible in the gross income of the expatriate if such interest had been sold for its fair market value on such date in a transaction in which gain is recognized in whole or in part, and

        ‘(B) any other interest in a trust to which subsection (f) applies.

      ‘(2) EXCEPTIONS- This section shall not apply to the following property:

        ‘(A) UNITED STATES REAL PROPERTY INTERESTS- Any United States real property interest (as defined in section 897(c)(1)), other than stock of a United States real property holding corporation which does not, on the expatriation date, meet the requirements of section 897(c)(2).

        ‘(B) INTEREST IN CERTAIN RETIREMENT PLANS-

          ‘(i) IN GENERAL- Any interest in a qualified retirement plan (as defined in section 4974(c)), other than any interest attributable to contributions which are in excess of any limitation or which violate any condition for tax-favored treatment.

          ‘(ii) FOREIGN PENSION PLANS-

            ‘(I) IN GENERAL- Under regulations prescribed by the Secretary, interests in foreign pension plans or similar retirement arrangements or programs.

            ‘(II) LIMITATION- The value of property which is treated as not sold by reason of this subparagraph shall not exceed $500,000.

    ‘(e) DEFINITIONS- For purposes of this section--

      ‘(1) EXPATRIATE- The term ‘expatriate’ means--

        ‘(A) any United States citizen who relinquishes his citizenship, or

        ‘(B) any long-term resident of the United States who--

          ‘(i) ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)), or

          ‘(ii) commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country and who does not waive the benefits of such treaty applicable to residents of the foreign country.

      ‘(2) EXPATRIATION DATE- The term ‘expatriation date’ means--

        ‘(A) the date an individual relinquishes United States citizenship, or

        ‘(B) in the case of a long-term resident of the United States, the date of the event described in clause (i) or (ii) of paragraph (1)(B).

      ‘(3) RELINQUISHMENT OF CITIZENSHIP- A citizen shall be treated as relinquishing his United States citizenship on the earliest of--

        ‘(A) the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),

        ‘(B) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),

        ‘(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or

        ‘(D) the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.

      Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.

      ‘(4) LONG-TERM RESIDENT-

        ‘(A) IN GENERAL- The term ‘long-term resident’ means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the expatriation date occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.

        ‘(B) SPECIAL RULE- For purposes of subparagraph (A), there shall not be taken into account--

          ‘(i) any taxable year during which any prior sale is treated under subsection (a)(1) as occurring, or

          ‘(ii) any taxable year prior to the taxable year referred to in clause (i).

    ‘(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES’ INTERESTS IN TRUST-

      ‘(1) IN GENERAL- Except as provided in paragraph (2), if an individual is determined under paragraph (3) to hold an interest in a trust--

        ‘(A) the individual shall not be treated as having sold such interest,

        ‘(B) such interest shall be treated as a separate share in the trust, and

        ‘(C)(i) such separate share shall be treated as a separate trust consisting of the assets allocable to such share,

        ‘(ii) the separate trust shall be treated as having sold its assets immediately before the expatriation date for their fair market value and as having distributed all of its assets to the individual as of such time, and

        ‘(iii) the individual shall be treated as having recontributed the assets to the separate trust.

      Subsection (a)(2) shall apply to any income, gain, or loss of the individual arising from a distribution described in subparagraph (C)(ii).

      ‘(2) SPECIAL RULES FOR INTERESTS IN QUALIFIED TRUSTS-

        ‘(A) IN GENERAL- If the trust interest described in paragraph (1) is an interest in a qualified trust--

          ‘(i) paragraph (1) and subsection (a) shall not apply, and

          ‘(ii) in addition to any other tax imposed by this title, there is hereby imposed on each distribution with respect to such interest a tax in the amount determined under subparagraph (B).

        ‘(B) AMOUNT OF TAX- The amount of tax under subparagraph (A)(ii) shall be equal to the lesser of--

          ‘(i) the highest rate of tax imposed by section 1(e) for the taxable year in which the expatriation date occurs, multiplied by the amount of the distribution, or

          ‘(ii) the balance in the deferred tax account immediately before the distribution determined without regard to any increases under subparagraph (C)(ii) after the 30th day preceding the distribution.

        ‘(C) DEFERRED TAX ACCOUNT- For purposes of subparagraph (B)(ii)--

          ‘(i) OPENING BALANCE- The opening balance in a deferred tax account with respect to any trust interest is an amount equal to the tax which would have been imposed on the allocable expatriation gain with respect to the trust interest if such gain had been included in gross income under subsection (a).

          ‘(ii) INCREASE FOR INTEREST- The balance in the deferred tax account shall be increased by the amount of interest determined (on the balance in the account at the time the interest accrues), for periods after the 90th day after the expatriation date, by using the rates and method applicable under section 6621 for underpayments of tax for such periods.

          ‘(iii) DECREASE FOR TAXES PREVIOUSLY PAID- The balance in the tax deferred account shall be reduced--

            ‘(I) by the amount of taxes imposed by subparagraph (A) on any distribution to the person holding the trust interest, and

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

        ‘(D) ALLOCABLE EXPATRIATION GAIN- For purposes of this paragraph, the allocable expatriation gain with respect to any beneficiary’s interest in a trust is the amount of gain which would be allocable to such beneficiary’s vested and nonvested interests in the trust if the beneficiary held directly all assets allocable to such interests.

        ‘(E) TAX DEDUCTED AND WITHHELD-

          ‘(i) IN GENERAL- The tax imposed by subparagraph (A)(ii) shall be deducted and withheld by the trustees from the distribution to which it relates.

          ‘(ii) EXCEPTION WHERE FAILURE TO WAIVE TREATY RIGHTS- If an amount may not be deducted and withheld under clause (i) by reason of the distributee failing to waive any treaty right with respect to such distribution--

            ‘(I) the tax imposed by subparagraph (A)(ii) shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax, and

            ‘(II) any other beneficiary of the trust shall be entitled to recover from the distributee the amount of such tax imposed on the other beneficiary.

        ‘(F) DISPOSITION- If a trust ceases to be a qualified trust at any time, a covered expatriate disposes of an interest in a qualified trust, or a covered expatriate holding an interest in a qualified trust dies, then, in lieu of the tax imposed by subparagraph (A)(ii), there is hereby imposed a tax equal to the lesser of--

          ‘(i) the tax determined under paragraph (1) as if the expatriation date were the date of such cessation, disposition, or death, whichever is applicable, or

          ‘(ii) the balance in the tax deferred account immediately before such date.

        Such tax shall be imposed on the trust and each trustee shall be personally liable for the amount of such tax and any other beneficiary of the trust shall be entitled to recover from the covered expatriate or the estate the amount of such tax imposed on the other beneficiary.

        ‘(G) DEFINITIONS AND SPECIAL RULE- For purposes of this paragraph--

          ‘(i) QUALIFIED TRUST- The term ‘qualified trust’ means a trust--

            ‘(I) which is organized under, and governed by, the laws of the United States or a State, and

            ‘(II) with respect to which the trust instrument requires that at least 1 trustee of the trust be an individual citizen of the United States or a domestic corporation.

          ‘(ii) VESTED INTEREST- The term ‘vested interest’ means any interest which, as of the expatriation date, is vested in the beneficiary.

          ‘(iii) NONVESTED INTEREST- The term ‘nonvested interest’ means, with respect to any beneficiary, any interest in a trust which is not a vested interest. Such interest shall be determined by assuming the maximum exercise of discretion in favor of the beneficiary and the occurrence of all contingencies in favor of the beneficiary.

          ‘(iv) ADJUSTMENTS- The Secretary may provide for such adjustments to the bases of assets in a trust or a deferred tax account, and the timing of such adjustments, in order to ensure that gain is taxed only once.

      ‘(3) DETERMINATION OF BENEFICIARIES’ INTEREST IN TRUST-

        ‘(A) DETERMINATIONS UNDER PARAGRAPH (1)- For purposes of paragraph (1), a beneficiary’s interest in a trust shall be based upon all relevant facts and circumstances, including the terms of the trust instrument and any letter of wishes or similar document, historical patterns of trust distributions, and the existence of and functions performed by a trust protector or any similar advisor.

        ‘(B) OTHER DETERMINATIONS- For purposes of this section--

          ‘(i) CONSTRUCTIVE OWNERSHIP- If a beneficiary of a trust is a corporation, partnership, trust, or estate, the shareholders, partners, or beneficiaries shall be deemed to be the trust beneficiaries for purposes of this section.

          ‘(ii) TAXPAYER RETURN POSITION- A taxpayer shall clearly indicate on its income tax return--

            ‘(I) the methodology used to determine that taxpayer’s trust interest under this section, and

            ‘(II) if the taxpayer knows (or has reason to know) that any other beneficiary of such trust is using a different methodology to determine such beneficiary’s trust interest under this section.

    ‘(g) TERMINATION OF DEFERRALS, ETC- On the date any property held by an individual is treated as sold under subsection (a), notwithstanding any other provision of this title--

      ‘(1) any period during which recognition of income or gain is deferred shall terminate, and

      ‘(2) any extension of time for payment of tax shall cease to apply and the unpaid portion of such tax shall be due and payable at the time and in the manner prescribed by the Secretary.

    ‘(h) IMPOSITION OF TENTATIVE TAX-

      ‘(1) IN GENERAL- If an individual is required to include any amount in gross income under subsection (a) for any taxable year, there is hereby imposed, immediately before the expatriation date, a tax in an amount equal to the amount of tax which would be imposed if the taxable year were a short taxable year ending on the expatriation date.

      ‘(2) DUE DATE- The due date for any tax imposed by paragraph (1) shall be the 90th day after the expatriation date.

      ‘(3) TREATMENT OF TAX- Any tax paid under paragraph (1) shall be treated as a payment of the tax imposed by this chapter for the taxable year to which subsection (a) applies.

      ‘(4) DEFERRAL OF TAX- The provisions of subsection (b) shall apply to the tax imposed by this subsection to the extent attributable to gain includible in gross income by reason of this section.

    ‘(i) COORDINATION WITH ESTATE AND GIFT TAXES- If subsection (a) applies to property held by an individual for any taxable year and--

      ‘(1) such property is includible in the gross estate of such individual solely by reason of section 2107, or

      ‘(2) section 2501 applies to a transfer of such property by such individual solely by reason of section 2501(a)(3),

    then there shall be allowed as a credit against the additional tax imposed by section 2101 or 2501, whichever is applicable, solely by reason of section 2107 or 2501(a)(3) an amount equal to the increase in the tax imposed by this chapter for such taxable year by reason of this section.

    ‘(j) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations--

      ‘(1) to prevent double taxation by ensuring that--

        ‘(A) appropriate adjustments are made to basis to reflect gain recognized by reason of subsection (a) and the exclusion provided by subsection (a)(3), and

        ‘(B) any gain by reason of a deemed sale under subsection (a) of an interest in a corporation, partnership, trust, or estate is reduced to reflect that portion of such gain which is attributable to an interest in a trust which a shareholder, partner, or beneficiary is treated as holding directly under subsection (f)(3)(B)(i), and

      ‘(2) which provide for the proper allocation of the exclusion under subsection (a)(3) to property to which this section applies.

    ‘(k) Cross Reference-

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

    (b) INCLUSION IN INCOME OF GIFTS AND INHERITANCES FROM COVERED EXPATRIATES- Section 102 (relating to gifts, etc. not included in gross income) is amended by adding at the end the following new subsection:

    ‘(d) GIFTS AND INHERITANCES FROM COVERED EXPATRIATES- Subsection (a) shall not exclude from gross income the value of any property acquired by gift, bequest, devise, or inheritance from a covered expatriate after the expatriation date. For purposes of this subsection, any term used in this subsection which is also used in section 877A shall have the same meaning as when used in section 877A.’.

    (c) DEFINITION OF TERMINATION OF UNITED STATES CITIZENSHIP- Section 7701(a) is amended by adding at the end the following new paragraph:

      ‘(47) TERMINATION OF UNITED STATES CITIZENSHIP- An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(e)(3).’.

    (d) CONFORMING AMENDMENTS-

      (1) Section 877 is amended by adding at the end the following new subsection:

    ‘(f) APPLICATION- This section shall not apply to any individual who relinquishes (within the meaning of section 877A(e)(3)) United States citizenship on or after February 6, 1995.’.

      (2) Section 2107(c) is amended by adding at the end the following new paragraph:

      ‘(3) CROSS REFERENCE- For credit against the tax imposed by subsection (a) for expatriation tax, see section 877A(i).’.

      (3) Section 2501(a)(3) is amended by adding at the end the following new flush sentence:

      ‘For credit against the tax imposed under this section by reason of this paragraph, see section 877A(i).’.

      (4) Paragraph (10) of section 7701(b) is amended by adding at the end the following new sentence: ‘This paragraph shall not apply to any long-term resident of the United States who is an expatriate (as defined in section 877A(e)(1)).’.

    (e) CLERICAL AMENDMENT- The table of sections for subpart A of part II of subchapter N of chapter 1 is amended by inserting after the item relating to section 877 the following new item:

      ‘Sec. 877A. Tax responsibilities of expatriation.’.

    (f) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided in this subsection, the amendments made by this section shall apply to expatriates (within the meaning of section 877A(e) of the Internal Revenue Code of 1986, as added by this section) whose expatriation date (as so defined) occurs on or after February 6, 1995.

      (2) GIFTS AND BEQUESTS- Section 102(d) of the Internal Revenue Code of 1986 (as added by subsection (b)) shall apply to amounts received from expatriates (as so defined) whose expatriation date (as so defined) occurs on and after February 6, 1995.

      (3) SPECIAL RULES RELATING TO CERTAIN ACTS OCCURRING BEFORE FEBRUARY 6, 1995- In the case of an individual who took an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a) (1)-(4)) before February 6, 1995, but whose expatriation date (as so defined) occurs after February 6, 1995--

        (A) the amendment made by subsection (c) shall not apply,

        (B) the amendment made by subsection (d)(1) shall not apply for any period prior to the expatriation date, and

        (C) the other amendments made by this section shall apply as of the expatriation date.

      (4) DUE DATE FOR TENTATIVE TAX- The due date under section 877A(h)(2) of such Code shall in no event occur before the 90th day after the date of the enactment of this Act.

SEC. 472. INFORMATION ON INDIVIDUALS EXPATRIATING.

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

‘SEC. 6039F. INFORMATION ON INDIVIDUALS EXPATRIATING.

    ‘(a) REQUIREMENT-

      ‘(1) IN GENERAL- Notwithstanding any other provision of law, any expatriate (within the meaning of section 877A(e)(1)) shall provide a statement which includes the information described in subsection (b).

      ‘(2) TIMING-

        ‘(A) CITIZENS- In the case of an expatriate described in section 877(e)(1)(A), such statement shall be--

          ‘(i) provided not later than the expatriation date (within the meaning of section 877A(e)(2)), and

          ‘(ii) provided to the person or court referred to in section 877A(e)(3).

        ‘(B) NONCITIZENS- In the case of an expatriate described in section 877A(e)(1)(B), such statement shall be provided to the Secretary with the return of tax imposed by chapter 1 for the taxable year during which the event described in such section occurs.

    ‘(b) INFORMATION TO BE PROVIDED- Information required under subsection (a) shall include--

      ‘(1) the taxpayer’s TIN,

      ‘(2) the mailing address of such individual’s principal foreign residence,

      ‘(3) the foreign country in which such individual is residing,

      ‘(4) the foreign country of which such individual is a citizen,

      ‘(5) in the case of an individual having a net worth of at least the dollar amount applicable under section 877A(c)(1)(B), information detailing the assets and liabilities of such individual, and

      ‘(6) such other information as the Secretary may prescribe.

    ‘(c) PENALTY- Any individual failing to provide a statement required under subsection (a) shall be subject to a penalty for each year during any portion of which such failure continues in an amount equal to the greater of--

      ‘(1) 5 percent of the additional tax required to be paid under section 877A for such year, or

      ‘(2) $1,000,

    unless it is shown that such failure is due to reasonable cause and not to willful neglect.

    ‘(d) INFORMATION TO BE PROVIDED TO SECRETARY- Notwithstanding any other provision of law--

      ‘(1) any Federal agency or court which collects (or is required to collect) the statement under subsection (a) shall provide to the Secretary--

        ‘(A) a copy of any such statement, and

        ‘(B) the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a),

      ‘(2) the Secretary of State shall provide to the Secretary a copy of each certificate as to the loss of American nationality under section 358 of the Immigration and Nationality Act which is approved by the Secretary of State, and

      ‘(3) the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

    Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual relinquishing United States citizenship (within the meaning of section 877A(e)(3)) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

    ‘(e) EXEMPTION- The Secretary may by regulations exempt any class of individuals from the requirements of this section if the Secretary determines that applying this section to such individuals is not necessary to carry out the purposes of this section.’.

    (b) CLERICAL AMENDMENT- The table of sections for such subpart A is amended by inserting after the item relating to section 6039E the following new item:

      ‘Sec. 6039F. Information on individuals expatriating.’.

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

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

    Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury shall prepare and submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report--

      (1) describing the compliance with subtitle A of the Internal Revenue Code of 1986 by citizens and lawful permanent residents of the United States (within the meaning of section 7701(b)(6) of such Code) residing outside the United States, and

      (2) recommending measures to improve such compliance (including improved coordination between executive branch agencies).

CHAPTER 2--COMPANY-OWNED INSURANCE

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

    (a) IN GENERAL- Paragraph (4) of section 264(a) is amended--

      (1) by inserting ‘, or any endowment or annuity contracts owned by the taxpayer covering any individual,’ after ‘the life of any individual’, and

      (2) by striking all that follows ‘carried on by the taxpayer’ and inserting a period.

    (b) EXCEPTION FOR CONTRACTS RELATING TO KEY PERSONS; PERMISSIBLE INTEREST RATES- Section 264 is amended--

      (1) by striking ‘Any’ in subsection (a)(4) and inserting ‘Except as provided in subsection (d), any’, and

      (2) by adding at the end the following new subsection:

    ‘(d) SPECIAL RULES FOR APPLICATION OF SUBSECTION (a)(4)-

      ‘(1) EXCEPTION FOR KEY PERSONS- Subsection (a)(4) shall not apply to any interest paid or accrued on any indebtedness with respect to policies or contracts covering an individual who is a key person to the extent that the aggregate amount of such indebtedness with respect to policies and contracts covering such individual does not exceed $50,000.

      ‘(2) INTEREST RATE CAP ON KEY PERSONS AND PRE-1986 CONTRACTS-

        ‘(A) IN GENERAL- No deduction shall be allowed by reason of paragraph (1) or the last sentence of subsection (a) with respect to interest paid or accrued for any month to the extent the amount of such interest exceeds the amount which would have been determined if the applicable rate of interest were used for such month.

        ‘(B) APPLICABLE RATE OF INTEREST- For purposes of subparagraph (A)--

          ‘(i) IN GENERAL- The applicable rate of interest for any month is the rate of interest described as Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any successor thereto, for such month.

          ‘(ii) PRE-1986 CONTRACT- In the case of indebtedness on a contract to which the last sentence of subsection (a) applies--

            ‘(I) which is a contract providing a fixed rate of interest, the applicable rate of interest for any month shall be the Moody’s rate described in clause (i) for the month in which the contract was purchased, or

            ‘(II) which is a contract providing a variable rate of interest, the applicable rate of interest for any month in an applicable period shall be such Moody’s rate for the last month preceding such period.

          For purposes of subclause (II), the taxpayer shall elect an applicable period for such contract on its return of tax imposed by this chapter for its first taxable year ending on or after October 13, 1995. Such applicable period shall be for any number of months (not greater than 12) specified in the election and may not be changed by the taxpayer without the consent of the Secretary.

      ‘(3) KEY PERSON- For purposes of paragraph (1), the term ‘key person’ means an officer or 20-percent owner, except that the number of individuals who may be treated as key persons with respect to any taxpayer shall not exceed the greater of--

        ‘(A) 5 individuals, or

        ‘(B) the lesser of 5 percent of the total officers and employees of the taxpayer or 10 individuals.

      ‘(4) 20-PERCENT OWNER- For purposes of this subsection, the term ‘20-percent owner’ means--

        ‘(A) if the taxpayer is a corporation, any person who owns directly 20 percent or more of the outstanding stock of the corporation or stock possessing 20 percent or more of the total combined voting power of all stock of the corporation, or

        ‘(B) if the taxpayer is not a corporation, any person who owns 20 percent or more of the capital or profits interest in the employer.

      ‘(5) AGGREGATION RULES-

        ‘(A) IN GENERAL- For purposes of paragraph (4)(A) and applying the $50,000 limitation in paragraph (1)--

          ‘(i) all members of a controlled group shall be treated as 1 taxpayer, and

          ‘(ii) such limitation shall be allocated among the members of such group in such manner as the Secretary may prescribe.

        ‘(B) CONTROLLED GROUP- For purposes of this paragraph, all persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as members of a controlled group.’.

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by this section shall apply to interest paid or accrued after December 31, 1995.

      (2) TRANSITION RULE FOR EXISTING INDEBTEDNESS-

        (A) IN GENERAL- In the case of--

          (i) indebtedness incurred before January 1, 1996, or

          (ii) indebtedness incurred before January 1, 1997 with respect to any contract or policy entered into in 1994 or 1995,

        the amendments made by this section shall not apply to qualified interest paid or accrued on such indebtedness after October 13, 1995, and before January 1, 1999.

        (B) QUALIFIED INTEREST- For purposes of subparagraph (A), the qualified interest with respect to any indebtedness for any month is the amount of interest which would be paid or accrued for such month on such indebtedness if--

          (i) in the case of any interest paid or accrued after December 31, 1995, indebtedness with respect to no more than 20,000 insured individuals were taken into account, and

          (ii) the lesser of the following rates of interest were used for such month:

            (I) The rate of interest specified under the terms of the indebtedness as in effect on October 13, 1995 (and without regard to modification of such terms after such date).

            (II) The applicable percentage rate of interest described as Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any successor thereto, for such month.

        For purposes of clause (i), all persons treated as a single employer under subsection (a) or (b) of section 52 of the Internal Revenue Code of 1986 or subsection (m) or (o) of section 414 of such Code shall be treated as one person.

        (C) APPLICABLE PERCENTAGE- For purposes of subparagraph (B), the applicable percentage is as follows:

For calendar year:

-- The percentage is:

1995

--100 percent

1996

--90 percent

1997

--80 percent

1998

--70 percent.

      (3) SPECIAL RULE FOR GRANDFATHERED CONTRACTS- This section shall not apply to any contract purchased on or before June 20, 1986, except that section 264(d)(2) of the Internal Revenue Code of 1986 shall apply to interest paid or accrued after October 13, 1995.

    (d) SPREAD OF INCOME INCLUSION ON SURRENDER, ETC. OF CONTRACTS-

      (1) IN GENERAL- If any amount is received under any life insurance policy or endowment or annuity contract described in paragraph (4) of section 264(a) of the Internal Revenue Code of 1986--

        (A) on the complete surrender, redemption, or maturity of such policy or contract during calendar year 1996, 1997, or 1998, or

        (B) in full discharge during any such calendar year of the obligation under the policy or contract which is in the nature of a refund of the consideration paid for the policy or contract,

      then (in lieu of any other inclusion in gross income) such amount shall be includible in gross income ratably over the 4-taxable year period beginning with the taxable year such amount would (but for this paragraph) be includible. The preceding sentence shall only apply to the extent the amount is includible in gross income for the taxable year in which the event described in subparagraph (A) or (B) occurs.

      (2) SPECIAL RULES FOR APPLYING SECTION 264- A contract shall not be treated as--

        (A) failing to meet the requirement of section 264(c)(1) of the Internal Revenue Code of 1986, or

        (B) a single premium contract under section 264(b)(1) of such Code,

      solely by reason of an occurrence described in subparagraph (A) or (B) of paragraph (1) of this subsection or solely by reason of no additional premiums being received under the contract by reason of a lapse occurring after October 13, 1995.

      (3) SPECIAL RULE FOR DEFERRED ACQUISITION COSTS- In the case of the occurrence of any event described in subparagraph (A) or (B) of paragraph (1) of this subsection with respect to any policy or contract--

        (A) section 848 of the Internal Revenue Code of 1986 shall not apply to the unamortized balance (if any) of the specified policy acquisition expenses attributable to such policy or contract immediately before the insurance company’s taxable year in which such event occurs, and

        (B) there shall be allowed as a deduction to such company for such taxable year under chapter 1 of such Code an amount equal to such unamortized balance.

TITLE V--HEALTH CARE FRAUD AND ABUSE PREVENTION

SEC. 500. AMENDMENTS.

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

Subtitle A--Fraud and Abuse Control Program

SEC. 501. FRAUD AND ABUSE CONTROL PROGRAM.

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

‘FRAUD AND ABUSE CONTROL PROGRAM

    ‘SEC. 1128C. (a) ESTABLISHMENT OF PROGRAM-

      ‘(1) IN GENERAL- Not later than January 1, 1997, the Secretary, acting through the Office of the Inspector General of the Department of Health and Human Services, and the Attorney General shall establish a program--

        ‘(A) to coordinate Federal, State, and local law enforcement programs to control fraud and abuse with respect to health plans,

        ‘(B) to conduct investigations, audits, evaluations, and inspections relating to the delivery of and payment for health care in the United States,

        ‘(C) to facilitate the enforcement of the provisions of sections 1128, 1128A, and 1128B and other statutes applicable to health care fraud and abuse,

        ‘(D) to provide for the modification and establishment of safe harbors and to issue interpretative rulings and special fraud alerts pursuant to section 1128D, and

        ‘(E) to provide for the reporting and disclosure of certain final adverse actions against health care providers, suppliers, or practitioners pursuant to the data collection system established under section 1128E.

      ‘(2) COORDINATION WITH HEALTH PLANS- In carrying out the program established under paragraph (1), the Secretary and the Attorney General shall consult with, and arrange for the sharing of data with representatives of health plans.

      ‘(3) GUIDELINES-

        ‘(A) IN GENERAL- The Secretary and the Attorney General shall issue guidelines to carry out the program under paragraph (1). The provisions of sections 553, 556, and 557 of title 5, United States Code, shall not apply in the issuance of such guidelines.

        ‘(B) INFORMATION GUIDELINES-

          ‘(i) IN GENERAL- Such guidelines shall include guidelines relating to the furnishing of information by health plans, providers, and others to enable the Secretary and the Attorney General to carry out the program (including coordination with health plans under paragraph (2)).

          ‘(ii) CONFIDENTIALITY- Such guidelines shall include procedures to assure that such information is provided and utilized in a manner that appropriately protects the confidentiality of the information and the privacy of individuals receiving health care services and items.

          ‘(iii) QUALIFIED IMMUNITY FOR PROVIDING INFORMATION- The provisions of section 1157(a) (relating to limitation on liability) shall apply to a person providing information to the Secretary or the Attorney General in conjunction with their performance of duties under this section.

      ‘(4) ENSURING ACCESS TO DOCUMENTATION- The Inspector General of the Department of Health and Human Services is authorized to exercise such authority described in paragraphs (3) through (9) of section 6 of the Inspector General Act of 1978 (5 U.S.C. App.) as necessary with respect to the activities under the fraud and abuse control program established under this subsection.

      ‘(5) AUTHORITY OF INSPECTOR GENERAL- Nothing in this Act shall be construed to diminish the authority of any Inspector General, including such authority as provided in the Inspector General Act of 1978 (5 U.S.C. App.).

    ‘(b) ADDITIONAL USE OF FUNDS BY INSPECTOR GENERAL-

      ‘(1) REIMBURSEMENTS FOR INVESTIGATIONS- The Inspector General of the Department of Health and Human Services is authorized to receive and retain for current use reimbursement for the costs of conducting investigations and audits and for monitoring compliance plans when such costs are ordered by a court, voluntarily agreed to by the payor, or otherwise.

      ‘(2) CREDITING- Funds received by the Inspector General under paragraph (1) as reimbursement for costs of conducting investigations shall be deposited to the credit of the appropriation from which initially paid, or to appropriations for similar purposes currently available at the time of deposit, and shall remain available for obligation for 1 year from the date of the deposit of such funds.

    ‘(c) HEALTH PLAN DEFINED- For purposes of this section, the term ‘health plan’ means a plan or program that provides health benefits, whether directly, through insurance, or otherwise, and includes--

      ‘(1) a policy of health insurance;

      ‘(2) a contract of a service benefit organization; and

      ‘(3) a membership agreement with a health maintenance organization or other prepaid health plan.’.

    (b) ESTABLISHMENT OF HEALTH CARE FRAUD AND ABUSE CONTROL ACCOUNT IN FEDERAL HOSPITAL INSURANCE TRUST FUND- Section 1817 (42 U.S.C. 1395i) is amended by adding at the end the following new subsection:

    ‘(k) HEALTH CARE FRAUD AND ABUSE CONTROL ACCOUNT-

      ‘(1) ESTABLISHMENT- There is hereby established in the Trust Fund an expenditure account to be known as the ‘Health Care Fraud and Abuse Control Account’ (in this subsection referred to as the ‘Account’).

      ‘(2) APPROPRIATED AMOUNTS TO TRUST FUND-

        ‘(A) IN GENERAL- There are hereby appropriated to the Trust Fund--

          ‘(i) such gifts and bequests as may be made as provided in subparagraph (B);

          ‘(ii) such amounts as may be deposited in the Trust Fund as provided in sections 541(b) and 542(c) of the Health Insurance Reform Act of 1996, and title XI; and

          ‘(iii) such amounts as are transferred to the Trust Fund under subparagraph (C).

        ‘(B) AUTHORIZATION TO ACCEPT GIFTS- The Trust Fund is authorized to accept on behalf of the United States money gifts and bequests made unconditionally to the Trust Fund, for the benefit of the Account or any activity financed through the Account.

        ‘(C) TRANSFER OF AMOUNTS- The Managing Trustee shall transfer to the Trust Fund, under rules similar to the rules in section 9601 of the Internal Revenue Code of 1986, an amount equal to the sum of the following:

          ‘(i) Criminal fines recovered in cases involving a Federal health care offense (as defined in section 982(a)(6)(B) of title 18, United States Code).

          ‘(ii) Civil monetary penalties and assessments imposed in health care cases, including amounts recovered under titles XI, XVIII, and XXI, and chapter 38 of title 31, United States Code (except as otherwise provided by law).

          ‘(iii) Amounts resulting from the forfeiture of property by reason of a Federal health care offense.

          ‘(iv) Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the general fund of the Treasury obtained under sections 3729 through 3733 of title 31, United States Code (known as the False Claims Act), in cases involving claims related to the provision of health care items and services (other than funds awarded to a relator, for restitution or otherwise authorized by law).

      ‘(3) APPROPRIATED AMOUNTS TO ACCOUNT FOR FRAUD AND ABUSE CONTROL PROGRAM, ETC-

        ‘(A) DEPARTMENTS OF HEALTH AND HUMAN SERVICES AND JUSTICE-

          ‘(i) IN GENERAL- There are hereby appropriated to the Account from the Trust Fund such sums as the Secretary and the Attorney General certify are necessary to carry out the purposes described in subparagraph (C), to be available without further appropriation, in an amount not to exceed--

            ‘(I) for fiscal year 1997, $104,000,000, and

            ‘(II) for each of the fiscal years 1998 through 2003, the limit for the preceding fiscal year, increased by 15 percent; and

            ‘(III) for each fiscal year after fiscal year 2003, the limit for fiscal year 2003.

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

            ‘(I) for fiscal year 1997, not less than $60,000,000 and not more than $70,000,000;

            ‘(II) for fiscal year 1998, not less than $80,000,000 and not more than $90,000,000;

            ‘(III) for fiscal year 1999, not less than $90,000,000 and not more than $100,000,000;

            ‘(IV) for fiscal year 2000, not less than $110,000,000 and not more than $120,000,000;

            ‘(V) for fiscal year 2001, not less than $120,000,000 and not more than $130,000,000;

            ‘(VI) for fiscal year 2002, not less than $140,000,000 and not more than $150,000,000; and

            ‘(VII) for each fiscal year after fiscal year 2002, not less than $150,000,000 and not more than $160,000,000.

        ‘(B) FEDERAL BUREAU OF INVESTIGATION- There are hereby appropriated from the general fund of the United States Treasury and hereby appropriated to the Account for transfer to the Federal Bureau of Investigation to carry out the purposes described in subparagraph (C)(i), to be available without further appropriation--

          ‘(i) for fiscal year 1997, $47,000,000;

          ‘(ii) for fiscal year 1998, $56,000,000;

          ‘(iii) for fiscal year 1999, $66,000,000;

          ‘(iv) for fiscal year 2000, $76,000,000;

          ‘(v) for fiscal year 2001, $88,000,000;

          ‘(vi) for fiscal year 2002, $101,000,000; and

          ‘(vii) for each fiscal year after fiscal year 2002, $114,000,000.

        ‘(C) USE OF FUNDS- The purposes described in this subparagraph are to cover the costs (including equipment, salaries and benefits, and travel and training) of the administration and operation of the health care fraud and abuse control program established under section 1128C(a), including the costs of--

          ‘(i) prosecuting health care matters (through criminal, civil, and administrative proceedings);

          ‘(ii) investigations;

          ‘(iii) financial and performance audits of health care programs and operations;

          ‘(iv) inspections and other evaluations; and

          ‘(v) provider and consumer education regarding compliance with the provisions of title XI.

      ‘(4) APPROPRIATED AMOUNTS TO ACCOUNT FOR MEDICARE INTEGRITY PROGRAM-

        ‘(A) IN GENERAL- There are hereby appropriated to the Account from the Trust Fund for each fiscal year such amounts as are necessary to carry out the Medicare Integrity Program under section 1893, subject to subparagraph (B) and to be available without further appropriation.

        ‘(B) AMOUNTS SPECIFIED- The amount appropriated under subparagraph (A) for a fiscal year is as follows:

          ‘(i) For fiscal year 1997, such amount shall be not less than $430,000,000 and not more than $440,000,000.

          ‘(ii) For fiscal year 1998, such amount shall be not less than $490,000,000 and not more than $500,000,000.

          ‘(iii) For fiscal year 1999, such amount shall be not less than $550,000,000 and not more than $560,000,000.

          ‘(iv) For fiscal year 2000, such amount shall be not less than $620,000,000 and not more than $630,000,000.

          ‘(v) For fiscal year 2001, such amount shall be not less than $670,000,000 and not more than $680,000,000.

          ‘(vi) For fiscal year 2002, such amount shall be not less than $690,000,000 and not more than $700,000,000.

          ‘(vii) For each fiscal year after fiscal year 2002, such amount shall be not less than $710,000,000 and not more than $720,000,000.

      ‘(5) ANNUAL REPORT- The Secretary and the Attorney General shall submit jointly an annual report to Congress on the amount of revenue which is generated and disbursed, and the justification for such disbursements, by the Account in each fiscal year.’.

SEC. 502. MEDICARE INTEGRITY PROGRAM.

    (a) ESTABLISHMENT OF MEDICARE INTEGRITY PROGRAM- Title XVIII is amended by adding at the end the following new section:

‘MEDICARE INTEGRITY PROGRAM

    ‘SEC. 1893. (a) ESTABLISHMENT OF PROGRAM- There is hereby established the Medicare Integrity Program (in this section referred to as the ‘Program’) under which the Secretary shall promote the integrity of the medicare program by entering into contracts in accordance with this section with eligible private entities to carry out the activities described in subsection (b).

    ‘(b) ACTIVITIES DESCRIBED- The activities described in this subsection are as follows:

      ‘(1) Review of activities of providers of services or other individuals and entities furnishing items and services for which payment may be made under this title (including skilled nursing facilities and home health agencies), including medical and utilization review and fraud review (employing similar standards, processes, and technologies used by private health plans, including equipment and software technologies which surpass the capability of the equipment and technologies used in the review of claims under this title as of the date of the enactment of this section).

      ‘(2) Audit of cost reports.

      ‘(3) Determinations as to whether payment should not be, or should not have been, made under this title by reason of section 1862(b), and recovery of payments that should not have been made.

      ‘(4) Education of providers of services, beneficiaries, and other persons with respect to payment integrity and benefit quality assurance issues.

      ‘(5) Developing (and periodically updating) a list of items of durable medical equipment in accordance with section 1834(a)(15) which are subject to prior authorization under such section.

    ‘(c) ELIGIBILITY OF ENTITIES- An entity is eligible to enter into a contract under the Program to carry out any of the activities described in subsection (b) if--

      ‘(1) the entity has demonstrated capability to carry out such activities;

      ‘(2) in carrying out such activities, the entity agrees to cooperate with the Inspector General of the Department of Health and Human Services, the Attorney General of the United States, and other law enforcement agencies, as appropriate, in the investigation and deterrence of fraud and abuse in relation to this title and in other cases arising out of such activities;

      ‘(3) the entity complies with such conflict of interest standards as are generally applicable to Federal acquisition and procurement;

      ‘(4) the entity meets such other requirements as the Secretary may impose; and

      ‘(5) in the case of any contract entered into for years prior to 2000, the entity has entered into an agreement under section 1816 or a contract under section 1842.

    In the case of the activity described in subsection (b)(5), an entity shall be deemed to be eligible to enter into a contract under the Program to carry out the activity if the entity is a carrier with a contract in effect under section 1842.

    ‘(d) PROCESS FOR ENTERING INTO CONTRACTS- The Secretary shall enter into contracts under the Program in accordance with such procedures as the Secretary shall by regulation establish, except that such procedures shall include the following:

      ‘(1) Procedures for identifying, evaluating, and resolving organizational conflicts of interest that are generally applicable to Federal acquisition and procurement.

      ‘(2) Competitive procedures must be used when entering into new contracts under this section, or at any other time considered appropriate by the Secretary, except that the Secretary may contract with entities that are carrying out the activities described in this section pursuant to agreements under section 1816 or contracts under section 1842 in effect on the date of the enactment of this section.

      ‘(3) A contract under this section may be renewed without regard to any provision of law requiring competition if the contractor has met or exceeded the performance requirements established in the current contract.

    ‘(e) LIMITATION ON CONTRACTOR LIABILITY- The Secretary shall by regulation provide for the limitation of a contractor’s liability for actions taken to carry out a contract under the Program, and such regulation shall, to the extent the Secretary finds appropriate, employ the same or comparable standards and other substantive and procedural provisions as are contained in section 1157.’.

    (b) ELIMINATION OF FI AND CARRIER RESPONSIBILITY FOR CARRYING OUT ACTIVITIES SUBJECT TO PROGRAM-

      (1) RESPONSIBILITIES OF FISCAL INTERMEDIARIES UNDER PART A- Section 1816 (42 U.S.C. 1395h) is amended by adding at the end the following new subsection:

    ‘(l) No payment may be made for carrying out any activity pursuant to an agreement under this section to the extent that the activity is carried out pursuant to a contract under the Medicare Integrity Program under section 1893.’.

      (2) RESPONSIBILITIES OF CARRIERS UNDER PART B- Section 1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end the following new paragraph:

    ‘(6) No payment may be made for carrying out any activity pursuant to a contract under this subsection to the extent that the activity is carried out pursuant to a contract under the Medicare Integrity Program under section 1893. The previous sentence shall not apply with respect to the activity described in section 1893(b)(5) (relating to prior authorization of certain items of durable medical equipment under section 1834(a)(15)).’.

SEC. 503. BENEFICIARY INCENTIVE PROGRAMS.

    (a) CLARIFICATION OF REQUIREMENT TO PROVIDE EXPLANATION OF MEDICARE BENEFITS- The Secretary of Health and Human Services (in this section referred to as the ‘Secretary’) shall provide an explanation of benefits under the medicare program under title XVIII of the Social Security Act with respect to each item or service for which payment may be made under the program which is furnished to an individual, without regard to whether or not a deductible or coinsurance may be imposed against the individual with respect to the item or service.

    (b) PROGRAM TO COLLECT INFORMATION ON FRAUD AND ABUSE-

      (1) ESTABLISHMENT OF PROGRAM- Not later than 3 months after the date of the enactment of this Act, the Secretary shall establish a program under which the Secretary shall encourage individuals to report to the Secretary information on individuals and entities who are engaging or who have engaged in acts or omissions which constitute grounds for the imposition of a sanction under section 1128, section 1128A, or section 1128B of the Social Security Act, or who have otherwise engaged in fraud and abuse against the medicare program for which there is a sanction provided under law. The program shall discourage provision of, and not consider, information which is frivolous or otherwise not relevant or material to the imposition of such a sanction.

      (2) PAYMENT OF PORTION OF AMOUNTS COLLECTED- If an individual reports information to the Secretary under the program established under paragraph (1) which serves as the basis for the collection by the Secretary or the Attorney General of any amount of at least $100 (other than any amount paid as a penalty under section 1128B of the Social Security Act), the Secretary may pay a portion of the amount collected to the individual (under procedures similar to those applicable under section 7623 of the Internal Revenue Code of 1986 to payments to individuals providing information on violations of such Code).

    (c) PROGRAM TO COLLECT INFORMATION ON PROGRAM EFFICIENCY-

      (1) ESTABLISHMENT OF PROGRAM- Not later than 3 months after the date of the enactment of this Act, the Secretary shall establish a program under which the Secretary shall encourage individuals to submit to the Secretary suggestions on methods to improve the efficiency of the medicare program.

      (2) PAYMENT OF PORTION OF PROGRAM SAVINGS- If an individual submits a suggestion to the Secretary under the program established under paragraph (1) which is adopted by the Secretary and which results in savings to the program, the Secretary may make a payment to the individual of such amount as the Secretary considers appropriate.

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

    (a) IN GENERAL- Section 1128B (42 U.S.C. 1320a-7b) is amended as follows:

      (1) In the heading, by striking ‘MEDICARE OR STATE HEALTH CARE PROGRAMS’ and inserting ‘FEDERAL HEALTH CARE PROGRAMS’.

      (2) In subsection (a)(1), by striking ‘a program under title XVIII or a State health care program (as defined in section 1128(h))’ and inserting ‘a Federal health care program’.

      (3) In subsection (a)(5), by striking ‘a program under title XVIII or a State health care program’ and inserting ‘a Federal health care program’.

      (4) In the second sentence of subsection (a)--

        (A) by striking ‘a State plan approved under title XIX’ and inserting ‘a Federal health care program’, and

        (B) by striking ‘the State may at its option (notwithstanding any other provision of that title or of such plan)’ and inserting ‘the administrator of such program may at its option (notwithstanding any other provision of such program)’.

      (5) In subsection (b), by striking ‘title XVIII or a State health care program’ each place it appears and inserting ‘a Federal health care program’.

      (6) In subsection (c), by inserting ‘(as defined in section 1128(h))’ after ‘a State health care program’.

      (7) By adding at the end the following new subsection:

    ‘(f) For purposes of this section, the term ‘Federal health care program’ means--

      ‘(1) any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government (other than the health insurance program under chapter 89 of title 5, United States Code); or

      ‘(2) any State health care program, as defined in section 1128(h).’.

    (b) EFFECTIVE DATE- The amendments made by this section shall take effect on January 1, 1997.

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

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

‘GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE SANCTIONS

    ‘SEC. 1128D. (a) SOLICITATION AND PUBLICATION OF MODIFICATIONS TO EXISTING SAFE HARBORS AND NEW SAFE HARBORS-

      ‘(1) IN GENERAL-

        ‘(A) SOLICITATION OF PROPOSALS FOR SAFE HARBORS- Not later than January 1, 1997, and not less than annually thereafter, the Secretary shall publish a notice in the Federal Register soliciting proposals, which will be accepted during a 60-day period, for--

          ‘(i) modifications to existing safe harbors issued pursuant to section 14(a) of the Medicare and Medicaid Patient and Program Protection Act of 1987 (42 U.S.C. 1320a-7b note);

          ‘(ii) additional safe harbors specifying payment practices that shall not be treated as a criminal offense under section 1128B(b) and shall not serve as the basis for an exclusion under section 1128(b)(7);

          ‘(iii) interpretive rulings to be issued pursuant to subsection (b); and

          ‘(iv) special fraud alerts to be issued pursuant to subsection (c).

        ‘(B) PUBLICATION OF PROPOSED MODIFICATIONS AND PROPOSED ADDITIONAL SAFE HARBORS- After considering the proposals described in clauses (i) and (ii) of subparagraph (A), the Secretary, in consultation with the Attorney General, shall publish in the Federal Register proposed modifications to existing safe harbors and proposed additional safe harbors, if appropriate, with a 60-day comment period. After considering any public comments received during this period, the Secretary shall issue final rules modifying the existing safe harbors and establishing new safe harbors, as appropriate.

        ‘(C) REPORT- The Inspector General of the Department of Health and Human Services (in this section referred to as the ‘Inspector General’) shall, in an annual report to Congress or as part of the year-end semiannual report required by section 5 of the Inspector General Act of 1978 (5 U.S.C. App.), describe the proposals received under clauses (i) and (ii) of subparagraph (A) and explain which proposals were included in the publication described in subparagraph (B), which proposals were not included in that publication, and the reasons for the rejection of the proposals that were not included.

      ‘(2) CRITERIA FOR MODIFYING AND ESTABLISHING SAFE HARBORS- In modifying and establishing safe harbors under paragraph (1)(B), the Secretary may consider the extent to which providing a safe harbor for the specified payment practice may result in any of the following:

        ‘(A) An increase or decrease in access to health care services.

        ‘(B) An increase or decrease in the quality of health care services.

        ‘(C) An increase or decrease in patient freedom of choice among health care providers.

        ‘(D) An increase or decrease in competition among health care providers.

        ‘(E) An increase or decrease in the ability of health care facilities to provide services in medically underserved areas or to medically underserved populations.

        ‘(F) An increase or decrease in the cost to Federal health care programs (as defined in section 1128B(f)).

        ‘(G) An increase or decrease in the potential overutilization of health care services.

        ‘(H) The existence or nonexistence of any potential financial benefit to a health care professional or provider which may vary based on their decisions of--

          ‘(i) whether to order a health care item or service; or

          ‘(ii) whether to arrange for a referral of health care items or services to a particular practitioner or provider.

        ‘(I) Any other factors the Secretary deems appropriate in the interest of preventing fraud and abuse in Federal health care programs (as so defined).

    ‘(b) INTERPRETIVE RULINGS-

      ‘(1) IN GENERAL-

        ‘(A) REQUEST FOR INTERPRETIVE RULING- Any person may present, at any time, a request to the Inspector General for a statement of the Inspector General’s current interpretation of the meaning of a specific aspect of the application of sections 1128A and 1128B (in this section referred to as an ‘interpretive ruling’).

        ‘(B) ISSUANCE AND EFFECT OF INTERPRETIVE RULING-

          ‘(i) IN GENERAL- If appropriate, the Inspector General shall in consultation with the Attorney General, issue an interpretive ruling not later than 90 days after receiving a request described in subparagraph (A). Interpretive rulings shall not have the force of law and shall be treated as an interpretive rule within the meaning of section 553(b) of title 5, United States Code. All interpretive rulings issued pursuant to this clause shall be published in the Federal Register or otherwise made available for public inspection.

          ‘(ii) REASONS FOR DENIAL- If the Inspector General does not issue an interpretive ruling in response to a request described in subparagraph (A), the Inspector General shall notify the requesting party of such decision not later than 60 days after receiving such a request and shall identify the reasons for such decision.

      ‘(2) CRITERIA FOR INTERPRETIVE RULINGS-

        ‘(A) IN GENERAL- In determining whether to issue an interpretive ruling under paragraph (1)(B), the Inspector General may consider--

          ‘(i) whether and to what extent the request identifies an ambiguity within the language of the statute, the existing safe harbors, or previous interpretive rulings; and

          ‘(ii) whether the subject of the requested interpretive ruling can be adequately addressed by interpretation of the language of the statute, the existing safe harbor rules, or previous interpretive rulings, or whether the request would require a substantive ruling (as defined in section 552 of title 5, United States Code) not authorized under this subsection.

        ‘(B) NO RULINGS ON FACTUAL ISSUES- The Inspector General shall not give an interpretive ruling on any factual issue, including the intent of the parties or the fair market value of particular leased space or equipment.

    ‘(c) SPECIAL FRAUD ALERTS-

      ‘(1) IN GENERAL-

        ‘(A) REQUEST FOR SPECIAL FRAUD ALERTS- Any person may present, at any time, a request to the Inspector General for a notice which informs the public of practices which the Inspector General considers to be suspect or of particular concern under the medicare program or a State health care program, as defined in section 1128(h) (in this subsection referred to as a ‘special fraud alert’).

        ‘(B) ISSUANCE AND PUBLICATION OF SPECIAL FRAUD ALERTS- Upon receipt of a request described in subparagraph (A), the Inspector General shall investigate the subject matter of the request to determine whether a special fraud alert should be issued. If appropriate, the Inspector General shall issue a special fraud alert in response to the request. All special fraud alerts issued pursuant to this subparagraph shall be published in the Federal Register.

      ‘(2) CRITERIA FOR SPECIAL FRAUD ALERTS- In determining whether to issue a special fraud alert upon a request described in paragraph (1), the Inspector General may consider--

        ‘(A) whether and to what extent the practices that would be identified in the special fraud alert may result in any of the consequences described in subsection (a)(2); and

        ‘(B) the volume and frequency of the conduct that would be identified in the special fraud alert.’.

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

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

    (a) INDIVIDUAL CONVICTED OF FELONY RELATING TO HEALTH CARE FRAUD-

      (1) IN GENERAL- Section 1128(a) (42 U.S.C. 1320a-7(a)) is amended by adding at the end the following new paragraph:

      ‘(3) FELONY CONVICTION RELATING TO HEALTH CARE FRAUD- Any individual or entity that has been convicted after the date of the enactment of the Health Insurance Reform Act of 1996, under Federal or State law, in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program (other than those specifically described in paragraph (1)) operated by or financed in whole or in part by any Federal, State, or local government agency, of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.’.

      (2) CONFORMING AMENDMENT- Paragraph (1) of section 1128(b) (42 U.S.C. 1320a-7(b)) is amended to read as follows:

      ‘(1) CONVICTION RELATING TO FRAUD- Any individual or entity that has been convicted after the date of the enactment of the Health Insurance Reform Act of 1996, under Federal or State law--

        ‘(A) of a criminal offense consisting of a misdemeanor relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct--

          ‘(i) in connection with the delivery of a health care item or service, or

          ‘(ii) with respect to any act or omission in a health care program (other than those specifically described in subsection (a)(1)) operated by or financed in whole or in part by any Federal, State, or local government agency; or

        ‘(B) of a criminal offense relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct with respect to any act or omission in a program (other than a health care program) operated by or financed in whole or in part by any Federal, State, or local government agency.’.

    (b) INDIVIDUAL CONVICTED OF FELONY RELATING TO CONTROLLED SUBSTANCE-

      (1) IN GENERAL- Section 1128(a) (42 U.S.C. 1320a-7(a)), as amended by subsection (a), is amended by adding at the end the following new paragraph:

      ‘(4) FELONY CONVICTION RELATING TO CONTROLLED SUBSTANCE- Any individual or entity that has been convicted after the date of the enactment of the Health Insurance Reform Act of 1996, under Federal or State law, of a criminal offense consisting of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.’.

      (2) CONFORMING AMENDMENT- Section 1128(b)(3) (42 U.S.C. 1320a-7(b)(3)) is amended--

        (A) in the heading, by striking ‘CONVICTION’ and inserting ‘MISDEMEANOR CONVICTION’; and

        (B) by striking ‘criminal offense’ and inserting ‘criminal offense consisting of a misdemeanor’.

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

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at the end the following new subparagraphs:

    ‘(D) In the case of an exclusion of an individual or entity under paragraph (1), (2), or (3) of subsection (b), the period of the exclusion shall be 3 years, unless the Secretary determines in accordance with published regulations that a shorter period is appropriate because of mitigating circumstances or that a longer period is appropriate because of aggravating circumstances.

    ‘(E) In the case of an exclusion of an individual or entity under subsection (b)(4) or (b)(5), the period of the exclusion shall not be less than the period during which the individual’s or entity’s license to provide health care is revoked, suspended, or surrendered, or the individual or the entity is excluded or suspended from a Federal or State health care program.

    ‘(F) In the case of an exclusion of an individual or entity under subsection (b)(6)(B), the period of the exclusion shall be not less than 1 year.’.

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

    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the end the following new paragraph:

      ‘(15) INDIVIDUALS CONTROLLING A SANCTIONED ENTITY- (A) Any individual--

        ‘(i) who has a direct or indirect ownership or control interest in a sanctioned entity and who knows or should know (as defined in section 1128A(i)(6)) of the action constituting the basis for the conviction or exclusion described in subparagraph (B); or

        ‘(ii) who is an officer or managing employee (as defined in section 1126(b)) of such an entity.

      ‘(B) For purposes of subparagraph (A), the term ‘sanctioned entity’ means an entity--

        ‘(i) that has been convicted of any offense described in subsection (a) or in paragraph (1), (2), or (3) of this subsection; or

        ‘(ii) that has been excluded from participation under a program under title XVIII or under a State health care program.’.

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

    (a) MINIMUM PERIOD OF EXCLUSION FOR PRACTITIONERS AND PERSONS FAILING TO MEET STATUTORY OBLIGATIONS-

      (1) IN GENERAL- The second sentence of section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended by striking ‘may prescribe)’ and inserting ‘may prescribe, except that such period may not be less than 1 year)’.

      (2) CONFORMING AMENDMENT- Section 1156(b)(2) (42 U.S.C. 1320c-5(b)(2)) is amended by striking ‘shall remain’ and inserting ‘shall (subject to the minimum period specified in the second sentence of paragraph (1)) remain’.

    (b) REPEAL OF ‘UNWILLING OR UNABLE’ CONDITION FOR IMPOSITION OF SANCTION- Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--

      (1) in the second sentence, by striking ‘and determines’ and all that follows through ‘such obligations,’; and

      (2) by striking the third sentence.

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

    (a) APPLICATION OF INTERMEDIATE SANCTIONS FOR ANY PROGRAM VIOLATIONS-

      (1) IN GENERAL- Section 1876(i)(1) (42 U.S.C. 1395mm(i)(1)) is amended by striking ‘the Secretary may terminate’ and all that follows and inserting ‘in accordance with procedures established under paragraph (9), the Secretary may at any time terminate any such contract or may impose the intermediate sanctions described in paragraph (6)(B) or (6)(C) (whichever is applicable) on the eligible organization if the Secretary determines that the organization--

        ‘(A) has failed substantially to carry out the contract;

        ‘(B) is carrying out the contract in a manner substantially inconsistent with the efficient and effective administration of this section; or

        ‘(C) no longer substantially meets the applicable conditions of subsections (b), (c), (e), and (f).’.

      (2) OTHER INTERMEDIATE SANCTIONS FOR MISCELLANEOUS PROGRAM VIOLATIONS- Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is amended by adding at the end the following new subparagraph:

    ‘(C) In the case of an eligible organization for which the Secretary makes a determination under paragraph (1) the basis of which is not described in subparagraph (A), the Secretary may apply the following intermediate sanctions:

      ‘(i) Civil money penalties of not more than $25,000 for each determination under paragraph (1) if the deficiency that is the basis of the determination has directly adversely affected (or has the substantial likelihood of adversely affecting) an individual covered under the organization’s contract.

      ‘(ii) Civil money penalties of not more than $10,000 for each week beginning after the initiation of procedures by the Secretary under paragraph (9) during which the deficiency that is the basis of a determination under paragraph (1) exists.

      ‘(iii) Suspension of enrollment of individuals under this section after the date the Secretary notifies the organization of a determination under paragraph (1) and until the Secretary is satisfied that the deficiency that is the basis for the determination has been corrected and is not likely to recur.’.

      (3) PROCEDURES FOR IMPOSING SANCTIONS- Section 1876(i) (42 U.S.C. 1395mm(i)) is amended by adding at the end the following new paragraph:

    ‘(9) The Secretary may terminate a contract with an eligible organization under this section or may impose the intermediate sanctions described in paragraph (6) on the organization in accordance with formal investigation and compliance procedures established by the Secretary under which--

      ‘(A) the Secretary first provides the organization with the reasonable opportunity to develop and implement a corrective action plan to correct the deficiencies that were the basis of the Secretary’s determination under paragraph (1) and the organization fails to develop or implement such a plan;

      ‘(B) in deciding whether to impose sanctions, the Secretary considers aggravating factors such as whether an organization has a history of deficiencies or has not taken action to correct deficiencies the Secretary has brought to the organization’s attention;

      ‘(C) there are no unreasonable or unnecessary delays between the finding of a deficiency and the imposition of sanctions; and

      ‘(D) the Secretary provides the organization with reasonable notice and opportunity for hearing (including the right to appeal an initial decision) before imposing any sanction or terminating the contract.’.

      (4) CONFORMING AMENDMENTS- Section 1876(i)(6)(B) (42 U.S.C. 1395mm(i)(6)(B)) is amended by striking the second sentence.

    (b) AGREEMENTS WITH PEER REVIEW ORGANIZATIONS- Section 1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ‘an agreement’ and inserting ‘a written agreement’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to contract years beginning on or after January 1, 1997.

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

    (a) IN GENERAL- Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--

      (1) by striking ‘and’ at the end of subparagraph (D);

      (2) by striking the period at the end of subparagraph (E) and inserting ‘; and’; and

      (3) by adding at the end the following new subparagraph:

      ‘(F) any remuneration between an organization and an individual or entity providing items or services pursuant to a written agreement between the organization and the individual or entity if the organization is an eligible organization under section 1876, or if the written agreement places the individual or entity at substantial financial risk for the cost or utilization of the items or services, or a combination thereof, which the individual or entity is obligated to provide, whether through a withhold or capitation, or other similar risk arrangements which places the individual or entity at substantial financial risk.’.

    (b) REGULATIONS- Section 1128B(b) (42 U.S.C. 1320a-7b(b)) is amended by adding at the end the following new paragraph:

    ‘(4) The Secretary, in consultation with the Attorney General, not later than 1 year after the date of enactment of Health Insurance Reform Act of 1996, and not less than every 2 years thereafter, shall promulgate regulations to define substantial financial risk as necessary to protect against program or patient abuse.’.

SEC. 517. EFFECTIVE DATE.

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

Subtitle C--Data Collection and Miscellaneous Provisions

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

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

‘HEALTH CARE FRAUD AND ABUSE DATA COLLECTION PROGRAM

    ‘SEC. 1128E. (a) GENERAL PURPOSE- Not later than January 1, 1997, the Secretary shall establish a national health care fraud and abuse data collection program for the reporting of final adverse actions (not including settlements in which no findings of liability have been made) against health care providers, suppliers, or practitioners as required by subsection (b), with access as set forth in subsection (c).

    ‘(b) REPORTING OF INFORMATION-

      ‘(1) IN GENERAL- Each Government agency and health plan shall report any final adverse action (not including settlements in which no findings of liability have been made) taken against a health care provider, supplier, or practitioner.

      ‘(2) INFORMATION TO BE REPORTED- The information to be reported under paragraph (1) includes:

        ‘(A) The name and TIN (as defined in section 7701(a)(41) of the Internal Revenue Code of 1986) of any health care provider, supplier, or practitioner who is the subject of a final adverse action.

        ‘(B) The name (if known) of any health care entity with which a health care provider, supplier, or practitioner is affiliated or associated.

        ‘(C) The nature of the final adverse action and whether such action is on appeal.

        ‘(D) A description of the acts or omissions and injuries upon which the final adverse action was based, and such other information as the Secretary determines by regulation is required for appropriate interpretation of information reported under this section.

      ‘(3) CONFIDENTIALITY- In determining what information is required, the Secretary shall include procedures to assure that the privacy of individuals receiving health care services is appropriately protected.

      ‘(4) TIMING AND FORM OF REPORTING- The information required to be reported under this subsection shall be reported regularly (but not less often than monthly) and in such form and manner as the Secretary prescribes. Such information shall first be required to be reported on a date specified by the Secretary.

      ‘(5) TO WHOM REPORTED- The information required to be reported under this subsection shall be reported to the Secretary.

    ‘(c) DISCLOSURE AND CORRECTION OF INFORMATION-

      ‘(1) DISCLOSURE- With respect to the information about final adverse actions (not including settlements in which no findings of liability have been made) reported to the Secretary under this section respecting a health care provider, supplier, or practitioner, the Secretary shall, by regulation, provide for--

        ‘(A) disclosure of the information, upon request, to the health care provider, supplier, or licensed practitioner, and

        ‘(B) procedures in the case of disputed accuracy of the information.

      ‘(2) CORRECTIONS- Each Government agency and health plan shall report corrections of information already reported about any final adverse action taken against a health care provider, supplier, or practitioner, in such form and manner that the Secretary prescribes by regulation.

    ‘(d) ACCESS TO REPORTED INFORMATION-

      ‘(1) AVAILABILITY- The information in this database shall be available to Federal and State government agencies and health plans pursuant to procedures that the Secretary shall provide by regulation.

      ‘(2) FEES FOR DISCLOSURE- The Secretary may establish or approve reasonable fees for the disclosure of information in this database (other than with respect to requests by Federal agencies). The amount of such a fee shall be sufficient to recover the full costs of operating the database. Such fees shall be available to the Secretary or, in the Secretary’s discretion to the agency designated under this section to cover such costs.

    ‘(e) PROTECTION FROM LIABILITY FOR REPORTING- No person or entity, including the agency designated by the Secretary in subsection (b)(5) shall be held liable in any civil action with respect to any report made as required by this section, without knowledge of the falsity of the information contained in the report.

    ‘(f) COORDINATION WITH NATIONAL PRACTITIONER DATA BANK- The Secretary shall implement this section in such a manner as to avoid duplication with the reporting requirements established for the National Practitioner Data Bank under the Health Care Quality Improvement Act of 1986 (42 U.S.C. 11101 et seq.).

    ‘(g) DEFINITIONS AND SPECIAL RULES- For purposes of this section:

      ‘(1) FINAL ADVERSE ACTION-

        ‘(A) IN GENERAL- The term ‘final adverse action’ includes:

          ‘(i) Civil judgments against a health care provider, supplier, or practitioner in Federal or State court related to the delivery of a health care item or service.

          ‘(ii) Federal or State criminal convictions related to the delivery of a health care item or service.

          ‘(iii) Actions by Federal or State agencies responsible for the licensing and certification of health care providers, suppliers, and licensed health care practitioners, including--

            ‘(I) formal or official actions, such as revocation or suspension of a license (and the length of any such suspension), reprimand, censure or probation,

            ‘(II) any other loss of license or the right to apply for, or renew, a license of the provider, supplier, or practitioner, whether by operation of law, voluntary surrender, non-renewability, or otherwise, or

            ‘(III) any other negative action or finding by such Federal or State agency that is publicly available information.

          ‘(iv) Exclusion from participation in Federal or State health care programs due to program violations.

          ‘(v) Any other adjudicated actions or decisions that the Secretary shall establish by regulation.

        ‘(B) EXCEPTION- The term does not include any action with respect to a malpractice claim.

      ‘(2) PRACTITIONER- The terms ‘licensed health care practitioner’, ‘licensed practitioner’, and ‘practitioner’ mean, with respect to a State, an individual who is licensed or otherwise authorized by the State to provide health care services (or any individual who, without authority holds himself or herself out to be so licensed or authorized).

      ‘(3) GOVERNMENT AGENCY- The term ‘Government agency’ shall include:

        ‘(A) The Department of Justice.

        ‘(B) The Department of Health and Human Services.

        ‘(C) Any other Federal agency that either administers or provides payment for the delivery of health care services, including, but not limited to the Department of Defense and the Veterans’ Administration.

        ‘(D) State law enforcement agencies.

        ‘(E) State medicaid fraud control units.

        ‘(F) Federal or State agencies responsible for the licensing and certification of health care providers and licensed health care practitioners.

      ‘(4) HEALTH PLAN- The term ‘health plan’ has the meaning given such term by section 1128C(c).

      ‘(5) DETERMINATION OF CONVICTION- For purposes of paragraph (1), the existence of a conviction shall be determined under paragraph (4) of section 1128(i).’.

    (b) IMPROVED PREVENTION IN ISSUANCE OF MEDICARE PROVIDER NUMBERS- Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end the following new sentence: ‘Under such system, the Secretary may impose appropriate fees on such physicians to cover the costs of investigation and recertification activities with respect to the issuance of the identifiers.’.

Subtitle D--Civil Monetary Penalties

SEC. 531. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

    (a) GENERAL CIVIL MONETARY PENALTIES- Section 1128A (42 U.S.C. 1320a-7a) is amended as follows:

      (1) In the third sentence of subsection (a), by striking ‘programs under title XVIII’ and inserting ‘Federal health care programs (as defined in section 1128B(f)(1))’.

      (2) In subsection (f)--

        (A) by redesignating paragraph (3) as paragraph (4); and

        (B) by inserting after paragraph (2) the following new paragraph:

      ‘(3) With respect to amounts recovered arising out of a claim under a Federal health care program (as defined in section 1128B(f)), the portion of such amounts as is determined to have been paid by the program shall be repaid to the program, and the portion of such amounts attributable to the amounts recovered under this section by reason of the amendments made by the Health Insurance Reform Act of 1996 (as estimated by the Secretary) shall be deposited into the Federal Hospital Insurance Trust Fund pursuant to section 1817(k)(2)(C).’.

      (3) In subsection (i)--

        (A) in paragraph (2), by striking ‘title V, XVIII, XIX, or XX of this Act’ and inserting ‘a Federal health care program (as defined in section 1128B(f))’,

        (B) in paragraph (4), by striking ‘a health insurance or medical services program under title XVIII or XIX of this Act’ and inserting ‘a Federal health care program (as so defined)’, and

        (C) in paragraph (5), by striking ‘title V, XVIII, XIX, or XX’ and inserting ‘a Federal health care program (as so defined)’.

      (4) By adding at the end the following new subsection:

    ‘(m)(1) For purposes of this section, with respect to a Federal health care program not contained in this Act, references to the Secretary in this section shall be deemed to be references to the Secretary or Administrator of the department or agency with jurisdiction over such program and references to the Inspector General of the Department of Health and Human Services in this section shall be deemed to be references to the Inspector General of the applicable department or agency.

    ‘(2)(A) The Secretary and Administrator of the departments and agencies referred to in paragraph (1) may include in any action pursuant to this section, claims within the jurisdiction of other Federal departments or agencies as long as the following conditions are satisfied:

      ‘(i) The case involves primarily claims submitted to the Federal health care programs of the department or agency initiating the action.

      ‘(ii) The Secretary or Administrator of the department or agency initiating the action gives notice and an opportunity to participate in the investigation to the Inspector General of the department or agency with primary jurisdiction over the Federal health care programs to which the claims were submitted.

    ‘(B) If the conditions specified in subparagraph (A) are fulfilled, the Inspector General of the department or agency initiating the action is authorized to exercise all powers granted under the Inspector General Act of 1978 with respect to the claims submitted to the other departments or agencies to the same manner and extent as provided in that Act with respect to claims submitted to such departments or agencies.’.

    (b) EXCLUDED INDIVIDUAL RETAINING OWNERSHIP OR CONTROL INTEREST IN PARTICIPATING ENTITY- Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is amended--

      (1) by striking ‘or’ at the end of paragraph (1)(D);

      (2) by striking ‘, or’ at the end of paragraph (2) and inserting a semicolon;

      (3) by striking the semicolon at the end of paragraph (3) and inserting ‘; or’; and

      (4) by inserting after paragraph (3) the following new paragraph:

      ‘(4) in the case of a person who is not an organization, agency, or other entity, is excluded from participating in a program under title XVIII or a State health care program in accordance with this subsection or under section 1128 and who, at the time of a violation of this subsection--

        ‘(i) retains a direct or indirect ownership or control interest in an entity that is participating in a program under title XVIII or a State health care program, and who knows or should know of the action constituting the basis for the exclusion; or

        ‘(ii) is an officer or managing employee (as defined in section 1126(b)) of such an entity;’.

    (c) MODIFICATIONS OF AMOUNTS OF PENALTIES AND ASSESSMENTS- Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is amended in the matter following paragraph (4)--

      (1) by striking ‘$2,000’ and inserting ‘$10,000’;

      (2) by inserting ‘; in cases under paragraph (4), $10,000 for each day the prohibited relationship occurs’ after ‘false or misleading information was given’; and

      (3) by striking ‘twice the amount’ and inserting ‘3 times the amount’.

    (d) CLAIM FOR ITEM OR SERVICE BASED ON INCORRECT CODING OR MEDICALLY UNNECESSARY SERVICES- Section 1128A(a)(1) (42 U.S.C. 1320a-7a(a)(1)), as amended by subsection (b), is amended--

      (1) in subparagraph (A) by striking ‘claimed,’ and inserting ‘claimed, including any person who engages in a pattern or practice of presenting or causing to be presented a claim for an item or service that is based on a code that the person knows or should know will result in a greater payment to the person than the code the person knows or should know is applicable to the item or service actually provided,’;

      (2) in subparagraph (C), by striking ‘or’ at the end;

      (3) in subparagraph (D), by striking the semicolon and inserting ‘, or’; and

      (4) by inserting after subparagraph (D) the following new subparagraph:

        ‘(E) is for a medical or other item or service that a person knows or should know is not medically necessary; or’.

    (e) SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS- Section 1156(b)(3) (42 U.S.C. 1320c-5(b)(3)) is amended by striking ‘the actual or estimated cost’ and inserting ‘up to $10,000 for each instance’.

    (f) PROCEDURAL PROVISIONS- Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)), as amended by section 515(a)(2), is amended by adding at the end the following new subparagraph:

    ‘(D) The provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty under subparagraph (B)(i) or (C)(i) in the same manner as such provisions apply to a civil money penalty or proceeding under section 1128A(a).’.

    (g) PROHIBITION AGAINST OFFERING INDUCEMENTS TO INDIVIDUALS ENROLLED UNDER PROGRAMS OR PLANS-

      (1) OFFER OF REMUNERATION- Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is amended--

        (A) by striking ‘or’ at the end of paragraph (1)(D);

        (B) by striking the semicolon at the end of paragraph (4) and inserting ‘; or’; and

        (C) by inserting after paragraph (4) the following new paragraph:

      ‘(5) offers to or transfers remuneration to any individual eligible for benefits under title XVIII of this Act, or under a State health care program (as defined in section 1128(h)) that such person knows or should know is likely to influence such individual to order or receive from a particular provider, practitioner, or supplier any item or service for which payment may be made, in whole or in part, under title XVIII, or a State health care program (as so defined);’.

      (2) REMUNERATION DEFINED- Section 1128A(i) (42 U.S.C. 1320a-7a(i)) is amended by adding the following new paragraph:

      ‘(6) The term ‘remuneration’ includes the waiver of coinsurance and deductible amounts (or any part thereof), and transfers of items or services for free or for other than fair market value. The term ‘remuneration’ does not include--

        ‘(A) the waiver of coinsurance and deductible amounts by a person, if--

          ‘(i) the waiver is not offered as part of any advertisement or solicitation;

          ‘(ii) the person does not routinely waive coinsurance or deductible amounts; and

          ‘(iii) the person--

            ‘(I) waives the coinsurance and deductible amounts after determining in good faith that the individual is in financial need;

            ‘(II) fails to collect coinsurance or deductible amounts after making reasonable collection efforts; or

            ‘(III) provides for any permissible waiver as specified in section 1128B(b)(3) or in regulations issued by the Secretary;

        ‘(B) differentials in coinsurance and deductible amounts as part of a benefit plan design as long as the differentials have been disclosed in writing to all beneficiaries, third party payers, and providers, to whom claims are presented and as long as the differentials meet the standards as defined in regulations promulgated by the Secretary not later than 180 days after the date of the enactment of the Health Insurance Reform Act of 1996; or

        ‘(C) incentives given to individuals to promote the delivery of preventive care as determined by the Secretary in regulations so promulgated.’.

    (h) EFFECTIVE DATE- The amendments made by this section shall take effect January 1, 1997.

Subtitle E--Amendments to Criminal Law

SEC. 541. HEALTH CARE FRAUD.

    (a) IN GENERAL-

      (1) FINES AND IMPRISONMENT FOR HEALTH CARE FRAUD VIOLATIONS- Chapter 63 of title 18, United States Code, is amended by adding at the end the following new section:

‘Sec. 1347. Health care fraud

    ‘Whoever knowingly and willfully executes, or attempts to execute, a scheme or artifice--

      ‘(1) to defraud any health care program, in connection with the delivery of or payment for health care benefits, items, or services; or

      ‘(2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care program in connection with the delivery of or payment for health care benefits, items, or services;

    shall be fined under this title or imprisoned not more than 10 years, or both. If the violation results in serious bodily injury (as defined in section 1365(g)(3) of this title), such person may be imprisoned for any term of years.’.

      (2) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 63 of title 18, United States Code, is amended by adding at the end the following:

      ‘1347. Health care fraud.’.

    (b) CRIMINAL FINES DEPOSITED IN FEDERAL HOSPITAL INSURANCE TRUST FUND- The Secretary of the Treasury shall deposit into the Federal Hospital Insurance Trust Fund pursuant to section 1817(k)(2)(C) of the Social Security Act, as added by section 501(b), an amount equal to the criminal fines imposed under section 1347 of title 18, United States Code (relating to health care fraud).

SEC. 542. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) IN GENERAL- Section 982(a) of title 18, United States Code, is amended by adding after paragraph (5) the following new paragraph:

    ‘(6)(A) The court, in imposing sentence on a person convicted of a Federal health care offense, shall order the person to forfeit property, real or personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the commission of the offense.

    ‘(B) For purposes of this paragraph, the term ‘Federal health care offense’ means a violation of, or a criminal conspiracy to violate--

      ‘(i) section 1347 of this title;

      ‘(ii) section 1128B of the Social Security Act; and

      ‘(iii) sections 287, 371, 664, 666, 669, 1001, 1027, 1341, 1343, 1920, or 1954 of this title if the violation or conspiracy relates to health care fraud.’.

    (b) CONFORMING AMENDMENT- Section 982(b)(1)(A) of title 18, United States Code, is amended by inserting ‘or (a)(6)’ after ‘(a)(1)’.

    (c) PROPERTY FORFEITED DEPOSITED IN FEDERAL HOSPITAL INSURANCE TRUST FUND-

      (1) IN GENERAL- After the payment of the costs of asset forfeiture has been made, and notwithstanding any other provision of law, the Secretary of the Treasury shall deposit into the Federal Hospital Insurance Trust Fund pursuant to section 1817(k)(2)(C) of the Social Security Act, as added by section 501(b), an amount equal to the net amount realized from the forfeiture of property by reason of a Federal health care offense pursuant to section 982(a)(6) of title 18, United States Code.

      (2) COSTS OF ASSET FORFEITURE- For purposes of paragraph (1), the term ‘payment of the costs of asset forfeiture’ means--

        (A) the payment, at the discretion of the Attorney General, of any expenses necessary to seize, detain, inventory, safeguard, maintain, advertise, sell, or dispose of property under seizure, detention, or forfeited, or of any other necessary expenses incident to the seizure, detention, forfeiture, or disposal of such property, including payment for--

          (i) contract services,

          (ii) the employment of outside contractors to operate and manage properties or provide other specialized services necessary to dispose of such properties in an effort to maximize the return from such properties; and

          (iii) reimbursement of any Federal, State, or local agency for any expenditures made to perform the functions described in this subparagraph;

        (B) at the discretion of the Attorney General, the payment of awards for information or assistance leading to a civil or criminal forfeiture involving any Federal agency participating in the Health Care Fraud and Abuse Control Account;

        (C) the compromise and payment of valid liens and mortgages against property that has been forfeited, subject to the discretion of the Attorney General to determine the validity of any such lien or mortgage and the amount of payment to be made, and the employment of attorneys and other personnel skilled in State real estate law as necessary;

        (D) payment authorized in connection with remission or mitigation procedures relating to property forfeited; and

        (E) the payment of State and local property taxes on forfeited real property that accrued between the date of the violation giving rise to the forfeiture and the date of the forfeiture order.

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

    (a) IN GENERAL- Section 1345(a)(1) of title 18, United States Code, is amended--

      (1) by striking ‘or’ at the end of subparagraph (A);

      (2) by inserting ‘or’ at the end of subparagraph (B); and

      (3) by adding at the end the following new subparagraph:

        ‘(C) committing or about to commit a Federal health care offense (as defined in section 982(a)(6)(B) of this title);’.

    (b) FREEZING OF ASSETS- Section 1345(a)(2) of title 18, United States Code, is amended by inserting ‘or a Federal health care offense (as defined in section 982(a)(6)(B))’ after ‘title)’.

SEC. 544. FALSE STATEMENTS.

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

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

    ‘Whoever, in any matter involving a health care program, knowingly and willfully--

      ‘(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact, or

      ‘(2) makes any materially false, fictitious, or fraudulent statement or representation, or makes or uses any materially false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry,

    shall be fined under this title or imprisoned not more than 5 years, or both.’.

    (b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 47 of title 18, United States Code, is amended by adding at the end the following:

      ‘1033. False statements relating to health care matters.’.

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

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

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

    ‘(a) Whoever willfully prevents, obstructs, misleads, delays or attempts to prevent, obstruct, mislead, or delay the communication of information or records relating to a Federal health care offense to a criminal investigator shall be fined under this title or imprisoned not more than 5 years, or both.

    ‘(b) As used in this section the term ‘Federal health care offense’ has the same meaning given such term in section 982(a)(6)(B) of this title.

    ‘(c) As used in this section the term ‘criminal investigator’ means any individual duly authorized by a department, agency, or armed force of the United States to conduct or engage in investigations for prosecutions for violations of health care offenses.’.

    (b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 73 of title 18, United States Code, is amended by adding at the end the following:

      ‘1518. Obstruction of Criminal Investigations of Federal Health Care Offenses.’.

SEC. 546. THEFT OR EMBEZZLEMENT.

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

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

    ‘Whoever willfully embezzles, steals, or otherwise willfully and unlawfully converts to the use of any person other than the rightful owner, or intentionally misapplies any of the moneys, funds, securities, premiums, credits, property, or other assets of a health care program, shall be fined under this title or imprisoned not more than 10 years, or both.’.

    (b) CLERICAL AMENDMENT- The table of sections at the beginning of chapter 31 of title 18, United States Code, is amended by adding at the end the following:

      ‘669. Theft or Embezzlement in Connection with Health Care.’.

SEC. 547. LAUNDERING OF MONETARY INSTRUMENTS.

    Section 1956(c)(7) of title 18, United States Code, is amended by adding at the end the following new subparagraph:

        ‘(F) Any act or activity constituting an offense involving a Federal health care offense as that term is defined in section 982(a)(6)(B) of this title.’.

SEC. 548. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

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

‘Sec. 3486. Authorized investigative demand procedures

    ‘(a)(1)(A) In any investigation relating to functions set forth in paragraph (2), the Attorney General or designee may issue in writing and cause to be served a subpoena compelling production of any records (including any books, papers, documents, electronic media, or other objects or tangible things), which may be relevant to an authorized law enforcement inquiry, that a person or legal entity may possess or have care, custody, or control.

    ‘(B) A custodian of records may be required to give testimony concerning the production and authentication of such records.

    ‘(C) The production of records may be required from any place in any State or in any territory or other place subject to the jurisdiction of the United States at any designated place; except that such production shall not be required more than 500 miles distant from the place where the subpoena is served.

    ‘(D) Witnesses summoned under this section shall be paid the same fees and mileage that are paid witnesses in the courts of the United States.

    ‘(E) A subpoena requiring the production of records shall describe the objects required to be produced and prescribe a return date within a reasonable period of time within which the objects can be assembled and made available.

    ‘(2) Investigative demands utilizing an administrative subpoena are authorized for any investigation with respect to any act or activity constituting or involving health care fraud, including a scheme or artifice--

      ‘(A) to defraud any health care program, in connection with the delivery of or payment for health care benefits, items, or services; or

      ‘(B) to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care program in connection with the delivery of or payment for health care benefits, items, or services.

    ‘(b)(1) A subpoena issued under this section may be served by any person designated in the subpoena to serve it.

    ‘(2) Service upon a natural person may be made by personal delivery of the subpoena to such person.

    ‘(3) Service may be made upon a domestic or foreign association which is subject to suit under a common name, by delivering the subpoena to an officer, to a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process.

    ‘(4) The affidavit of the person serving the subpoena entered on a true copy thereof by the person serving it shall be proof of service.

    ‘(c)(1) In the case of contumacy by or refusal to obey a subpoena issued to any person, the Attorney General may invoke the aid of any court of the United States within the jurisdiction of which the investigation is carried on or of which the subpoenaed person is an inhabitant, or in which such person carries on business or may be found, to compel compliance with the subpoena.

    ‘(2) The court may issue an order requiring the subpoenaed person to appear before the Attorney General to produce records, if so ordered, or to give testimony required under subsection (a)(1)(B).

    ‘(3) Any failure to obey the order of the court may be punished by the court as a contempt thereof.

    ‘(4) All process in any such case may be served in any judicial district in which such person may be found.

    ‘(d) Notwithstanding any Federal, State, or local law, any person, including officers, agents, and employees, receiving a subpoena under this section, who complies in good faith with the subpoena and thus produces the materials sought, shall not be liable in any court of any State or the United States to any customer or other person for such production or for nondisclosure of that production to the customer.

    ‘(e)(1) Health information about an individual that is disclosed under this section may not be used in, or disclosed to any person for use in, any administrative, civil, or criminal action or investigation directed against the individual who is the subject of the information unless the action or investigation arises out of and is directly related to receipt of health care or payment for health care or action involving a fraudulent claim related to health; or if authorized by an appropriate order of a court of competent jurisdiction, granted after application showing good cause therefor.

    ‘(2) In assessing good cause, the court shall weigh the public interest and the need for disclosure against the injury to the patient, to the physician-patient relationship, and to the treatment services.

    ‘(3) Upon the granting of such order, the court, in determining the extent to which any disclosure of all or any part of any record is necessary, shall impose appropriate safeguards against unauthorized disclosure.’.

    (b) CLERICAL AMENDMENT- The table of sections for chapter 223 of title 18, United States Code, is amended by inserting after the item relating to section 3405 the following new item:

      ‘3486. Authorized investigative demand procedures.’.

    (c) CONFORMING AMENDMENT- Section 1510(b)(3)(B) of title 18, United States Code, is amended by inserting ‘or a Department of Justice subpoena (issued under section 3486),’ after ‘subpoena’.

TITLE VI--INTERNAL REVENUE CODE AND OTHER PROVISIONS

SEC. 600. REFERENCES.

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

Subtitle A--Foreign Trust Tax Compliance

SEC. 601. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

    (a) IN GENERAL- Section 6048 (relating to returns as to certain foreign trusts) is amended to read as follows:

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

    ‘(a) NOTICE OF CERTAIN EVENTS-

      ‘(1) GENERAL RULE- On or before the 90th day (or such later day as the Secretary may prescribe) after any reportable event, the responsible party shall provide written notice of such event to the Secretary in accordance with paragraph (2).

      ‘(2) CONTENTS OF NOTICE- The notice required by paragraph (1) shall contain such information as the Secretary may prescribe, including--

        ‘(A) the amount of money or other property (if any) transferred to the trust in connection with the reportable event, and

        ‘(B) the identity of the trust and of each trustee and beneficiary (or class of beneficiaries) of the trust.

      ‘(3) REPORTABLE EVENT- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘reportable event’ means--

          ‘(i) the creation of any foreign trust by a United States person,

          ‘(ii) the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person, including a transfer by reason of death, and

          ‘(iii) the death of a citizen or resident of the United States if--

            ‘(I) the decedent was treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, or

            ‘(II) any portion of a foreign trust was included in the gross estate of the decedent.

        ‘(B) EXCEPTIONS-

          ‘(i) FAIR MARKET VALUE SALES- Subparagraph (A)(ii) shall not apply to any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value and the rules of section 679(a)(3) shall apply.

          ‘(ii) DEFERRED COMPENSATION AND CHARITABLE TRUSTS- Subparagraph (A) shall not apply with respect to a trust which is--

            ‘(I) described in section 402(b), 404(a)(4), or 404A, or

            ‘(II) determined by the Secretary to be described in section 501(c)(3).

      ‘(4) RESPONSIBLE PARTY- For purposes of this subsection, the term ‘responsible party’ means--

        ‘(A) the grantor in the case of the creation of an inter vivos trust,

        ‘(B) the transferor in the case of a reportable event described in paragraph (3)(A)(ii) other than a transfer by reason of death, and

        ‘(C) the executor of the decedent’s estate in any other case.

    ‘(b) UNITED STATES GRANTOR OF FOREIGN TRUST-

      ‘(1) IN GENERAL- If, at any time during any taxable year of a United States person, such person is treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, such person shall be responsible to ensure that--

        ‘(A) such trust makes a return for such year which sets forth a full and complete accounting of all trust activities and operations for the year, the name of the United States agent for such trust, and such other information as the Secretary may prescribe, and

        ‘(B) such trust furnishes such information as the Secretary may prescribe to each United States person (i) who is treated as the owner of any portion of such trust or (ii) who receives (directly or indirectly) any distribution from the trust.

      ‘(2) TRUSTS NOT HAVING UNITED STATES AGENT-

        ‘(A) IN GENERAL- If the rules of this paragraph apply to any foreign trust, the determination of amounts required to be taken into account with respect to such trust by a United States person under the rules of subpart E of part I of subchapter J of chapter 1 shall be determined by the Secretary.

        ‘(B) UNITED STATES AGENT REQUIRED- The rules of this paragraph shall apply to any foreign trust to which paragraph (1) applies unless such trust agrees (in such manner, subject to such conditions, and at such time as the Secretary shall prescribe) to authorize a United States person to act as such trust’s limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to--

          ‘(i) any request by the Secretary to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the rules referred to in subparagraph (A), or

          ‘(ii) any summons by the Secretary for such records or testimony.

        The appearance of persons or production of records by reason of a United States person being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of the amounts required to be taken into account under the rules referred to in subparagraph (A). A foreign trust which appoints an agent described in this subparagraph shall not be considered to have an office or a permanent establishment in the United States, or to be engaged in a trade or business in the United States, solely because of the activities of such agent pursuant to this subsection.

        ‘(C) OTHER RULES TO APPLY- Rules similar to the rules of paragraphs (2) and (4) of section 6038A(e) shall apply for purposes of this paragraph.

    ‘(c) REPORTING BY UNITED STATES BENEFICIARIES OF FOREIGN TRUSTS-

      ‘(1) IN GENERAL- If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign trust, such person shall make a return with respect to such trust for such year which includes--

        ‘(A) the name of such trust,

        ‘(B) the aggregate amount of the distributions so received from such trust during such taxable year, and

        ‘(C) such other information as the Secretary may prescribe.

      ‘(2) INCLUSION IN INCOME IF RECORDS NOT PROVIDED-

        ‘(A) IN GENERAL- If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee under chapter 1. To the extent provided in regulations, the preceding sentence shall not apply if the foreign trust elects to be subject to rules similar to the rules of subsection (b)(2)(B).

        ‘(B) APPLICATION OF ACCUMULATION DISTRIBUTION RULES- For purposes of applying section 668 in a case to which subparagraph (A) applies, the applicable number of years for purposes of section 668(a) shall be 1/2 of the number of years the trust has been in existence.

    ‘(d) SPECIAL RULES-

      ‘(1) DETERMINATION OF WHETHER UNITED STATES PERSON RECEIVES DISTRIBUTION- For purposes of this section, in determining whether a United States person receives a distribution from a foreign trust, the fact that a portion of such trust is treated as owned by another person under the rules of subpart E of part I of subchapter J of chapter 1 shall be disregarded.

      ‘(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVITIES- To the extent provided in regulations, a trust which is a United States person shall be treated as a foreign trust for purposes of this section and section 6677 if such trust has substantial activities, or holds substantial property, outside the United States.

      ‘(3) TIME AND MANNER OF FILING INFORMATION- Any notice or return required under this section shall be made at such time and in such manner as the Secretary shall prescribe.

      ‘(4) MODIFICATION OF RETURN REQUIREMENTS- The Secretary is authorized to suspend or modify any requirement of this section if the Secretary determines that the United States has no significant tax interest in obtaining the required information.’.

    (b) INCREASED PENALTIES- Section 6677 (relating to failure to file information returns with respect to certain foreign trusts) is amended to read as follows:

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

    ‘(a) CIVIL PENALTY- In addition to any criminal penalty provided by law, if any notice or return required to be filed by section 6048--

      ‘(1) is not filed on or before the time provided in such section, or

      ‘(2) does not include all the information required pursuant to such section or includes incorrect information,

    the person required to file such notice or return shall pay a penalty equal to 35 percent of the gross reportable amount. If any failure described in the preceding sentence continues for more than 90 days after the day on which the Secretary mails notice of such failure to the person required to pay such penalty, such person shall pay a penalty (in addition to the amount determined under the preceding sentence) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount.

    ‘(b) SPECIAL RULES FOR RETURNS UNDER SECTION 6048(b)- In the case of a return required under section 6048(b)--

      ‘(1) the United States person referred to in such section shall be liable for the penalty imposed by subsection (a), and

      ‘(2) subsection (a) shall be applied by substituting ‘5 percent’ for ‘35 percent’.

    ‘(c) GROSS REPORTABLE AMOUNT- For purposes of subsection (a), the term ‘gross reportable amount’ means--

      ‘(1) the gross value of the property involved in the event (determined as of the date of the event) in the case of a failure relating to section 6048(a),

      ‘(2) the gross value of the portion of the trust’s assets at the close of the year treated as owned by the United States person in the case of a failure relating to section 6048(b)(1), and

      ‘(3) the gross amount of the distributions in the case of a failure relating to section 6048(c).

    ‘(d) REASONABLE CAUSE EXCEPTION- No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.

    ‘(e) DEFICIENCY PROCEDURES NOT TO APPLY- Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).’.

    (c) CONFORMING AMENDMENTS-

      (1) Paragraph (2) of section 6724(d) is amended by striking ‘or’ at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting ‘, or’, and by inserting after subparagraph (T) the following new subparagraph:

        ‘(U) section 6048(b)(1)(B) (relating to foreign trust reporting requirements).’.

      (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6048 and inserting the following new item:

      ‘Sec. 6048. Information with respect to certain foreign trusts.’.

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

      ‘Sec. 6677. Failure to file information with respect to certain foreign trusts.’.

    (d) EFFECTIVE DATES-

      (1) REPORTABLE EVENTS- To the extent related to subsection (a) of section 6048 of the Internal Revenue Code of 1986, as amended by this section, the amendments made by this section shall apply to reportable events (as defined in such section 6048) occurring after the date of the enactment of this Act.

      (2) GRANTOR TRUST REPORTING- To the extent related to subsection (b) of such section 6048, the amendments made by this section shall apply to taxable years of United States persons beginning after the date of the enactment of this Act.

      (3) REPORTING BY UNITED STATES BENEFICIARIES- To the extent related to subsection (c) of such section 6048, the amendments made by this section shall apply to distributions received after the date of the enactment of this Act.

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

    (a) TREATMENT OF TRUST OBLIGATIONS, ETC-

      (1) Paragraph (2) of section 679(a) is amended by striking subparagraph (B) and inserting the following:

        ‘(B) TRANSFERS AT FAIR MARKET VALUE- To any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value.’.

      (2) Subsection (a) of section 679 (relating to foreign trusts having one or more United States beneficiaries) is amended by adding at the end the following new paragraph:

      ‘(3) CERTAIN OBLIGATIONS NOT TAKEN INTO ACCOUNT UNDER FAIR MARKET VALUE EXCEPTION-

        ‘(A) IN GENERAL- In determining whether paragraph (2)(B) applies to any transfer by a person described in clause (ii) or (iii) of subparagraph (C), there shall not be taken into account--

          ‘(i) except as provided in regulations, any obligation of a person described in subparagraph (C), and

          ‘(ii) to the extent provided in regulations, any obligation which is guaranteed by a person described in subparagraph (C).

        ‘(B) TREATMENT OF PRINCIPAL PAYMENTS ON OBLIGATION- Principal payments by the trust on any obligation referred to in subparagraph (A) shall be taken into account on and after the date of the payment in determining the portion of the trust attributable to the property transferred.

        ‘(C) PERSONS DESCRIBED- The persons described in this subparagraph are--

          ‘(i) the trust,

          ‘(ii) any grantor or beneficiary of the trust, and

          ‘(iii) any person who is related (within the meaning of section 643(i)(2)(B)) to any grantor or beneficiary of the trust.’.

    (b) EXEMPTION OF TRANSFERS TO CHARITABLE TRUSTS- Subsection (a) of section 679 is amended by striking ‘section 404(a)(4) or 404A’ and inserting ‘section 6048(a)(3)(B)(ii)’.

    (c) OTHER MODIFICATIONS- Subsection (a) of section 679 is amended by adding at the end the following new paragraphs:

      ‘(4) SPECIAL RULES APPLICABLE TO FOREIGN GRANTOR WHO LATER BECOMES A UNITED STATES PERSON-

        ‘(A) IN GENERAL- If a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date an amount equal to the portion of such trust attributable to the property transferred by such individual to such trust in such transfer.

        ‘(B) TREATMENT OF UNDISTRIBUTED INCOME- For purposes of this section, undistributed net income for periods before such individual’s residency starting date shall be taken into account in determining the portion of the trust which is attributable to property transferred by such individual to such trust but shall not otherwise be taken into account.

        ‘(C) RESIDENCY STARTING DATE- For purposes of this paragraph, an individual’s residency starting date is the residency starting date determined under section 7701(b)(2)(A).

      ‘(5) OUTBOUND TRUST MIGRATIONS- If--

        ‘(A) an individual who is a citizen or resident of the United States transferred property to a trust which was not a foreign trust, and

        ‘(B) such trust becomes a foreign trust while such individual is alive,

      then this section and section 6048 shall be applied as if such individual transferred to such trust on the date such trust becomes a foreign trust an amount equal to the portion of such trust attributable to the property previously transferred by such individual to such trust. A rule similar to the rule of paragraph (4)(B) shall apply for purposes of this paragraph.’.

    (d) MODIFICATIONS RELATING TO WHETHER TRUST HAS UNITED STATES BENEFICIARIES- Subsection (c) of section 679 is amended by adding at the end the following new paragraph:

      ‘(3) CERTAIN UNITED STATES BENEFICIARIES DISREGARDED- A beneficiary shall not be treated as a United States person in applying this section with respect to any transfer of property to foreign trust if such beneficiary first became a United States person more than 5 years after the date of such transfer.’.

    (e) TECHNICAL AMENDMENT- Subparagraph (A) of section 679(c)(2) is amended to read as follows:

        ‘(A) in the case of a foreign corporation, such corporation is a controlled foreign corporation (as defined in section 957(a)),’.

    (f) REGULATIONS- Section 679 is amended by adding at the end the following new subsection:

    ‘(d) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.’.

    (g) EFFECTIVE DATE- The amendments made by this section shall apply to transfers of property after February 6, 1995.

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

    (a) GENERAL RULE-

      (1) Subsection (f) of section 672 (relating to special rule where grantor is foreign person) is amended to read as follows:

    ‘(f) SUBPART NOT TO RESULT IN FOREIGN OWNERSHIP-

      ‘(1) IN GENERAL- Notwithstanding any other provision of this subpart, this subpart shall apply only to the extent such application results in an amount being currently taken into account (directly or through 1 or more entities) under this chapter in computing the income of a citizen or resident of the United States or a domestic corporation.

      ‘(2) EXCEPTIONS-

        ‘(A) CERTAIN REVOCABLE AND IRREVOCABLE TRUSTS- Paragraph (1) shall not apply to any trust if--

          ‘(i) the power to revest absolutely in the grantor title to the trust property is exercisable solely by the grantor without the approval or consent of any other person or with the consent of a related or subordinate party who is subservient to the grantor, or

          ‘(ii) the only amounts distributable from such trust (whether income or corpus) during the lifetime of the grantor are amounts distributable to the grantor or the spouse of the grantor.

        ‘(B) COMPENSATORY TRUSTS- Except as provided in regulations, paragraph (1) shall not apply to any portion of a trust distributions from which are taxable as compensation for services rendered.

      ‘(3) SPECIAL RULES- Except as otherwise provided in regulations prescribed by the Secretary--

        ‘(A) a controlled foreign corporation (as defined in section 957) shall be treated as a domestic corporation for purposes of paragraph (1), and

        ‘(B) paragraph (1) shall not apply for purposes of applying section 1296.

      ‘(4) RECHARACTERIZATION OF PURPORTED GIFTS- In the case of any transfer directly or indirectly from a partnership or foreign corporation which the transferee treats as a gift or bequest, the Secretary may recharacterize such transfer in such circumstances as the Secretary determines to be appropriate to prevent the avoidance of the purposes of this subsection.

      ‘(5) SPECIAL RULE WHERE GRANTOR IS FOREIGN PERSON- If--

        ‘(A) but for this subsection, a foreign person would be treated as the owner of any portion of a trust, and

        ‘(B) such trust has a beneficiary who is a United States person,

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

      ‘(6) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations providing that paragraph (1) shall not apply in appropriate cases.’.

      (2) The last sentence of subsection (c) of section 672 of such Code is amended by inserting ‘subsection (f) and’ before ‘sections 674’.

    (b) CREDIT FOR CERTAIN TAXES- Paragraph (2) of section 665(d) is amended by adding at the end the following new sentence: ‘Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the term ‘taxes imposed on the trust’ includes the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust gross income.’.

    (c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES-

      (1) Section 643 is amended by adding at the end the following new subsection:

    ‘(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES- For purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person.’.

      (2) Section 665 is amended by striking subsection (c).

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided by paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act.

      (2) EXCEPTION FOR CERTAIN TRUSTS- The amendments made by this section shall not apply to any trust--

        (A) which is treated as owned by the grantor or another person under section 676 or 677 (other than subsection (a)(3) thereof) of the Internal Revenue Code of 1986, and

        (B) which is in existence on September 19, 1995.

      The preceding sentence shall not apply to the portion of any such trust attributable to any transfer to such trust after September 19, 1995.

    (e) TRANSITIONAL RULE- If--

      (1) by reason of the amendments made by this section, any person other than a United States person ceases to be treated as the owner of a portion of a domestic trust, and

      (2) before January 1, 1997, such trust becomes a foreign trust, or the assets of such trust are transferred to a foreign trust,

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

SEC. 604. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

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

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

    ‘(a) IN GENERAL- If the value of the aggregate foreign gifts received by a United States person (other than an organization described in section 501(c) and exempt from tax under section 501(a)) during any taxable year exceeds $10,000, such United States person shall furnish (at such time and in such manner as the Secretary shall prescribe) such information as the Secretary may prescribe regarding each foreign gift received during such year.

    ‘(b) FOREIGN GIFT- For purposes of this section, the term ‘foreign gift’ means any amount received from a person other than a United States person which the recipient treats as a gift or bequest. Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2)).

    ‘(c) PENALTY FOR FAILURE TO FILE INFORMATION-

      ‘(1) IN GENERAL- If a United States person fails to furnish the information required by subsection (a) with respect to any foreign gift within the time prescribed therefor (including extensions)--

        ‘(A) the tax consequences of the receipt of such gift shall be determined by the Secretary in the Secretary’s sole discretion from the Secretary’s own knowledge or from such information as the Secretary may obtain through testimony or otherwise, and

        ‘(B) such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate).

      ‘(2) REASONABLE CAUSE EXCEPTION- Paragraph (1) shall not apply to any failure to report a foreign gift if the United States person shows that the failure is due to reasonable cause and not due to willful neglect.

    ‘(d) COST-OF-LIVING ADJUSTMENT- In the case of any taxable year beginning after December 31, 1996, the $10,000 amount under subsection (a) shall be increased by an amount equal to the product of such amount and the cost-of-living adjustment for such taxable year under section 1(f)(3), except that subparagraph (B) thereof shall be applied by substituting ‘1995’ for ‘1992’.

    ‘(e) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.’.

    (b) CLERICAL AMENDMENT- The table of sections for such subpart is amended by inserting after the item relating to section 6039E the following new item:

      ‘Sec. 6039F. Notice of large gifts received from foreign persons.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts received after the date of the enactment of this Act in taxable years ending after such date.

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

    (a) MODIFICATION OF INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS- Subsection (a) of section 668 (relating to interest charge on accumulation distributions from foreign trusts) is amended to read as follows:

    ‘(a) GENERAL RULE- For purposes of the tax determined under section 667(a)--

      ‘(1) INTEREST DETERMINED USING UNDERPAYMENT RATES- The interest charge determined under this section with respect to any distribution is the amount of interest which would be determined on the partial tax computed under section 667(b) for the period described in paragraph (2) using the rates and the method under section 6621 applicable to underpayments of tax.

      ‘(2) PERIOD- For purposes of paragraph (1), the period described in this paragraph is the period which begins on the date which is the applicable number of years before the date of the distribution and which ends on the date of the distribution.

      ‘(3) APPLICABLE NUMBER OF YEARS- For purposes of paragraph (2)--

        ‘(A) IN GENERAL- The applicable number of years with respect to a distribution is the number determined by dividing--

          ‘(i) the sum of the products described in subparagraph (B) with respect to each undistributed income year, by

          ‘(ii) the aggregate undistributed net income.

        The quotient determined under the preceding sentence shall be rounded under procedures prescribed by the Secretary.

        ‘(B) PRODUCT DESCRIBED- For purposes of subparagraph (A), the product described in this subparagraph with respect to any undistributed income year is the product of--

          ‘(i) the undistributed net income for such year, and

          ‘(ii) the sum of the number of taxable years between such year and the taxable year of the distribution (counting in each case the undistributed income year but not counting the taxable year of the distribution).

      ‘(4) UNDISTRIBUTED INCOME YEAR- For purposes of this subsection, the term ‘undistributed income year’ means any prior taxable year of the trust for which there is undistributed net income, other than a taxable year during all of which the beneficiary receiving the distribution was not a citizen or resident of the United States.

      ‘(5) DETERMINATION OF UNDISTRIBUTED NET INCOME- Notwithstanding section 666, for purposes of this subsection, an accumulation distribution from the trust shall be treated as reducing proportionately the undistributed net income for undistributed income years.

      ‘(6) PERIODS BEFORE 1996- Interest for the portion of the period described in paragraph (2) which occurs before January 1, 1996, shall be determined--

        ‘(A) by using an interest rate of 6 percent, and

        ‘(B) without compounding until January 1, 1996.’.

    (b) ABUSIVE TRANSACTIONS- Section 643(a) is amended by inserting after paragraph (6) the following new paragraph:

      ‘(7) ABUSIVE TRANSACTIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes.’.

    (c) TREATMENT OF LOANS FROM TRUSTS-

      (1) IN GENERAL- Section 643 (relating to definitions applicable to subparts A, B, C, and D) is amended by adding at the end the following new subsection:

    ‘(i) LOANS FROM FOREIGN TRUSTS- For purposes of subparts B, C, and D--

      ‘(1) GENERAL RULE- Except as provided in regulations, if a foreign trust makes a loan of cash or marketable securities directly or indirectly to--

        ‘(A) any grantor or beneficiary of such trust who is a United States person, or

        ‘(B) any United States person not described in subparagraph (A) who is related to such grantor or beneficiary,

      the amount of such loan shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be).

      ‘(2) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection--

        ‘(A) CASH- The term ‘cash’ includes foreign currencies and cash equivalents.

        ‘(B) RELATED PERSON-

          ‘(i) IN GENERAL- A person is related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). In applying section 267 for purposes of the preceding sentence, section 267(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family.

          ‘(ii) ALLOCATION- If any person described in paragraph (1)(B) is related to more than one person, the grantor or beneficiary to whom the treatment under this subsection applies shall be determined under regulations prescribed by the Secretary.

        ‘(C) EXCLUSION OF TAX-EXEMPTS- The term ‘United States person’ does not include any entity exempt from tax under this chapter.

        ‘(D) TRUST NOT TREATED AS SIMPLE TRUST- Any trust which is treated under this subsection as making a distribution shall be treated as not described in section 651.

      ‘(3) SUBSEQUENT TRANSACTIONS REGARDING LOAN PRINCIPAL- If any loan is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) shall be disregarded for purposes of this title.’.

      (2) TECHNICAL AMENDMENT- Paragraph (8) of section 7872(f) is amended by inserting ‘, 643(i),’ before ‘or 1274’ each place it appears.

    (d) EFFECTIVE DATES-

      (1) INTEREST CHARGE- The amendment made by subsection (a) shall apply to distributions after the date of the enactment of this Act.

      (2) ABUSIVE TRANSACTIONS- The amendment made by subsection (b) shall take effect on the date of the enactment of this Act.

      (3) LOANS FROM TRUSTS- The amendment made by subsection (c) shall apply to loans of cash or marketable securities after September 19, 1995.

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

    (a) TREATMENT AS UNITED STATES PERSON-

      (1) IN GENERAL- Paragraph (30) of section 7701(a) is amended by striking subparagraph (D) and by inserting after subparagraph (C) the following:

        ‘(D) any estate or trust if--

          ‘(i) a court within the United States is able to exercise primary supervision over the administration of the estate or trust, and

          ‘(ii) in the case of a trust, one or more United States fiduciaries have the authority to control all substantial decisions of the trust.’.

      (2) CONFORMING AMENDMENT- Paragraph (31) of section 7701(a) is amended to read as follows:

      ‘(31) FOREIGN ESTATE OR TRUST- The term ‘foreign estate’ or ‘foreign trust’ means any estate or trust other than an estate or trust described in section 7701(a)(30)(D).’.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall apply--

        (A) to taxable years beginning after December 31, 1996, or

        (B) at the election of the trustee of a trust, to taxable years ending after the date of the enactment of this Act.

      Such an election, once made, shall be irrevocable.

    (b) DOMESTIC TRUSTS WHICH BECOME FOREIGN TRUSTS-

      (1) IN GENERAL- Section 1491 (relating to imposition of tax on transfers to avoid income tax) is amended by adding at the end the following new flush sentence:

    ‘If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust.’.

      (2) PENALTY- Section 1494 is amended by adding at the end the following new subsection:

    ‘(c) PENALTY- In the case of any failure to file a return required by the Secretary with respect to any transfer described in section 1491 with respect to a trust, the person required to file such return shall be liable for the penalties provided in section 6677 in the same manner as if such failure were a failure to file a return under section 6048(a).’.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall take effect on the date of the enactment of this Act.

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

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

    (a) IN GENERAL- Section 593 (relating to reserves for losses on loans) is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Subsection (d) of section 50 is amended by adding at the end the following new sentence:

    ‘Paragraphs (1)(A), (2)(A), and (4) of section 46(e) referred to in paragraph (1) of this subsection shall not apply to any taxable year beginning after December 31, 1995.’.

      (2) Subsection (e) of section 52 is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively.

      (3) Subsection (a) of section 57 is amended by striking paragraph (4).

      (4) Section 246 is amended by striking subsection (f).

      (5) Clause (i) of section 291(e)(1)(B) is amended by striking ‘or to which section 593 applies’.

      (6) Subparagraph (A) of section 585(a)(2) is amended by striking ‘other than an organization to which section 593 applies’.

      (7) Sections 595 and 596 are hereby repealed.

      (8) Subsection (a) of section 860E is amended--

        (A) by striking ‘Except as provided in paragraph (2), the’ in paragraph (1) and inserting ‘The’,

        (B) by striking paragraphs (2) and (4) and redesignating paragraphs (3) and (5) as paragraphs (2) and (3), respectively, and

        (C) by striking in paragraph (2) (as so redesignated) all that follows ‘subsection’ and inserting a period.

      (9) Paragraph (3) of section 992(d) is amended by striking ‘or 593’.

      (10) Section 1038 is amended by striking subsection (f).

      (11) Clause (ii) of section 1042(c)(4)(B) is amended by striking ‘or 593’.

      (12) Subsection (c) of section 1277 is amended by striking ‘or to which section 593 applies’.

      (13) Subparagraph (B) of section 1361(b)(2) is amended by striking ‘or to which section 593 applies’.

      (14) The table of sections for part II of subchapter H of chapter 1 is amended by striking the items relating to sections 593, 595, and 596.

    (c) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 1995.

      (2) REPEAL OF SECTION 595- The repeal of section 595 under subsection (b)(7) shall apply to property acquired in taxable years beginning after December 31, 1995.

    (d) 6-YEAR SPREAD OF ADJUSTMENTS-

      (1) IN GENERAL- In the case of any taxpayer who is required by reason of the amendments made by this section to change its method of computing reserves for bad debts--

        (A) such change shall be treated as a change in a method of accounting,

        (B) such change shall be treated as initiated by the taxpayer and as having been made with the consent of the Secretary, and

        (C) the net amount of the adjustments required to be taken into account by the taxpayer under section 481(a)--

          (i) shall be determined by taking into account only applicable excess reserves, and

          (ii) as so determined, shall be taken into account ratably over the 6-taxable year period beginning with the first taxable year beginning after December 31, 1995.

      (2) APPLICABLE EXCESS RESERVES-

        (A) IN GENERAL- For purposes of paragraph (1), the term ‘applicable excess reserves’ means the excess (if any) of--

          (i) the balance of the reserves described in section 593(c)(1) of such Code (as in effect on the day before the date of the enactment of this Act) as of the close of the taxpayer’s last taxable year beginning before January 1, 1996, over

          (ii) the lesser of--

            (I) the balance of such reserves as of the close of the taxpayer’s last taxable year beginning before January 1, 1988, or

            (II) the balance of the reserves described in subclause (I), reduce by an amount determined in the same manner as under section 585(b)(2)(B)(ii) on the basis of the taxable years described in clause (i) and this clause.

        (B) SPECIAL RULE FOR THRIFTS WHICH BECOME SMALL BANKS- In the case of a bank (as defined in section 581 of such Code) which is not a large bank (as defined in section 585(c)(2) of such Code) for its first taxable year beginning after December 31, 1995--

          (i) the balance taken into account under subparagraph (A)(ii) shall not be less than the amount which would be the balance of such reserve as of the close of its last taxable year beginning before January 1, 1996, if the additions to such reserve for all taxable years had been determined under section 585(b)(2)(A), and

          (ii) the opening balance of the reserve for bad debts as of the beginning of such first taxable year shall be the balance taken into account under subparagraph (A)(ii) (determined after the application of clause (i) of this subparagraph).

        The preceding sentence shall not apply for purposes of paragraphs (5), (6), and (7).

      (3) RECAPTURE OF PRE-1988 RESERVES WHERE TAXPAYER CEASES TO BE BANK- If during any taxable year beginning after December 31, 1995, a taxpayer to which paragraph (1) applied is not a bank (as defined in section 581), paragraph (1) shall apply to the reserves described in subparagraph (A)(ii) except that such reserves shall be taken into account ratably over the 6-taxable year period beginning with such taxable year.

      (4) SUSPENSION OF RECAPTURE IF RESIDENTIAL LOAN REQUIREMENT MET-

        (A) IN GENERAL- In the case of a bank which meets the residential loan requirement of subparagraph (B) for a taxable year beginning after December 31, 1995, and before January 1, 1998--

          (i) no adjustment shall be taken into account under paragraph (1) for such taxable year, and

          (ii) such taxable year shall be disregarded in determining--

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

            (II) the amount of such adjustment.

        (B) RESIDENTIAL LOAN REQUIREMENT- A taxpayer meets the residential loan requirement of this subparagraph for any taxable year if the principal amount of the residential loans made by the taxpayer during such year is not less than the base amount for such year.

        (C) RESIDENTIAL LOAN- For purposes of this paragraph, the term ‘residential loan’ means any loan described in clause (v) of section 7701(a)(19)(C) of such Code but only if such loan is incurred in acquiring, constructing, or improving the property described in such clause.

        (D) BASE AMOUNT- For purposes of subparagraph (B), the base amount is the average of the principal amounts of the residential loans made by the taxpayer during the 6 most recent taxable years beginning before January 1, 1996. At the election of the taxpayer who made such loans during each of such 6 taxable years, the preceding sentence shall be applied without regard to the taxable year in which such principal amount was the highest and the taxable year in such principal amount was the lowest. Such an election may be made only for the first taxable year beginning after December 31, 1995, and, if made for such taxable year, shall apply to the succeeding taxable year unless revoked with the consent of the Secretary of the Treasury or the Secretary’s delegate.

        (E) CONTROLLED GROUPS- In the case of a taxpayer which is a member of any controlled group of corporations described in section 1563(a)(1) of such Code, subparagraph (B) shall be applied with respect to such group.

      (5) CONTINUED APPLICATION OF FRESH START UNDER SECTION 585 TRANSITIONAL RULES- In the case of a taxpayer to which paragraph (1) applied and which was not a large bank (as defined in section 585(c)(2) of such Code) for its first taxable year beginning after December 31, 1995:

        (A) IN GENERAL- For purposes of determining the net amount of adjustments referred to in section 585(c)(3)(A)(iii) of such Code, there shall be taken into account only the excess of the reserve for bad debts as of the close of the last taxable year before the disqualification year over the balance taken into account by such taxpayer under paragraph (2)(A)(ii) of this subsection.

        (B) TREATMENT UNDER ELECTIVE CUT-OFF METHOD- For purposes of applying section 585(c)(4) of such Code--

          (i) the balance of the reserve taken into account under subparagraph (B) thereof shall be reduced by the balance taken into account by such taxpayer under paragraph (2)(A)(ii) of this subsection, and

          (ii) no amount shall be includible in gross income by reason of such reduction.

      (6) CONTINUED APPLICATION OF SECTION 593(e)- Notwithstanding the amendments made by this section, in the case of a taxpayer to which paragraph (1) of this subsection applies, section 593(e) of such Code (as in effect on the day before the date of the enactment of this Act) shall continue to apply to such taxpayer as if such taxpayer were a domestic building and loan association but the amount of the reserves taken into account under subparagraphs (B) and (C) of section 593(e)(1) (as so in effect) shall be the balance taken into account by such taxpayer under paragraph (2)(A)(ii) of this subsection.

      (7) CERTAIN ITEMS INCLUDED AS SECTION 381(c) ITEMS- The balance of the applicable excess reserves, and the balance taken into account by a taxpayer under paragraph (2)(A)(ii) of this subsection, shall be treated as items described in section 381(c) of such Code.

      (8) CONVERSIONS TO CREDIT UNIONS- In the case of a taxpayer to which paragraph (1) applied which becomes a credit union described in section 501(c)(14)(A)--

        (A) any amount required to be included in the gross income of the credit union by reason of this subsection shall be treated as derived from an unrelated trade or business (as defined in section 513), and

        (B) for purposes of paragraph (3), the credit union shall not be treated as if it were a bank.

      (9) REGULATIONS- The Secretary of the Treasury or the Secretary’s delegate shall prescribe such regulations as may be necessary to carry out this subsection, including regulations providing for the application of paragraphs (4) and (6) in the case of acquisitions, mergers, spin-offs, and other reorganizations.

Subtitle C--Other Provisions

SEC. 621. EXTENSION OF MEDICARE SECONDARY PAYOR PROVISIONS.

    Section 1862(b) of the Social Security Act (42 U.S.C. 1395y(b)) is amended--

      (1) in paragraph (1)--

        (A) in subparagraph (B), by striking clause (iii) and redesignating clause (iv) as clause (iii); and

        (B) in the matter following clause (ii) of subparagraph (C), by striking ‘, and before October 1, 1998’; and

      (2) in paragraph (5)(C), by striking clause (iii).

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

    (a) ANNUAL ADJUSTMENT FACTORS FOR OPERATING COSTS ONLY- Section 8(c)(2)(A) of the United States Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)) is amended--

      (1) by striking ‘(2)(A)’ and inserting ‘(2)(A)(i)’;

      (2) by striking the second sentence and all that follows through the end of the subparagraph; and

      (3) by adding at the end the following new clause:

    ‘(ii) Each assistance contract under this section shall provide that--

      ‘(I) if the maximum monthly rent for a unit in a new construction or substantial rehabilitation project to be adjusted using an annual adjustment factor exceeds 100 percent of the fair market rent for an existing dwelling unit in the market area, the Secretary shall adjust the rent using an operating costs factor that increases the rent to reflect increases in operating costs in the market area; and

      ‘(II) if the owner of a unit in a project described in subclause (I) demonstrates that the adjusted rent determined under subclause (I) would not exceed the rent for an unassisted unit of similar quality, type, and age in the same market area, as determined by the Secretary, the Secretary shall use the otherwise applicable annual adjustment factor.’.

    (b) RESTRAINT ON SECTION 8 RENT INCREASES- Section 8(c)(2)(A) of the United States Housing Act of 1937 (42 U.S.C. 1437f(c)(2)(A)), as amended by subsection (a) of this section, is amended by adding at the end the following new clause:

    ‘(iii)(I) Subject to subclause (II), with respect to any unit assisted under this section that is occupied by the same family at the time of the most recent annual rental adjustment, if the assistance contract provides for the adjustment of the maximum monthly rent by applying an annual adjustment factor, and if the rent for the unit is otherwise eligible for an adjustment based on the full amount of the annual adjustment factor, 0.01 shall be subtracted from the amount of the annual adjustment factor, except that the annual adjustment factor shall not be reduced to less than 1.0.

    ‘(II) With respect to any unit described in subclause (I) that is assisted under the certificate program, the adjusted rent shall not exceed the rent for a comparable unassisted unit of similar quality, type, and age in the market area in which the unit is located.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall be construed to have become effective on October 1, 1995.

SEC. 623. FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE.

    (a) EFFECTIVENESS AND APPLICABILITY- Section 407 of The Balanced Budget Downpayment Act, I (Public Law 104-99) is amended--

      (1) in subsection (c)--

        (A) by striking ‘Except as provided in subsection (e), the’ and inserting ‘The’; and

        (B) by striking ‘only with respect to mortgages insured under the National Housing Act that are originated before October 1, 1995’ and inserting ‘to all mortgages insured under the National Housing Act’; and

      (2) by striking subsection (e).

    (b) TECHNICAL AMENDMENT- Section 230(d) of the National Housing Act (12 U.S.C. 1715u(d)) is amended by striking ‘the Departments’ and all that follows through ‘1996’ and inserting ‘The Balanced Budget Downpayment Act, I’.