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Online: http://www.gpo.gov/fdsys/pkg/PLAW-104publ191/html/PLAW-104publ191.htm
 
Online: http://www.gpo.gov/fdsys/pkg/PLAW-104publ191/html/PLAW-104publ191.htm
  
 +
The text is:
 +
<pre>
 +
[104th Congress Public Law 191]
 +
[From the U.S. Government Printing Office]
 +
 +
 +
<DOC>
 +
[DOCID: f:publ191.104]
 +
 +
      HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
 +
Public Law 104-191
 +
104th Congress
 +
 +
                                An Act
 +
 +
 +
 +
To amend the Internal Revenue Code of 1986 to improve portability and
 +
  continuity of health insurance coverage in the group and individual
 +
  markets, to combat waste, fraud, and abuse in health insurance and
 +
health care delivery, to promote the use of medical savings accounts, to
 +
improve access to long-term care services and coverage, to simplify the
 +
administration of health insurance, and for other purposes. <<NOTE: Aug.
 +
                      21, 1996 -  [H.R. 3103]>>
 +
 +
    Be it enacted by the Senate and House of Representatives of the
 +
United States of America in <<NOTE: Health Insurance Portability and
 +
Accountability Act of 1996.>>  Congress assembled,
 +
 +
SECTION 1. SHORT TITLE; TABLE OF <<NOTE: 42 USC 201 note.>>  CONTENTS.
 +
 +
    (a) Short Title.--This Act may be cited as the ``Health Insurance
 +
Portability and Accountability Act of 1996''.
 +
    (b) Table of Contents.--The table of contents of this Act is as
 +
follows:
 +
 +
Sec. 1. Short title; table of contents.
 +
 +
      TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
 +
 +
                    Subtitle A--Group Market Rules
 +
 +
      Part 1--Portability, Access, and Renewability Requirements
 +
 +
Sec. 101. Through the Employee Retirement Income Security Act of 1974.
 +
 +
  ``Part 7--Group Health Plan Portability, Access, and Renewability
 +
                              Requirements
 +
 +
        ``Sec. 701. Increased portability through limitation on
 +
                            preexisting condition exclusions.
 +
        ``Sec. 702. Prohibiting discrimination against individual
 +
                            participants and beneficiaries based on
 +
                            health status.
 +
        ``Sec. 703. Guaranteed renewability in multiemployer plans and
 +
                            multiple employer welfare arrangements.
 +
        ``Sec. 704. Preemption; State flexibility; construction.
 +
        ``Sec. 705. Special rules relating to group health plans.
 +
        ``Sec. 706. Definitions.
 +
        ``Sec. 707. Regulations.''.
 +
Sec. 102. Through the Public Health Service Act.
 +
 +
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
 +
                        HEALTH INSURANCE COVERAGE
 +
 +
                    ``Part A--Group Market Reforms
 +
 +
    ``Subpart 1--Portability, Access, and Renewability Requirements
 +
 +
        ``Sec. 2701. Increased portability through limitation on
 +
                            preexisting condition exclusions.
 +
        ``Sec. 2702. Prohibiting discrimination against individual
 +
                            participants and beneficiaries based on
 +
                            health status.
 +
 +
  ``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
 +
 +
        ``Sec. 2711. Guaranteed availability of coverage for employers
 +
                            in the group market.
 +
        ``Sec. 2712. Guaranteed renewability of coverage for employers
 +
                            in the group market.
 +
        ``Sec. 2713. Disclosure of information.
 +
 +
        ``Subpart 3--Exclusion of Plans; Enforcement; Preemption
 +
 +
        ``Sec. 2721. Exclusion of certain plans.
 +
        ``Sec. 2722. Enforcement.
 +
        ``Sec. 2723. Preemption; State flexibility; construction.
 +
 +
            ``Part C--Definitions; Miscellaneous Provisions
 +
 +
        ``Sec. 2791. Definitions.
 +
        ``Sec. 2792. Regulations.''.
 +
Sec. 103. Reference to implementation through the Internal Revenue Code
 +
          of 1986.
 +
Sec. 104. Assuring coordination.
 +
 +
                  Subtitle B--Individual Market Rules
 +
 +
Sec. 111. Amendment to Public Health Service Act.
 +
 +
                    ``Part B--Individual Market Rules
 +
 +
        ``Sec. 2741. Guaranteed availability of individual health
 +
                            insurance coverage to certain individuals
 +
                            with prior group coverage.
 +
        ``Sec. 2742. Guaranteed renewability of individual health
 +
                            insurance coverage.
 +
        ``Sec. 2743. Certification of coverage.
 +
        ``Sec. 2744. State flexibility in individual market reforms.
 +
        ``Sec. 2745. Enforcement.
 +
        ``Sec. 2746. Preemption.
 +
        ``Sec. 2747. General exceptions.''.
 +
 +
            Subtitle C--General and Miscellaneous Provisions
 +
 +
Sec. 191. Health coverage availability studies.
 +
Sec. 192. Report on Medicare reimbursement of telemedicine.
 +
Sec. 193. Allowing federally-qualified HMOs to offer high deductible
 +
          plans.
 +
Sec. 194. Volunteer services provided by health professionals at free
 +
          clinics.
 +
Sec. 195. Findings; severability.
 +
 +
    TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
 +
                SIMPLIFICATION; MEDICAL LIABILITY REFORM
 +
 +
Sec. 200. References in title.
 +
 +
              Subtitle A--Fraud and Abuse Control Program
 +
 +
Sec. 201. Fraud and abuse control program.
 +
Sec. 202. Medicare integrity program.
 +
Sec. 203. Beneficiary incentive programs.
 +
Sec. 204. Application of certain health antifraud and abuse sanctions to
 +
          fraud and abuse against Federal health care programs.
 +
Sec. 205. Guidance regarding application of health care fraud and abuse
 +
          sanctions.
 +
 +
    Subtitle B--Revisions to Current Sanctions for Fraud and Abuse
 +
 +
Sec. 211. Mandatory exclusion from participation in Medicare and State
 +
          health care programs.
 +
Sec. 212. Establishment of minimum period of exclusion for certain
 +
          individuals and entities subject to permissive exclusion from
 +
          Medicare and State health care programs.
 +
Sec. 213. Permissive exclusion of individuals with ownership or control
 +
          interest in sanctioned entities.
 +
Sec. 214. Sanctions against practitioners and persons for failure to
 +
          comply with statutory obligations.
 +
Sec. 215. Intermediate sanctions for Medicare health maintenance
 +
          organizations.
 +
Sec. 216. Additional exception to anti-kickback penalties for risk-
 +
          sharing arrangements.
 +
Sec. 217. Criminal penalty for fraudulent disposition of assets in order
 +
          to obtain medicaid benefits.
 +
Sec. 218. Effective date.
 +
 +
                      Subtitle C--Data Collection
 +
 +
Sec. 221. Establishment of the health care fraud and abuse data
 +
          collection
 +
          program.
 +
 +
                  Subtitle D--Civil Monetary Penalties
 +
 +
Sec. 231. Social Security Act civil monetary penalties.
 +
Sec. 232. Penalty for false certification for home health services.
 +
 +
                  Subtitle E--Revisions to Criminal Law
 +
 +
Sec. 241. Definitions relating to Federal health care offense.
 +
Sec. 242. Health care fraud.
 +
Sec. 243. Theft or embezzlement.
 +
Sec. 244. False statements.
 +
Sec. 245. Obstruction of criminal investigations of health care
 +
          offenses.
 +
Sec. 246. Laundering of monetary instruments.
 +
Sec. 247. Injunctive relief relating to health care offenses.
 +
Sec. 248. Authorized investigative demand procedures.
 +
Sec. 249. Forfeitures for Federal health care offenses.
 +
Sec. 250. Relation to ERISA authority.
 +
 +
                Subtitle F--Administrative Simplification
 +
 +
Sec. 261. Purpose.
 +
Sec. 262. Administrative simplification.
 +
 +
                ``Part C--Administrative Simplification
 +
 +
        ``Sec. 1171. Definitions.
 +
        ``Sec. 1172. General requirements for adoption of standards.
 +
        ``Sec. 1173. Standards for information transactions and data
 +
                            elements.
 +
        ``Sec. 1174. Timetables for adoption of standards.
 +
        ``Sec. 1175. Requirements.
 +
        ``Sec. 1176. General penalty for failure to comply with
 +
                            requirements and standards.
 +
        ``Sec. 1177. Wrongful disclosure of individually identifiable
 +
                            health information.
 +
        ``Sec. 1178. Effect on State law.
 +
        ``Sec. 1179. Processing payment transactions.''.
 +
Sec. 263. Changes in membership and duties of National Committee on
 +
          Vital and Health Statistics.
 +
Sec. 264. Recommendations with respect to privacy of certain health
 +
          information.
 +
 +
  Subtitle G--Duplication and Coordination of Medicare-Related Plans
 +
 +
Sec. 271. Duplication and coordination of Medicare-related plans.
 +
 +
                TITLE III--TAX-RELATED HEALTH PROVISIONS
 +
 +
Sec. 300. Amendment of 1986 Code.
 +
 +
                  Subtitle A--Medical Savings Accounts
 +
 +
Sec. 301. Medical savings accounts.
 +
 +
  Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
 +
                          Employed Individuals
 +
 +
Sec. 311. Increase in deduction for health insurance costs of self-
 +
          employed indi-
 +
          viduals.
 +
 +
            Subtitle C--Long-Term Care Services and Contracts
 +
 +
                      Part I--General Provisions
 +
 +
Sec. 321. Treatment of long-term care insurance.
 +
Sec. 322. Qualified long-term care services treated as medical care.
 +
Sec. 323. Reporting requirements.
 +
 +
                Part II--Consumer Protection Provisions
 +
 +
Sec. 325. Policy requirements.
 +
Sec. 326. Requirements for issuers of qualified long-term care insurance
 +
          contracts.
 +
Sec. 327. Effective dates.
 +
 +
          Subtitle D--Treatment of Accelerated Death Benefits
 +
 +
Sec. 331. Treatment of accelerated death benefits by recipient.
 +
Sec. 332. Tax treatment of companies issuing qualified accelerated death
 +
          benefit riders.
 +
 +
                    Subtitle E--State Insurance Pools
 +
 +
Sec. 341. Exemption from income tax for State-sponsored organizations
 +
          providing health coverage for high-risk individuals.
 +
Sec. 342. Exemption from income tax for State-sponsored workmen's
 +
          compensation reinsurance organizations.
 +
 +
            Subtitle F--Organizations Subject to Section 833
 +
 +
Sec. 351. Organizations subject to section 833.
 +
 +
            Subtitle G--IRA Distributions to the Unemployed
 +
 +
Sec. 361. Distributions from certain plans may be used without
 +
          additional tax to pay financially devastating medical
 +
          expenses.
 +
 +
Subtitle H--Organ and Tissue Donation Information Included With Income
 +
                          Tax Refund Payments
 +
 +
Sec. 371. Organ and tissue donation information included with income tax
 +
          refund payments.
 +
 +
TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN REQUIREMENTS
 +
 +
      Subtitle A--Application and Enforcement of Group Health Plan
 +
                              Requirements
 +
 +
Sec. 401. Group health plan portability, access, and renewability
 +
          requirements.
 +
Sec. 402. Penalty on failure to meet certain group health plan
 +
          requirements.
 +
 +
Subtitle B--Clarification of Certain Continuation Coverage Requirements
 +
 +
Sec. 421. COBRA clarifications.
 +
 +
                        TITLE V--REVENUE OFFSETS
 +
 +
Sec. 500. Amendment of 1986 Code.
 +
 +
                Subtitle A--Company-Owned Life Insurance
 +
 +
Sec. 501. Denial of deduction for interest on loans with respect to
 +
          company-owned life insurance.
 +
 +
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
 +
 +
Sec. 511. Revision of income, estate, and gift taxes on individuals who
 +
          lose United States citizenship.
 +
Sec. 512. Information on individuals losing United States citizenship.
 +
Sec. 513. Report on tax compliance by United States citizens and
 +
          residents living abroad.
 +
 +
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
 +
                            Allocation Rules
 +
 +
Sec. 521. Repeal of financial institution transition rule to interest
 +
          allocation rules.
 +
 +
      TITLE I--HEALTH CARE ACCESS, PORTABILITY, AND RENEWABILITY
 +
 +
                    Subtitle A--Group Market Rules
 +
 +
      Part 1--Portability, Access, and Renewability Requirements
 +
 +
SEC. 101. THROUGH THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
 +
 +
    (a) In General.--Subtitle B of title I of the Employee Retirement
 +
Income Security Act of 1974 is amended by adding at the end the
 +
following new part:
 +
 +
  ``Part 7--Group Health Plan Portability, Access, and Renewability
 +
                              Requirements
 +
 +
``SEC. 701. INCREASED <<NOTE: 29 USC 1181.>>  PORTABILITY THROUGH
 +
            LIMITATION ON PREEXISTING CONDITION EXCLUSIONS.
 +
 +
    ``(a) Limitation on Preexisting Condition Exclusion Period;
 +
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
 +
a group health plan, and a health insurance issuer offering group health
 +
insurance coverage, may, with respect to a participant or beneficiary,
 +
impose a preexisting condition exclusion only if--
 +
            ``(1) such exclusion relates to a condition (whether
 +
        physical or mental), regardless of the cause of the condition,
 +
        for which medical advice, diagnosis, care, or treatment was
 +
        recommended or received within the 6-month period ending on the
 +
        enrollment date;
 +
            ``(2) such exclusion extends for a period of not more than
 +
        12 months (or 18 months in the case of a late enrollee) after
 +
        the enrollment date; and
 +
            ``(3) the period of any such preexisting condition exclusion
 +
        is reduced by the aggregate of the periods of creditable
 +
        coverage (if any, as defined in subsection (c)(1)) applicable to
 +
        the participant or beneficiary as of the enrollment date.
 +
 +
    ``(b) Definitions.--For purposes of this part--
 +
            ``(1) Preexisting condition exclusion.--
 +
                    ``(A) In general.--The term `preexisting condition
 +
                exclusion' means, with respect to coverage, a limitation
 +
                or exclusion of benefits relating to a condition based
 +
                on the fact that the condition was present before the
 +
                date of enrollment for such coverage, whether or not any
 +
                medical advice, diagnosis, care, or treatment was
 +
                recommended or received before such date.
 +
                    ``(B) Treatment of genetic information.--Genetic
 +
                information shall not be treated as a condition
 +
                described in subsection (a)(1) in the absence of a
 +
                diagnosis of the condition related to such information.
 +
            ``(2) Enrollment date.--The term `enrollment date' means,
 +
        with respect to an individual covered under a group health plan
 +
        or health insurance coverage, the date of enrollment of the
 +
        individual in the plan or coverage or, if earlier, the first day
 +
        of the waiting period for such enrollment.
 +
            ``(3) Late enrollee.--The term `late enrollee' means, with
 +
        respect to coverage under a group health plan, a participant or
 +
        beneficiary who enrolls under the plan other than during--
 +
                    ``(A) the first period in which the individual is
 +
                eligible to enroll under the plan, or
 +
                    ``(B) a special enrollment period under subsection
 +
                (f).
 +
            ``(4) Waiting period.--The term `waiting period' means, with
 +
        respect to a group health plan and an individual who is a
 +
        potential participant or beneficiary in the plan, the period
 +
        that must pass with respect to the individual before the
 +
        individual is eligible to be covered for benefits under the
 +
        terms of the plan.
 +
 +
    ``(c) Rules Relating to Crediting Previous Coverage.--
 +
            ``(1) Creditable coverage defined.--For purposes of this
 +
        part, the term `creditable coverage' means, with respect to an
 +
        individual, coverage of the individual under any of the
 +
        following:
 +
                    ``(A) A group health plan.
 +
                    ``(B) Health insurance coverage.
 +
                    ``(C) Part A or part B of title XVIII of the Social
 +
                Security Act.
 +
                    ``(D) Title XIX of the Social Security Act, other
 +
                than coverage consisting solely of benefits under
 +
                section 1928.
 +
                    ``(E) Chapter 55 of title 10, United States Code.
 +
                    ``(F) A medical care program of the Indian Health
 +
                Service or of a tribal organization.
 +
                    ``(G) A State health benefits risk pool.
 +
                    ``(H) A health plan offered under chapter 89 of
 +
                title 5, United States Code.
 +
                    ``(I) A public health plan (as defined in
 +
                regulations).
 +
                    ``(J) A health benefit plan under section 5(e) of
 +
                the Peace Corps Act (22 U.S.C. 2504(e)).
 +
        Such term does not include coverage consisting solely of
 +
        coverage of excepted benefits (as defined in section 706(c)).
 +
            ``(2) Not counting periods before significant breaks in
 +
        coverage.--
 +
                    ``(A) In general.--A period of creditable coverage
 +
                shall not be counted, with respect to enrollment of an
 +
                individual under a group health plan, if, after such
 +
                period and before the enrollment date, there was a 63-
 +
                day period during all of which the individual was not
 +
                covered under any creditable coverage.
 +
                    ``(B) Waiting period not treated as a break in
 +
                coverage.--For purposes of subparagraph (A) and
 +
                subsection (d)(4), any period that an individual is in a
 +
                waiting period for any coverage under a group health
 +
                plan (or for group health insurance coverage) or is in
 +
                an affiliation period (as defined in subsection (g)(2))
 +
                shall not be taken into account in determining the
 +
                continuous period under subparagraph (A).
 +
            ``(3) Method of crediting coverage.--
 +
                    ``(A) Standard method.--Except as otherwise provided
 +
                under subparagraph (B), for purposes of applying
 +
                subsection (a)(3), a group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
                coverage, shall count a period of creditable coverage
 +
                without regard to the specific benefits covered during
 +
                the period.
 +
                    ``(B) Election of alternative method.--A group
 +
                health plan, or a health insurance issuer offering group
 +
                health insurance coverage, may elect to apply subsection
 +
                (a)(3) based on coverage of benefits within each of
 +
                several classes or categories of benefits specified in
 +
                regulations rather than as provided under subparagraph
 +
                (A). Such election shall be made on a uniform basis for
 +
                all participants and beneficiaries. Under such election
 +
                a group health plan or issuer shall count a period of
 +
                creditable coverage with respect to any class or
 +
                category of benefits if any level of benefits is covered
 +
                within such class or category.
 +
                    ``(C) Plan notice.--In the case of an election with
 +
                respect to a group health plan under subparagraph (B)
 +
                (whether or not health insurance coverage is provided in
 +
                connection with such plan), the plan shall--
 +
                          ``(i) prominently state in any disclosure
 +
                      statements concerning the plan, and state to each
 +
                      enrollee at the time of enrollment under the plan,
 +
                      that the plan has made such election, and
 +
                          ``(ii) include in such statements a
 +
                      description of the effect of this election.
 +
            ``(4) Establishment of period.--Periods of creditable
 +
        coverage with respect to an individual shall be established
 +
        through presentation of certifications described in subsection
 +
        (e) or in such other manner as may be specified in regulations.
 +
 +
    ``(d) Exceptions.--
 +
            ``(1) Exclusion not applicable to certain newborns.--Subject
 +
        to paragraph (4), a group health plan, and a health insurance
 +
        issuer offering group health insurance coverage, may not impose
 +
        any preexisting condition exclusion in the case of an individual
 +
        who, as of the last day of the 30-day period beginning with the
 +
        date of birth, is covered under creditable coverage.
 +
            ``(2) Exclusion not applicable to certain adopted
 +
        children.--Subject to paragraph (4), a group health plan, and a
 +
        health insurance issuer offering group health insurance
 +
        coverage, may not impose any preexisting condition exclusion in
 +
        the case of a child who is adopted or placed for adoption before
 +
        attaining 18 years of age and who, as of the last day of the 30-
 +
        day period beginning on the date of the adoption or placement
 +
        for adoption, is covered under creditable coverage. The previous
 +
        sentence shall not apply to coverage before the date of such
 +
        adoption or placement for adoption.
 +
            ``(3) Exclusion not applicable to pregnancy.--A group health
 +
        plan, and health insurance issuer offering group health
 +
        insurance coverage, may not impose any preexisting condition
 +
        exclusion relating to pregnancy as a preexisting condition.
 +
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2)
 +
        shall no longer apply to an individual after the end of the
 +
        first 63-day period during all of which the individual was not
 +
        covered under any creditable coverage.
 +
 +
    ``(e) Certifications and Disclosure of Coverage.--
 +
            ``(1) Requirement for certification of period of creditable
 +
        coverage.--
 +
                    ``(A) In general.--A group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
coverage, shall provide the certification described in subparagraph
 +
(B)--
 +
                          ``(i) at the time an individual ceases to be
 +
                      covered under the plan or otherwise becomes
 +
                      covered under a COBRA continuation provision,
 +
                          ``(ii) in the case of an individual becoming
 +
                      covered under such a provision, at the time the
 +
                      individual ceases to be covered under such
 +
                      provision, and
 +
                          ``(iii) on the request on behalf of an
 +
                      individual made not later than 24 months after the
 +
                      date of cessation of the coverage described in
 +
                      clause (i) or (ii), whichever is later.
 +
                The certification under clause (i) may be provided, to
 +
                the extent practicable, at a time consistent with
 +
                notices required under any applicable COBRA continuation
 +
                provision.
 +
                    ``(B) Certification.--The certification described in
 +
                this subparagraph is a written certification of--
 +
                          ``(i) the period of creditable coverage of the
 +
                      individual under such plan and the coverage (if
 +
                      any) under such COBRA continuation provision, and
 +
                          ``(ii) the waiting period (if any) (and
 +
                      affiliation period, if applicable) imposed with
 +
                      respect to the individual for any coverage under
 +
                      such plan.
 +
                    ``(C) Issuer compliance.--To the extent that medical
 +
                care under a group health plan consists of group health
 +
                insurance coverage, the plan is deemed to have satisfied
 +
                the certification requirement under this paragraph if
 +
                the health insurance issuer offering the coverage
 +
                provides for such certification in accordance with this
 +
                paragraph.
 +
            ``(2) Disclosure of information on previous benefits.--In
 +
        the case of an election described in subsection (c)(3)(B) by a
 +
        group health plan or health insurance issuer, if the plan or
 +
        issuer enrolls an individual for coverage under the plan and the
 +
        individual provides a certification of coverage of the
 +
        individual under paragraph (1)--
 +
                    ``(A) upon request of such plan or issuer, the
 +
                entity which issued the certification provided by the
 +
                individual shall promptly disclose to such requesting
 +
                plan or issuer information on coverage of classes and
 +
                categories of health benefits available under such
 +
                entity's plan or coverage, and
 +
                    ``(B) such entity may charge the requesting plan or
 +
                issuer for the reasonable cost of disclosing such
 +
                information.
 +
            ``(3) Regulations.--The Secretary shall establish rules to
 +
        prevent an entity's failure to provide information under
 +
        paragraph (1) or (2) with respect to previous coverage of an
 +
        individual from adversely affecting any subsequent coverage of
 +
        the individual under another group health plan or health
 +
        insurance coverage.
 +
 +
    ``(f) Special Enrollment Periods.--
 +
            ``(1) Individuals losing other coverage.--A group health
 +
        plan, and a health insurance issuer offering group health
 +
        insurance coverage in connection with a group health plan, shall
 +
        permit an employee who is eligible, but not enrolled, for
 +
        coverage under the terms of the plan (or a dependent of such an
 +
        employee if the dependent is eligible, but not enrolled, for
 +
        coverage under such terms) to enroll for coverage under the
 +
        terms of the plan if each of the following conditions is met:
 +
                    ``(A) The employee or dependent was covered under a
 +
                group health plan or had health insurance coverage at
 +
                the time coverage was previously offered to the employee
 +
                or dependent.
 +
                    ``(B) The employee stated in writing at such time
 +
                that coverage under a group health plan or health
 +
                insurance coverage was the reason for declining
 +
                enrollment, but only if the plan sponsor or issuer (if
 +
                applicable) required such a statement at such time and
 +
                provided the employee with notice of such requirement
 +
                (and the consequences of such requirement) at such time.
 +
                    ``(C) The employee's or dependent's coverage
 +
                described in subparagraph (A)--
 +
                          ``(i) was under a COBRA continuation provision
 +
                      and the coverage under such provision was
 +
                      exhausted; or
 +
                          ``(ii) was not under such a provision and
 +
                      either the coverage was terminated as a result of
 +
                      loss of eligibility for the coverage (including as
 +
                      a result of legal separation, divorce, death,
 +
                      termination of employment, or reduction in the
 +
                      number of hours of employment) or employer
 +
                      contributions toward such coverage were
 +
                      terminated.
 +
                    ``(D) Under the terms of the plan, the employee
 +
                requests such enrollment not later than 30 days after
 +
                the date of exhaustion of coverage described in
 +
                subparagraph (C)(i) or termination of coverage or
 +
                employer contribution described in subparagraph (C)(ii).
 +
            ``(2) For dependent beneficiaries.--
 +
                    ``(A) In general.--If--
 +
                          ``(i) a group health plan makes coverage
 +
                      available with respect to a dependent of an
 +
                      individual,
 +
                          ``(ii) the individual is a participant under
 +
                      the plan (or has met any waiting period applicable
 +
                      to becoming a participant under the plan and is
 +
                      eligible to be enrolled under the plan but for a
 +
                      failure to enroll during a previous enrollment
 +
                      period), and
 +
                          ``(iii) a person becomes such a dependent of
 +
                      the individual through marriage, birth, or
 +
                      adoption or placement for adoption,
 +
                the group health plan shall provide for a dependent
 +
                special enrollment period described in subparagraph (B)
 +
                during which the person (or, if not otherwise enrolled,
 +
                the individual) may be enrolled under the plan as a
 +
                dependent of the individual, and in the case of the
 +
                birth or adoption of a child, the spouse of the
 +
                individual may be enrolled as a dependent of the
 +
                individual if such spouse is otherwise eligible for
 +
                coverage.
 +
                    ``(B) Dependent special enrollment period.--A
 +
                dependent special enrollment period under this
 +
                subparagraph shall be a period of not less than 30 days
 +
                and shall begin on the later of--
 +
                          ``(i) the date dependent coverage is made
 +
                      available, or
 +
                          ``(ii) the date of the marriage, birth, or
 +
                      adoption or placement for adoption (as the case
 +
                      may be) described in subparagraph (A)(iii).
 +
                    ``(C) No waiting period.--If an individual seeks to
 +
                enroll a dependent during the first 30 days of such a
 +
                dependent special enrollment period, the coverage of the
 +
                dependent shall become effective--
 +
                          ``(i) in the case of marriage, not later than
 +
                      the first day of the first month beginning after
 +
                      the date the completed request for enrollment is
 +
                      received;
 +
                          ``(ii) in the case of a dependent's birth, as
 +
                      of the date of such birth; or
 +
                          ``(iii) in the case of a dependent's adoption
 +
                      or placement for adoption, the date of such
 +
                      adoption or placement for adoption.
 +
 +
    ``(g) Use of Affiliation Period by HMOs as Alternative to
 +
Preexisting Condition Exclusion.--
 +
            ``(1) In general.--In the case of a group health plan that
 +
        offers medical care through health insurance coverage offered by
 +
        a health maintenance organization, the plan may provide for an
 +
        affiliation period with respect to coverage through the
 +
        organization only if--
 +
                    ``(A) no preexisting condition exclusion is imposed
 +
                with respect to coverage through the organization,
 +
                    ``(B) the period is applied uniformly without regard
 +
                to any health status-related factors, and
 +
                    ``(C) such period does not exceed 2 months (or 3
 +
                months in the case of a late enrollee).
 +
            ``(2) Affiliation period.--
 +
                    ``(A) Defined.--For purposes of this part, the term
 +
                `affiliation period' means a period which, under the
 +
                terms of the health insurance coverage offered by the
 +
                health maintenance organization, must expire before the
 +
                health insurance coverage becomes effective. The
 +
                organization is not required to provide health care
 +
                services or benefits during such period and no premium
 +
                shall be charged to the participant or beneficiary for
 +
                any coverage during the period.
 +
                    ``(B) Beginning.--Such period shall begin on the
 +
                enrollment date.
 +
                    ``(C) Runs concurrently with waiting periods.--An
 +
                affiliation period under a plan shall run concurrently
 +
                with any waiting period under the plan.
 +
            ``(3) Alternative methods.--A health maintenance
 +
        organization described in paragraph (1) may use alternative
 +
        methods, from those described in such paragraph, to address
 +
        adverse selection as approved by the State insurance
 +
        commissioner or official or officials designated by the State to
 +
        enforce the requirements of part A of title XXVII of the Public
 +
        Health Service Act for the State involved with respect to such
 +
        issuer.
 +
``SEC. 702. PROHIBITING <<NOTE: 29 USC 1182.>>  DISCRIMINATION
 +
                          AGAINST INDIVIDUAL PARTICIPANTS AND
 +
                          BENEFICIARIES BASED ON HEALTH STATUS.
 +
 +
    ``(a) In Eligibility To Enroll.--
 +
            ``(1) In general.--Subject to paragraph (2), a group health
 +
        plan, and a health insurance issuer offering group health
 +
        insurance coverage in connection with a group health plan, may
 +
        not establish rules for eligibility (including continued
 +
        eligibility) of any individual to enroll under the terms of the
 +
        plan based on any of the following health status-related factors
 +
        in relation to the individual or a dependent of the individual:
 +
                    ``(A) Health status.
 +
                    ``(B) Medical condition (including both physical and
 +
                mental illnesses).
 +
                    ``(C) Claims experience.
 +
                    ``(D) Receipt of health care.
 +
                    ``(E) Medical history.
 +
                    ``(F) Genetic information.
 +
                    ``(G) Evidence of insurability (including conditions
 +
                arising out of acts of domestic violence).
 +
                    ``(H) Disability.
 +
            ``(2) No application to benefits or exclusions.--To the
 +
        extent consistent with section 701, paragraph (1) shall not be
 +
        construed--
 +
                    ``(A) to require a group health plan, or group
 +
                health insurance coverage, to provide particular
 +
                benefits other than those provided under the terms of
 +
                such plan or coverage, or
 +
                    ``(B) to prevent such a plan or coverage from
 +
                establishing limitations or restrictions on the amount,
 +
                level, extent, or nature of the benefits or coverage for
 +
                similarly situated individuals enrolled in the plan or
 +
                coverage.
 +
            ``(3) Construction.--For purposes of paragraph (1), rules
 +
        for eligibility to enroll under a plan include rules defining
 +
        any applicable waiting periods for such enrollment.
 +
 +
    ``(b) In Premium Contributions.--
 +
            ``(1) In general.--A group health plan, and a health
 +
        insurance issuer offering health insurance coverage in
 +
        connection with a group health plan, may not require any
 +
        individual (as a condition of enrollment or continued enrollment
 +
        under the plan) to pay a premium or contribution which is
 +
        greater than such premium or contribution for a similarly
 +
        situated individual enrolled in the plan on the basis of any
 +
        health status-related factor in relation to the individual or to
 +
        an individual enrolled under the plan as a dependent of the
 +
        individual.
 +
            ``(2) Construction.--Nothing in paragraph (1) shall be
 +
        construed--
 +
                    ``(A) to restrict the amount that an employer may be
 +
                charged for coverage under a group health plan; or
 +
                    ``(B) to prevent a group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
                coverage, from establishing premium discounts or rebates
 +
                or modifying otherwise applicable copayments or
 +
                deductibles in return for adherence to programs of
 +
                health promotion and disease prevention.
 +
``SEC. 703. GUARANTEED <<NOTE: 29 USC 1183.>>  RENEWABILITY IN
 +
                          MULTIEMPLOYER PLANS AND MULTIPLE
 +
                          EMPLOYER WELFARE ARRANGEMENTS.
 +
 +
    ``A group health plan which is a multiemployer plan or which is a
 +
multiple employer welfare arrangement may not deny an employer whose
 +
employees are covered under such a plan continued access to the same or
 +
different coverage under the terms of such a plan, other than--
 +
            ``(1) for nonpayment of contributions;
 +
            ``(2) for fraud or other intentional misrepresentation of
 +
        material fact by the employer;
 +
            ``(3) for noncompliance with material plan provisions;
 +
            ``(4) because the plan is ceasing to offer any coverage in a
 +
        geographic area;
 +
            ``(5) in the case of a plan that offers benefits through a
 +
        network plan, there is no longer any individual enrolled through
 +
        the employer who lives, resides, or works in the service area of
 +
        the network plan and the plan applies this paragraph uniformly
 +
        without regard to the claims experience of employers or any
 +
        health status-related factor in relation to such individuals or
 +
        their dependents; and
 +
            ``(6) for failure to meet the terms of an applicable
 +
        collective bargaining agreement, to renew a collective
 +
        bargaining or other agreement requiring or authorizing
 +
        contributions to the plan, or to employ employees covered by
 +
        such an agreement.
 +
 +
``SEC. 704. <<NOTE: 29 USC 1184.>>  PREEMPTION; STATE FLEXIBILITY;
 +
            CONSTRUCTION.
 +
 +
    ``(a) Continued Applicability of State Law With Respect to Health
 +
Insurance Issuers.--
 +
            ``(1) In General.--Subject to paragraph (2) and except as
 +
        provided in subsection (b), this part shall not be construed to
 +
        supersede any provision of State law which establishes,
 +
        implements, or continues in effect any standard or requirement
 +
        solely relating to health insurance issuers in connection with
 +
        group health insurance coverage except to the extent that such
 +
        standard or requirement prevents the application of a
 +
        requirement of this part.
 +
            ``(2) Continued preemption with respect to group health
 +
        plans.--Nothing in this part shall be construed to affect or
 +
        modify the provisions of section 514 with respect to group
 +
        health plans.
 +
 +
    ``(b) Special Rules in Case of Portability Requirements.--
 +
            ``(1) In general.--Subject to paragraph (2), the provisions
 +
        of this part relating to health insurance coverage offered by a
 +
        health insurance issuer supersede any provision of State law
 +
        which establishes, implements, or continues in effect a standard
 +
        or requirement applicable to imposition of a preexisting
 +
        condition exclusion specifically governed by section 701 which
 +
        differs from the standards or requirements specified in such
 +
        section.
 +
            ``(2) Exceptions.--Only in relation to health insurance
 +
        coverage offered by a health insurance issuer, the provisions of
 +
        this part do not supersede any provision of State law to the
 +
        extent that such provision--
 +
                    ``(A) substitutes for the reference to `6-month
 +
                period' in section 701(a)(1) a reference to any shorter
 +
                period of time;
 +
                    ``(B) substitutes for the reference to `12 months'
 +
                and `18 months' in section 701(a)(2) a reference to any
 +
                shorter period of time;
 +
                    ``(C) substitutes for the references to `63 days' in
 +
                sections 701 (c)(2)(A) and (d)(4)(A) a reference to any
 +
                greater number of days;
 +
                    ``(D) substitutes for the reference to `30-day
 +
                period' in sections 701 (b)(2) and (d)(1) a reference to
 +
                any greater period;
 +
                    ``(E) prohibits the imposition of any preexisting
 +
                condition exclusion in cases not described in section
 +
                701(d) or expands the exceptions described in such
 +
                section;
 +
                    ``(F) requires special enrollment periods in
 +
                addition to those required under section 701(f); or
 +
                    ``(G) reduces the maximum period permitted in an
 +
                affiliation period under section 701(g)(1)(B).
 +
 +
    ``(c) Rules of Construction.--Nothing in this part shall be
 +
construed as requiring a group health plan or health insurance coverage
 +
to provide specific benefits under the terms of such plan or coverage.
 +
    ``(d) Definitions.--For purposes of this section--
 +
            ``(1) State law.--The term `State law' includes all laws,
 +
        decisions, rules, regulations, or other State action having the
 +
        effect of law, of any State. A law of the United States
 +
        applicable only to the District of Columbia shall be treated as
 +
        a State law rather than a law of the United States.
 +
            ``(2) State.--The term `State' includes a State, the
 +
        Northern Mariana Islands, any political subdivisions of a State
 +
        or such Islands, or any agency or instrumentality of either.
 +
 +
``SEC. 705. SPECIAL <<NOTE: 29 USC 1185.>>  RULES RELATING TO GROUP
 +
            HEALTH PLANS.
 +
 +
    ``(a) General Exception for Certain Small Group Health Plans.--The
 +
requirements of this part shall not apply to any group health plan (and
 +
group health insurance coverage offered in connection with a group
 +
health plan) for any plan year if, on the first day of such plan year,
 +
such plan has less than 2 participants who are current employees.
 +
    ``(b) Exception for Certain Benefits.--The requirements of this part
 +
shall not apply to any group health plan (and group health insurance
 +
coverage) in relation to its provision of excepted benefits described in
 +
section 706(c)(1).
 +
    ``(c) Exception for Certain Benefits if Certain Conditions Met.--
 +
            ``(1) Limited, excepted benefits.--The requirements of this
 +
        part shall not apply to any group health plan (and group health
 +
        insurance coverage offered in connection with a group health
 +
        plan) in relation to its provision of excepted benefits
 +
        described in section 706(c)(2) if the benefits--
 +
                    ``(A) are provided under a separate policy,
 +
                certificate, or contract of insurance; or
 +
                    ``(B) are otherwise not an integral part of the
 +
                plan.
 +
            ``(2) Noncoordinated, excepted benefits.--The requirements
 +
        of this part shall not apply to any group health plan (and group
 +
        health insurance coverage offered in connection with a group
 +
        health plan) in relation to its provision of excepted benefits
 +
        described in section 706(c)(3) if all of the following
 +
        conditions are met:
 +
                    ``(A) The benefits are provided under a separate
 +
                policy, certificate, or contract of insurance.
 +
                    ``(B) There is no coordination between the provision
 +
                of such benefits and any exclusion of benefits under any
 +
                group health plan maintained by the same plan sponsor.
 +
                    ``(C) Such benefits are paid with respect to an
 +
                event without regard to whether benefits are provided
 +
                with respect to such an event under any group health
 +
                plan maintained by the same plan sponsor.
 +
            ``(3) Supplemental excepted benefits.--The requirements of
 +
        this part shall not apply to any group health plan (and group
 +
        health insurance coverage) in relation to its provision of
 +
        excepted benefits described in section 706(c)(4) if the benefits
 +
        are provided under a separate policy, certificate, or contract
 +
        of insurance.
 +
 +
    ``(d) Treatment of Partnerships.--For purposes of this part--
 +
            ``(1) Treatment as a group health plan.--Any plan, fund, or
 +
        program which would not be (but for this subsection) an employee
 +
        welfare benefit plan and which is established or maintained by a
 +
        partnership, to the extent that such plan, fund, or program
 +
        provides medical care (including items and services paid for as
 +
        medical care) to present or former partners in the partnership
 +
        or to their dependents (as defined under the terms of the plan,
 +
        fund, or program), directly or through insurance, reimbursement,
 +
        or otherwise, shall be treated (subject to paragraph (2)) as an
 +
        employee welfare benefit plan which is a group health plan.
 +
            ``(2) Employer.--In the case of a group health plan, the
 +
        term `employer' also includes the partnership in relation to any
 +
        partner.
 +
            ``(3) Participants of group health plans.--In the case of a
 +
        group health plan, the term `participant' also includes--
 +
                    ``(A) in connection with a group health plan
 +
                maintained by a partnership, an individual who is a
 +
                partner in relation to the partnership, or
 +
                    ``(B) in connection with a group health plan
 +
                maintained by a self-employed individual (under which
 +
                one or more employees are participants), the self-
 +
                employed individual,
 +
        if such individual is, or may become, eligible to receive a
 +
        benefit under the plan or such individual's beneficiaries may be
 +
        eligible to receive any such benefit.
 +
 +
``SEC. 706. <<NOTE: 29 USC 1186.>>  DEFINITIONS.
 +
 +
    ``(a) Group Health Plan.--For purposes of this part--
 +
            ``(1) In general.--The term `group health plan' means an
 +
        employee welfare benefit plan to the extent that the plan
 +
        provides medical care (as defined in paragraph (2) and including
 +
        items and services paid for as medical care) to employees or
 +
        their dependents (as defined under the terms of the plan)
 +
        directly or through insurance, reimbursement, or otherwise.
 +
            ``(2) Medical care.--The term `medical care' means amounts
 +
        paid for--
 +
                    ``(A) the diagnosis, cure, mitigation, treatment, or
 +
                prevention of disease, or amounts paid for the purpose
 +
                of affecting any structure or function of the body,
 +
                    ``(B) amounts paid for transportation primarily for
 +
                and essential to medical care referred to in
 +
                subparagraph (A), and
 +
                    ``(C) amounts paid for insurance covering medical
 +
                care referred to in subparagraphs (A) and (B).
 +
 +
    ``(b) Definitions Relating to Health Insurance.--For purposes of
 +
this part--
 +
            ``(1) Health insurance coverage.--The term `health insurance
 +
        coverage' means benefits consisting of medical care (provided
 +
        directly, through insurance or reimbursement, or otherwise and
 +
        including items and services paid for as medical care) under any
 +
        hospital or medical service policy or certificate, hospital or
 +
        medical service plan contract, or health maintenance
 +
        organization contract offered by a health insurance issuer.
 +
            ``(2) Health insurance issuer.--The term `health insurance
 +
        issuer' means an insurance company, insurance service, or
 +
        insurance organization (including a health maintenance
 +
        organization, as defined in paragraph (3)) which is licensed to
 +
        engage in the business of insurance in a State and which is
 +
        subject to State law which regulates insurance (within the
 +
        meaning of section 514(b)(2)). Such term does not include a
 +
        group health plan.
 +
            ``(3) Health maintenance organization.--The term `health
 +
        maintenance organization' means--
 +
                    ``(A) a federally qualified health maintenance
 +
                organization (as defined in section 1301(a) of the
 +
                Public Health Service Act (42 U.S.C. 300e(a))),
 +
                    ``(B) an organization recognized under State law as
 +
                a health maintenance organization, or
 +
                    ``(C) a similar organization regulated under State
 +
                law for solvency in the same manner and to the same
 +
                extent as such a health maintenance organization.
 +
            ``(4) Group health insurance coverage.--The term `group
 +
        health insurance coverage' means, in connection with a group
 +
        health plan, health insurance coverage offered in connection
 +
        with such plan.
 +
 +
    ``(c) Excepted Benefits.--For purposes of this part, the term
 +
`excepted benefits' means benefits under one or more (or any combination
 +
thereof) of the following:
 +
            ``(1) Benefits not subject to requirements.--
 +
                    ``(A) Coverage only for accident, or disability
 +
                income insurance, or any combination thereof.
 +
                    ``(B) Coverage issued as a supplement to liability
 +
                insurance.
 +
                    ``(C) Liability insurance, including general
 +
                liability insurance and automobile liability insurance.
 +
                    ``(D) Workers' compensation or similar insurance.
 +
                    ``(E) Automobile medical payment insurance.
 +
                    ``(F) Credit-only insurance.
 +
                    ``(G) Coverage for on-site medical clinics.
 +
                    ``(H) Other similar insurance coverage, specified in
 +
                regulations, under which benefits for medical care are
 +
                secondary or incidental to other insurance benefits.
 +
            ``(2) Benefits not subject to requirements if offered
 +
        separately.--
 +
                    ``(A) Limited scope dental or vision benefits.
 +
                    ``(B) Benefits for long-term care, nursing home
 +
                care, home health care, community-based care, or any
 +
                combination thereof.
 +
                    ``(C) Such other similar, limited benefits as are
 +
                specified in regulations.
 +
            ``(3) Benefits not subject to requirements if offered as
 +
        independent, noncoordinated benefits.--
 +
                    ``(A) Coverage only for a specified disease or
 +
                illness.
 +
                    ``(B) Hospital indemnity or other fixed indemnity
 +
                insurance.
 +
            ``(4) Benefits not subject to requirements if offered as
 +
        separate insurance policy.--Medicare supplemental health
 +
        insurance (as defined under section 1882(g)(1) of the Social
 +
        Security Act), coverage supplemental to the coverage provided
 +
        under chapter 55 of title 10, United States Code, and similar
 +
        supplemental coverage provided to coverage under a group health
 +
        plan.
 +
 +
    ``(d) Other Definitions.--For purposes of this part--
 +
            ``(1) COBRA continuation provision.--The term `COBRA
 +
        continuation provision' means any of the following:
 +
                    ``(A) Part 6 of this subtitle.
 +
                    ``(B) Section 4980B of the Internal Revenue Code of
 +
                1986, other than subsection (f)(1) of such section
 +
                insofar as it relates to pediatric vaccines.
 +
                    ``(C) Title XXII of the Public Health Service Act.
 +
            ``(2) Health status-related factor.--The term `health
 +
        status-related factor' means any of the factors described in
 +
        section 702(a)(1).
 +
            ``(3) Network plan.--The term `network plan' means health
 +
        insurance coverage offered by a health insurance issuer under
 +
        which the financing and delivery of medical care (including
 +
        items and services paid for as medical care) are provided, in
 +
        whole or in part, through a defined set of providers under
 +
        contract with the issuer.
 +
            ``(4) Placed for adoption.--The term `placement', or being
 +
        `placed', for adoption, has the meaning given such term in
 +
        section 609(c)(3)(B).
 +
 +
``SEC. 707. <<NOTE: 29 USC 1187.>>  REGULATIONS.
 +
 +
    ``The Secretary, consistent with section 104 of the Health Care
 +
Portability and Accountability Act of 1996, may promulgate such
 +
regulations as may be necessary or appropriate to carry out the
 +
provisions of this part. The Secretary may promulgate any interim final
 +
rules as the Secretary determines are appropriate to carry out this
 +
part.''.
 +
 +
    (b) Enforcement With Respect to Health Insurance Issuers.--Section
 +
502(b) of such Act (29 U.S.C. 1132(b)) is amended by adding at the end
 +
the following new paragraph:
 +
    ``(3) The Secretary is not authorized to enforce under this part any
 +
requirement of part 7 against a health insurance issuer offering health
 +
insurance coverage in connection with a group health plan (as defined in
 +
section 706(a)(1)). Nothing in this paragraph shall affect the authority
 +
of the Secretary to issue regulations to carry out such part.''.
 +
    (c) Disclosure of Information to Participants and Beneficiaries.--
 +
            (1) In general.--Section 104(b)(1) of such Act (29 U.S.C.
 +
        1024(b)(1)) is amended in the matter following subpara-
 +
        graph (B)--
 +
                    (A) by striking ``102(a)(1),'' and inserting
 +
                ``102(a)(1) (other than a material reduction in covered
 +
                services or benefits provided in the case of a group
 +
                health plan (as defined in section 706(a)(1))),''; and
 +
                    (B) by adding at the end the following new
 +
                sentences: ``If there is a modification or change
 +
                described in section 102(a)(1) that is a material
 +
                reduction in covered services or benefits provided under
 +
                a group health plan (as defined in section 706(a)(1)), a
 +
                summary description of such modification or change shall
 +
                be furnished to participants and beneficiaries not later
 +
                than 60 days after the date of the adoption of the
 +
                modification or change. In the alternative, the plan
 +
                sponsors may provide such description at regular
 +
                intervals of not more than 90 days. The Secretary shall
 +
                issue regulations within 180 days after the date of
 +
                enactment of the Health Insurance Portability and
 +
                Accountability Act of 1996, providing alternative
 +
                mechanisms to
 +
                delivery by mail through which group health plans (as so
 +
                defined) may notify participants and beneficiaries of
 +
                material reductions in covered services or benefits.''.
 +
            (2) Plan description and summary.--Section 102(b) of such
 +
        Act (29 U.S.C. 1022(b)) is amended--
 +
                    (A) by inserting ``in the case of a group health
 +
                plan (as defined in section 706(a)(1)), whether a health
 +
                insurance issuer (as defined in section 706(b)(2)) is
 +
                responsible for the financing or administration
 +
                (including payment of claims) of the plan and (if so)
 +
                the name and address of such issuer;'' after ``type of
 +
                administration of the plan;''; and
 +
                    (B) by inserting ``including the office at the
 +
                Department of Labor through which participants and
 +
                beneficiaries may seek assistance or information
 +
                regarding their rights under this Act and the Health
 +
                Insurance Portability and Accountability Act of 1996
 +
                with respect to health benefits that are offered through
 +
                a group health plan (as defined in section 706(a)(1))''
 +
                after ``benefits under the plan''.
 +
 +
    (d) Treatment of Health Insurance Issuers Offering Health Insurance
 +
Coverage to Noncovered Plans.--Section 4(b) of such Act (29 U.S.C.
 +
1003(b)) is amended by adding at the end (after and below paragraph (5))
 +
the following:
 +
``The provisions of part 7 of subtitle B shall not apply to a health
 +
insurance issuer (as defined in section 706(b)(2)) solely by reason of
 +
health insurance coverage (as defined in section 706(b)(1)) provided by
 +
such issuer in connection with a group health plan (as defined in
 +
section 706(a)(1)) if the provisions of this title do not apply to such
 +
group health plan.''.
 +
    (e) Reporting and Enforcement With Respect to Certain
 +
Arrangements.--
 +
            (1) In general.--Section 101 of such Act (29 U.S.C. 1021) is
 +
        amended--
 +
                    (A) by redesignating subsection (g) as subsection
 +
                (h), and
 +
                    (B) by inserting after subsection (f) the following
 +
                new subsection:
 +
 +
    ``(g) Reporting by Certain Arrangements.--The Secretary may, by
 +
regulation, require multiple employer welfare arrangements providing
 +
benefits consisting of medical care (within the meaning of section
 +
706(a)(2)) which are not group health plans to report, not more
 +
frequently than annually, in such form and such manner as the Secretary
 +
may require for the purpose of determining the extent to which the
 +
requirements of part 7 are being carried out in connection with such
 +
benefits.''.
 +
            (2) Enforcement.--
 +
                    (A) In general.--Section 502 of such Act (29 U.S.C.
 +
                1132) is amended--
 +
                          (i) in subsection (a)(6), by striking ``under
 +
                      subsection (c)(2) or (i) or (l)'' and inserting
 +
                      ``under paragraph (2), (4), or (5) of subsection
 +
                      (c) or under
 +
                      subsection (i) or (l)''; and
 +
                          (ii) in the last 2 sentences of subsection
 +
                      (c), by striking ``For purposes of this
 +
                      paragraph'' and all that follows through ``The
 +
                      Secretary and'' and inserting the following:
 +
 +
    ``(5) The Secretary may assess a civil penalty against any person of
 +
up to $1,000 a day from the date of the person's failure or refusal to
 +
file the information required to be filed by such person with the
 +
Secretary under regulations prescribed pursuant to section 101(g).
 +
    ``(6) The Secretary and''.
 +
                    (B) Technical and conforming amendment.--Section
 +
                502(c)(1) of such Act (29 U.S.C. 1132(c)(1)) is amended
 +
                by adding at the end the following sentence: ``For
 +
                purposes of this paragraph, each violation described in
 +
                subparagraph (A) with respect to any single participant,
 +
                and each violation described in subparagraph (B) with
 +
                respect to any single participant or beneficiary, shall
 +
                be treated as a separate violation.''.
 +
            (3) Coordination.--Section 506 of such Act (29 U.S.C. 1136)
 +
        is amended by adding at the end the following new subsection:
 +
 +
    ``(c) Coordination of Enforcement With States With Respect to
 +
Certain Arrangements.--A State may enter into an agreement with the
 +
Secretary for delegation to the State of some or all of the Secretary's
 +
authority under sections 502 and 504 to enforce the requirements under
 +
part 7 in connection with multiple employer welfare arrangements,
 +
providing medical care (within the meaning of section 706(a)(2)), which
 +
are not group health plans.''.
 +
    (f) Conforming Amendments.--
 +
            (1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is
 +
        amended by adding at the end the following new paragraph:
 +
 +
    ``(9) For additional provisions relating to group health plans, see
 +
section 704.''.
 +
            (2)(A) Part 6 of subtitle B of title I of such Act (29
 +
        U.S.C. 1161 et seq.) is amended by striking the heading and
 +
        inserting the following:
 +
 +
  ``Part 6--Continuation Coverage and Additional Standards for Group
 +
                            Health Plans''.
 +
 +
            (B) The table of contents in section 1 of such Act is
 +
        amended by striking the item relating to the heading for part 6
 +
        of subtitle B of title I and inserting the following:
 +
 +
  ``Part 6--Continuation Coverage and Additional Standards for Group
 +
                            Health Plans''.
 +
 +
            (3) The table of contents in section 1 of such Act (as
 +
        amended by the preceding provisions of this section) is amended
 +
        by inserting after the items relating to part 6 the following
 +
        new items:
 +
 +
  ``Part 7--Group Health Plan Portability, Access, and Renewability
 +
                              Requirements
 +
 +
``Sec. 701. Increased portability through limitation on preexisting
 +
                      condition exclusions.
 +
``Sec. 702. Prohibiting discrimination against individual participants
 +
                      and beneficiaries based on health status.
 +
``Sec. 703. Guaranteed renewability in multiemployer plans and multiple
 +
                      employer welfare arrangements.
 +
``Sec. 704. Preemption; State flexibility; construction.
 +
``Sec. 705. Special rules relating to group health plans.
 +
``Sec. 706. Definitions.
 +
``Sec. 707. Regulations.''.
 +
 +
    (g) Effective <<NOTE: 29 USC 1181 note.>>  Dates.--
 +
            (1) In general.--Except as provided in this section, this
 +
        section (and the amendments made by this section) shall apply
 +
        with respect to group health plans for plan years beginning
 +
        after June 30, 1997.
 +
            (2) Determination of creditable coverage.--
 +
                    (A) Period of coverage.--
 +
                          (i) In general.--Subject to clause (ii), no
 +
                      period before July 1, 1996, shall be taken into
 +
                      account under part 7 of subtitle B of title I of
 +
                      the Employee Retirement Income Security Act of
 +
                      1974 (as added by this section) in determining
 +
                      creditable coverage.
 +
                          (ii) Special rule for certain periods.--The
 +
                      Secretary of Labor, consistent with section 104,
 +
                      shall provide for a process whereby individuals
 +
                      who need to establish creditable coverage for
 +
                      periods before July 1, 1996, and who would have
 +
                      such coverage credited but for clause (i) may be
 +
                      given credit for creditable coverage for such
 +
                      periods through the presentation of documents or
 +
                      other means.
 +
                    (B) Certifications, etc.--
 +
                          (i) In general.--Subject to clauses (ii) and
 +
                      (iii), subsection (e) of section 701 of the
 +
                      Employee Retirement Income Security Act of 1974
 +
                      (as added by this section) shall apply to events
 +
                      occurring after June 30, 1996.
 +
                          (ii) No certification required to be provided
 +
                      before june 1, 1997.--In no case is a
 +
                      certification required to be provided under such
 +
                      subsection before June 1, 1997.
 +
                          (iii) Certification only on written request
 +
                      for events occurring before october 1, 1996.--In
 +
                      the case of an event occurring after June 30,
 +
                      1996, and before October 1, 1996, a certification
 +
                      is not required to be provided under such
 +
                      subsection unless an individual (with respect to
 +
                      whom the certification is otherwise required to be
 +
                      made) requests such certification in writing.
 +
                    (C) Transitional rule.--In the case of an individual
 +
                who seeks to establish creditable coverage for any
 +
                period for which certification is not required because
 +
                it relates to an event occurring before June 30, 1996--
 +
                          (i) the individual may present other credible
 +
                      evidence of such coverage in order to establish
 +
                      the period of creditable coverage; and
 +
                          (ii) a group health plan and a health
 +
                      insurance issuer shall not be subject to any
 +
                      penalty or enforcement action with respect to the
 +
                      plan's or issuer's crediting (or not crediting)
 +
                      such coverage if the plan or issuer has sought to
 +
                      comply in good faith with the applicable
 +
                      requirements under the amendments made by this
 +
                      section.
 +
            (3) Special rule for collective bargaining agreements.--
 +
        Except as provided in paragraph (2), in the case of a group
 +
        health plan maintained pursuant to one or more collective
 +
        bargaining agreements between employee representatives and one
 +
        or more employers ratified before the date of the enactment of
 +
        this Act, part 7 of subtitle B of title I of Employee Retirement
 +
        Income Security Act of 1974 (other than section 701(e) thereof)
 +
        shall not apply to plan years beginning before the later of--
 +
                    (A) the date on which the last of the collective
 +
                bargaining agreements relating to the plan terminates
 +
                (determined without regard to any extension thereof
 +
                agreed to after the date of the enactment of this Act),
 +
                or
 +
                    (B) July 1, 1997.
 +
        For purposes of subparagraph (A), any plan amendment made
 +
        pursuant to a collective bargaining agreement relating to the
 +
        plan which amends the plan solely to conform to any requirement
 +
        of such part shall not be treated as a termination of such
 +
        collective bargaining agreement.
 +
            (4) Timely regulations.--The Secretary of Labor, consistent
 +
        with section 104, shall first issue by not later than April 1,
 +
        1997, such regulations as may be necessary to carry out the
 +
        amendments made by this section.
 +
            (5) Limitation on actions.--No enforcement action shall be
 +
        taken, pursuant to the amendments made by this section, against
 +
        a group health plan or health insurance issuer with respect to a
 +
        violation of a requirement imposed by such amendments before
 +
        January 1, 1998, or, if later, the date of issuance of
 +
        regulations referred to in paragraph (4), if the plan or issuer
 +
        has sought to comply in good faith with such requirements.
 +
 +
SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.
 +
 +
    (a) In General.--The Public Health Service Act is amended by adding
 +
at the end the following new title:
 +
 +
``TITLE XXVII--ASSURING PORTABILITY, AVAILABILITY, AND RENEWABILITY OF
 +
                        HEALTH INSURANCE COVERAGE
 +
 +
                    ``Part A--Group Market Reforms
 +
 +
    ``Subpart 1--Portability, Access, and Renewability Requirements
 +
 +
``SEC. 2701. INCREASED <<NOTE: 42 USC 300gg.>>  PORTABILITY
 +
                            THROUGH LIMITATION ON PREEXISTING
 +
                            CONDITION EXCLUSIONS.
 +
 +
    ``(a) Limitation on Preexisting Condition Exclusion Period;
 +
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
 +
a group health plan, and a health insurance issuer offering group health
 +
insurance coverage, may, with respect to a participant or beneficiary,
 +
impose a preexisting condition exclusion only if--
 +
            ``(1) such exclusion relates to a condition (whether
 +
        physical or mental), regardless of the cause of the condition,
 +
        for which medical advice, diagnosis, care, or treatment was
 +
        recommended or received within the 6-month period ending on the
 +
        enrollment date;
 +
            ``(2) such exclusion extends for a period of not more than
 +
        12 months (or 18 months in the case of a late enrollee) after
 +
        the enrollment date; and
 +
            ``(3) the period of any such preexisting condition exclusion
 +
        is reduced by the aggregate of the periods of creditable
 +
        coverage (if any, as defined in subsection (c)(1)) applicable to
 +
        the participant or beneficiary as of the enrollment date.
 +
 +
    ``(b) Definitions.--For purposes of this part--
 +
            ``(1) Preexisting condition exclusion.--
 +
                    ``(A) In general.--The term `preexisting condition
 +
                exclusion' means, with respect to coverage, a limitation
 +
                or exclusion of benefits relating to a condition based
 +
                on the fact that the condition was present before the
 +
                date of enrollment for such coverage, whether or not any
 +
                medical advice, diagnosis, care, or treatment was
 +
                recommended or received before such date.
 +
                    ``(B) Treatment of genetic information.--Genetic
 +
                information shall not be treated as a condition
 +
                described in subsection (a)(1) in the absence of a
 +
                diagnosis of the condition related to such information.
 +
            ``(2) Enrollment date.--The term `enrollment date' means,
 +
        with respect to an individual covered under a group health plan
 +
        or health insurance coverage, the date of enrollment of the
 +
        individual in the plan or coverage or, if earlier, the first day
 +
        of the waiting period for such enrollment.
 +
            ``(3) Late enrollee.--The term `late enrollee' means, with
 +
        respect to coverage under a group health plan, a participant or
 +
        beneficiary who enrolls under the plan other than during--
 +
                    ``(A) the first period in which the individual is
 +
                eligible to enroll under the plan, or
 +
                    ``(B) a special enrollment period under subsection
 +
                (f).
 +
            ``(4) Waiting period.--The term `waiting period' means, with
 +
        respect to a group health plan and an individual who is a
 +
        potential participant or beneficiary in the plan, the period
 +
        that must pass with respect to the individual before the
 +
        individual is eligible to be covered for benefits under the
 +
        terms of the plan.
 +
 +
    ``(c) Rules Relating to Crediting Previous Coverage.--
 +
            ``(1) Creditable coverage defined.--For purposes of this
 +
        title, the term `creditable coverage' means, with respect to an
 +
        individual, coverage of the individual under any of the
 +
        following:
 +
                    ``(A) A group health plan.
 +
                    ``(B) Health insurance coverage.
 +
                    ``(C) Part A or part B of title XVIII of the Social
 +
                Security Act.
 +
                    ``(D) Title XIX of the Social Security Act, other
 +
                than coverage consisting solely of benefits under
 +
                section 1928.
 +
                    ``(E) Chapter 55 of title 10, United States Code.
 +
                    ``(F) A medical care program of the Indian Health
 +
                Service or of a tribal organization.
 +
                    ``(G) A State health benefits risk pool.
 +
                    ``(H) A health plan offered under chapter 89 of
 +
                title 5, United States Code.
 +
                    ``(I) A public health plan (as defined in
 +
                regulations).
 +
                    ``(J) A health benefit plan under section 5(e) of
 +
                the Peace Corps Act (22 U.S.C. 2504(e)).
 +
        Such term does not include coverage consisting solely of
 +
        coverage of excepted benefits (as defined in section 2791(c)).
 +
            ``(2) Not counting periods before significant breaks in
 +
        coverage.--
 +
                    ``(A) In general.--A period of creditable coverage
 +
                shall not be counted, with respect to enrollment of an
 +
                individual under a group health plan, if, after such
 +
                period and before the enrollment date, there was a 63-
 +
                day period during all of which the individual was not
 +
                covered under any creditable coverage.
 +
                    ``(B) Waiting period not treated as a break in
 +
                coverage.--For purposes of subparagraph (A) and
 +
                subsection (d)(4), any period that an individual is in a
 +
                waiting period for any coverage under a group health
 +
                plan (or for group health insurance coverage) or is in
 +
                an affiliation period (as defined in subsection (g)(2))
 +
                shall not be taken into account in determining the
 +
                continuous period under subparagraph (A).
 +
            ``(3) Method of crediting coverage.--
 +
                    ``(A) Standard method.--Except as otherwise provided
 +
                under subparagraph (B), for purposes of applying
 +
                subsection (a)(3), a group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
                coverage, shall count a period of creditable coverage
 +
                without regard to the specific benefits covered during
 +
                the period.
 +
                    ``(B) Election of alternative method.--A group
 +
                health plan, or a health insurance issuer offering group
 +
                health insurance, may elect to apply subsection (a)(3)
 +
                based on coverage of benefits within each of several
 +
                classes or categories of benefits specified in
 +
                regulations rather than as provided under subparagraph
 +
                (A). Such election shall be made on a uniform basis for
 +
                all participants and beneficiaries. Under such election
 +
                a group health plan or issuer shall count a period of
 +
                creditable coverage with respect to any class or
 +
                category of benefits if any level of benefits is covered
 +
                within such class or category.
 +
                    ``(C) Plan notice.--In the case of an election with
 +
                respect to a group health plan under subparagraph (B)
 +
                (whether or not health insurance coverage is provided in
 +
                connection with such plan), the plan shall--
 +
                          ``(i) prominently state in any disclosure
 +
                      statements concerning the plan, and state to each
 +
                      enrollee at the time of enrollment under the plan,
 +
                      that the plan has made such election, and
 +
                          ``(ii) include in such statements a
 +
                      description of the effect of this election.
 +
                    ``(D) Issuer notice.--In the case of an election
 +
                under subparagraph (B) with respect to health insurance
 +
                coverage offered by an issuer in the small or large
 +
                group market, the issuer--
 +
                          ``(i) shall prominently state in any
 +
                      disclosure statements concerning the coverage, and
 +
                      to each employer at the time of the offer or sale
 +
                      of the coverage, that the issuer has made such
 +
                      election, and
 +
                          ``(ii) shall include in such statements a
 +
                      description of the effect of such election.
 +
            ``(4) Establishment of period.--Periods of creditable
 +
        coverage with respect to an individual shall be established
 +
        through presentation of certifications described in subsection
 +
        (e) or in such other manner as may be specified in regulations.
 +
 +
    ``(d) Exceptions.--
 +
            ``(1) Exclusion not applicable to certain newborns.--Subject
 +
        to paragraph (4), a group health plan, and a health insurance
 +
        issuer offering group health insurance coverage, may not impose
 +
        any preexisting condition exclusion in the case of an individual
 +
        who, as of the last day of the 30-day period beginning with the
 +
        date of birth, is covered under creditable coverage.
 +
            ``(2) Exclusion not applicable to certain adopted
 +
        children.--Subject to paragraph (4), a group health plan, and a
 +
        health insurance issuer offering group health insurance
 +
        coverage, may not impose any preexisting condition exclusion in
 +
        the case of a child who is adopted or placed for adoption before
 +
        attaining 18 years of age and who, as of the last day of the 30-
 +
        day period beginning on the date of the adoption or placement
 +
        for adoption, is covered under creditable coverage. The previous
 +
        sentence shall not apply to coverage before the date of such
 +
        adoption or placement for adoption.
 +
            ``(3) Exclusion not applicable to pregnancy.--A group health
 +
        plan, and health insurance issuer offering group health
 +
        insurance coverage, may not impose any preexisting condition
 +
        exclusion relating to pregnancy as a preexisting condition.
 +
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2)
 +
        shall no longer apply to an individual after the end of the
 +
        first 63-day period during all of which the individual was not
 +
        covered under any creditable coverage.
 +
 +
    ``(e) Certifications and Disclosure of Coverage.--
 +
            ``(1) Requirement for certification of period of creditable
 +
        coverage.--
 +
                    ``(A) In general.--A group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
                coverage, shall provide the certification described in
 +
                subparagraph (B)--
 +
                          ``(i) at the time an individual ceases to be
 +
                      covered under the plan or otherwise becomes
 +
                      covered under a COBRA continuation provision,
 +
                          ``(ii) in the case of an individual becoming
 +
                      covered under such a provision, at the time the
 +
                      individual ceases to be covered under such
 +
                      provision, and
 +
                          ``(iii) on the request on behalf of an
 +
                      individual made not later than 24 months after the
 +
                      date of cessation of the coverage described in
 +
                      clause (i) or (ii), whichever is later.
 +
                The certification under clause (i) may be provided, to
 +
                the extent practicable, at a time consistent with
 +
                notices required under any applicable COBRA continuation
 +
                provision.
 +
                    ``(B) Certification.--The certification described in
 +
                this subparagraph is a written certification of--
 +
                          ``(i) the period of creditable coverage of the
 +
                      individual under such plan and the coverage (if
 +
                      any) under such COBRA continuation provision, and
 +
                          ``(ii) the waiting period (if any) (and
 +
                      affiliation period, if applicable) imposed with
 +
                      respect to the individual for any coverage under
 +
                      such plan.
 +
                    ``(C) Issuer compliance.--To the extent that medical
 +
                care under a group health plan consists of group health
 +
                insurance coverage, the plan is deemed to have satisfied
 +
                the certification requirement under this paragraph if
 +
                the health insurance issuer offering the coverage
 +
                provides for such certification in accordance with this
 +
                paragraph.
 +
            ``(2) Disclosure of information on previous benefits.--In
 +
        the case of an election described in subsection (c)(3)(B) by a
 +
        group health plan or health insurance issuer, if the plan or
 +
        issuer enrolls an individual for coverage under the plan and the
 +
        individual provides a certification of coverage of the
 +
        individual under paragraph (1)--
 +
                    ``(A) upon request of such plan or issuer, the
 +
                entity which issued the certification provided by the
 +
                individual shall promptly disclose to such requesting
 +
                plan or issuer information on coverage of classes and
 +
                categories of health benefits available under such
 +
                entity's plan or coverage, and
 +
                    ``(B) such entity may charge the requesting plan or
 +
                issuer for the reasonable cost of disclosing such
 +
                information.
 +
            ``(3) Regulations.--The Secretary shall establish rules to
 +
        prevent an entity's failure to provide information under
 +
        paragraph (1) or (2) with respect to previous coverage of an
 +
        individual from adversely affecting any subsequent coverage of
 +
        the individual under another group health plan or health
 +
        insurance coverage.
 +
 +
    ``(f) Special Enrollment Periods.--
 +
            ``(1) Individuals losing other coverage.--A group health
 +
        plan, and a health insurance issuer offering group health
 +
        insurance coverage in connection with a group health plan, shall
 +
        permit an employee who is eligible, but not enrolled, for
 +
        coverage under the terms of the plan (or a dependent of such an
 +
        employee if the dependent is eligible, but not enrolled, for
 +
        coverage under such terms) to enroll for coverage under the
 +
        terms of the plan if each of the following conditions is met:
 +
                    ``(A) The employee or dependent was covered under a
 +
                group health plan or had health insurance coverage at
 +
                the time coverage was previously offered to the employee
 +
                or dependent.
 +
                    ``(B) The employee stated in writing at such time
 +
                that coverage under a group health plan or health
 +
                insurance coverage was the reason for declining
 +
                enrollment, but only if the plan sponsor or issuer (if
 +
                applicable) required such a statement at such time and
 +
                provided the employee with notice of such requirement
 +
                (and the consequences of such requirement) at such time.
 +
                    ``(C) The employee's or dependent's coverage
 +
                described in subparagraph (A)--
 +
                          ``(i) was under a COBRA continuation provision
 +
                      and the coverage under such provision was
 +
                      exhausted; or
 +
                          ``(ii) was not under such a provision and
 +
                      either the coverage was terminated as a result of
 +
                      loss of eligibility for the coverage (including as
 +
                      a result of legal separation, divorce, death,
 +
                      termination of employment, or reduction in the
 +
                      number of hours of employment) or employer
 +
                      contributions toward such coverage were
 +
                      terminated.
 +
                    ``(D) Under the terms of the plan, the employee
 +
                requests such enrollment not later than 30 days after
 +
                the date of exhaustion of coverage described in
 +
                subparagraph (C)(i) or termination of coverage or
 +
                employer contribution described in subparagraph (C)(ii).
 +
            ``(2) For dependent beneficiaries.--
 +
                    ``(A) In general.--If--
 +
                          ``(i) a group health plan makes coverage
 +
                      available with respect to a dependent of an
 +
                      individual,
 +
                          ``(ii) the individual is a participant under
 +
                      the plan (or has met any waiting period applicable
 +
                      to becoming a participant under the plan and is
 +
                      eligible to be enrolled under the plan but for a
 +
                      failure to enroll during a previous enrollment
 +
                      period), and
 +
                          ``(iii) a person becomes such a dependent of
 +
                      the individual through marriage, birth, or
 +
                      adoption or placement for adoption,
 +
                the group health plan shall provide for a dependent
 +
                special enrollment period described in subparagraph (B)
 +
                during which the person (or, if not otherwise enrolled,
 +
                the individual) may be enrolled under the plan as a
 +
                dependent of the individual, and in the case of the
 +
                birth or adoption of a child, the spouse of the
 +
                individual may be enrolled as a dependent of the
 +
                individual if such spouse is otherwise eligible for
 +
                coverage.
 +
                    ``(B) Dependent special enrollment period.--A
 +
                dependent special enrollment period under this
 +
                subparagraph shall be a period of not less than 30 days
 +
                and shall begin on the later of--
 +
                          ``(i) the date dependent coverage is made
 +
                      available, or
 +
                          ``(ii) the date of the marriage, birth, or
 +
                      adoption or placement for adoption (as the case
 +
                      may be) described in subparagraph (A)(iii).
 +
                    ``(C) No waiting period.--If an individual seeks to
 +
                enroll a dependent during the first 30 days of such a
 +
                dependent special enrollment period, the coverage of the
 +
                dependent shall become effective--
 +
                          ``(i) in the case of marriage, not later than
 +
                      the first day of the first month beginning after
 +
                      the date the completed request for enrollment is
 +
                      received;
 +
                          ``(ii) in the case of a dependent's birth, as
 +
                      of the date of such birth; or
 +
                          ``(iii) in the case of a dependent's adoption
 +
                      or placement for adoption, the date of such
 +
                      adoption or placement for adoption.
 +
 +
    ``(g) Use of Affiliation Period by HMOs as Alternative to
 +
Preexisting Condition Exclusion.--
 +
            ``(1) In general.--A health maintenance organization which
 +
        offers health insurance coverage in connection with a group
 +
        health plan and which does not impose any preexisting condition
 +
        exclusion allowed under subsection (a) with respect to any
 +
        particular coverage option may impose an affiliation period for
 +
        such coverage option, but only if--
 +
                    ``(A) such period is applied uniformly without
 +
                regard to any health status-related factors; and
 +
                    ``(B) such period does not exceed 2 months (or 3
 +
                months in the case of a late enrollee).
 +
            ``(2) Affiliation period.--
 +
                    ``(A) Defined.--For purposes of this title, the term
 +
                `affiliation period' means a period which, under the
 +
                terms of the health insurance coverage offered by the
 +
                health maintenance organization, must expire before the
 +
                health insurance coverage becomes effective. The
 +
                organization is not required to provide health care
 +
                services or benefits during such period and no premium
 +
                shall be charged to the participant or beneficiary for
 +
                any coverage during the period.
 +
                    ``(B) Beginning.--Such period shall begin on the
 +
                enrollment date.
 +
                    ``(C) Runs concurrently with waiting periods.--An
 +
                affiliation period under a plan shall run concurrently
 +
                with any waiting period under the plan.
 +
            ``(3) Alternative methods.--A health maintenance
 +
        organization described in paragraph (1) may use alternative
 +
        methods, from those described in such paragraph, to address
 +
        adverse selection as approved by the State insurance
 +
        commissioner or official or officials designated by the State to
 +
        enforce the requirements of this part for the State involved
 +
        with respect to such issuer.
 +
``SEC. 2702. PROHIBITING <<NOTE: 42 USC 300gg-1.>>  DISCRIMINATION
 +
                            AGAINST INDIVIDUAL PARTICIPANTS AND
 +
                            BENEFICIARIES BASED ON HEALTH STATUS.
 +
 +
    ``(a) In Eligibility To Enroll.--
 +
            ``(1) In general.--Subject to paragraph (2), a group health
 +
        plan, and a health insurance issuer offering group health
 +
        insurance coverage in connection with a group health plan, may
 +
        not establish rules for eligibility (including continued
 +
        eligibility) of any individual to enroll under the terms of the
 +
        plan based on any of the following health status-related factors
 +
        in relation to the individual or a dependent of the individual:
 +
                    ``(A) Health status.
 +
                    ``(B) Medical condition (including both physical and
 +
                mental illnesses).
 +
                    ``(C) Claims experience.
 +
                    ``(D) Receipt of health care.
 +
                    ``(E) Medical history.
 +
                    ``(F) Genetic information.
 +
                    ``(G) Evidence of insurability (including conditions
 +
                arising out of acts of domestic violence).
 +
                    ``(H) Disability.
 +
            ``(2) No application to benefits or exclusions.--To the
 +
        extent consistent with section 701, paragraph (1) shall not be
 +
        construed--
 +
                    ``(A) to require a group health plan, or group
 +
                health insurance coverage, to provide particular
 +
                benefits other than those provided under the terms of
 +
                such plan or coverage, or
 +
                    ``(B) to prevent such a plan or coverage from
 +
                establishing limitations or restrictions on the amount,
 +
                level, extent, or nature of the benefits or coverage for
 +
                similarly situated individuals enrolled in the plan or
 +
                coverage.
 +
            ``(3) Construction.--For purposes of paragraph (1), rules
 +
        for eligibility to enroll under a plan include rules defining
 +
        any applicable waiting periods for such enrollment.
 +
 +
    ``(b) In Premium Contributions.--
 +
            ``(1) In general.--A group health plan, and a health
 +
        insurance issuer offering health insurance coverage in
 +
        connection with a group health plan, may not require any
 +
        individual (as a condition of enrollment or continued enrollment
 +
        under the plan) to pay a premium or contribution which is
 +
        greater than such premium or contribution for a similarly
 +
        situated individual enrolled in the plan on the basis of any
 +
        health status-related factor in relation to the individual or to
 +
        an individual enrolled under the plan as a dependent of the
 +
        individual.
 +
            ``(2) Construction.--Nothing in paragraph (1) shall be
 +
        construed--
 +
                    ``(A) to restrict the amount that an employer may be
 +
                charged for coverage under a group health plan; or
 +
                    ``(B) to prevent a group health plan, and a health
 +
                insurance issuer offering group health insurance
 +
                coverage, from establishing premium discounts or rebates
 +
                or modifying otherwise applicable copayments or
 +
                deductibles in return for adherence to programs of
 +
                health promotion and disease prevention.
 +
 +
  ``Subpart 2--Provisions Applicable Only to Health Insurance Issuers
 +
 +
``SEC. 2711. GUARANTEED <<NOTE: 42 USC 300gg-11.>>  AVAILABILITY
 +
                            OF COVERAGE FOR
 +
                            EMPLOYERS IN THE GROUP MARKET.
 +
 +
    ``(a) Issuance of Coverage in the Small Group Market.--
 +
            ``(1) In general.--Subject to subsections (c) through (f),
 +
        each health insurance issuer that offers health insurance
 +
        coverage in the small group market in a State--
 +
                    ``(A) must accept every small employer (as defined
 +
                in section 2791(e)(4)) in the State that applies for
 +
                such coverage; and
 +
                    ``(B) must accept for enrollment under such coverage
 +
                every eligible individual (as defined in paragraph (2))
 +
                who applies for enrollment during the period in which
 +
                the individual first becomes eligible to enroll under
 +
                the terms of the group health plan and may not place any
 +
                restriction which is inconsistent with section 2702 on
 +
                an eligible individual being a participant or
 +
                beneficiary.
 +
            ``(2) Eligible individual defined.--For purposes of this
 +
        section, the term `eligible individual' means, with respect to a
 +
        health insurance issuer that offers health insurance coverage to
 +
        a small employer in connection with a group health plan in the
 +
        small group market, such an individual in relation to the
 +
        employer as shall be determined--
 +
                    ``(A) in accordance with the terms of such plan,
 +
                    ``(B) as provided by the issuer under rules of the
 +
                issuer which are uniformly applicable in a State to
 +
                small employers in the small group market, and
 +
                    ``(C) in accordance with all applicable State laws
 +
                governing such issuer and such market.
 +
 +
    ``(b) Assuring Access in the Large Group Market.--
 +
            ``(1) Reports to hhs.--The Secretary shall request that the
 +
        chief executive officer of each State submit to the Secretary,
 +
        by not later December 31, 2000, and every 3 years thereafter a
 +
        report on--
 +
                    ``(A) the access of large employers to health
 +
                insurance coverage in the State, and
 +
                    ``(B) the circumstances for lack of access (if any)
 +
                of large employers (or one or more classes of such
 +
                employers) in the State to such coverage.
 +
            ``(2) Triennial reports to congress.--The Secretary, based
 +
        on the reports submitted under paragraph (1) and such other
 +
        information as the Secretary may use, shall prepare and submit
 +
        to Congress, every 3 years, a report describing the extent to
 +
        which large employers (and classes of such employers) that seek
 +
        health insurance coverage in the different States are able to
 +
        obtain access to such coverage. Such report shall include such
 +
        recommendations as the Secretary determines to be appropriate.
 +
            ``(3) GAO report on large employer access to health
 +
        insurance coverage.--The Comptroller General shall provide for a
 +
        study of the extent to which classes of large employers in the
 +
        different States are able to obtain access to health insurance
 +
        coverage and the circumstances for lack of access (if any) to
 +
        such coverage. The Comptroller General shall submit to Congress
 +
        a report on such study not later than 18 months after the date
 +
        of the enactment of this title.
 +
 +
    ``(c) Special Rules for Network Plans.--
 +
            ``(1) In general.--In the case of a health insurance issuer
 +
        that offers health insurance coverage in the small group market
 +
        through a network plan, the issuer may--
 +
                    ``(A) limit the employers that may apply for such
 +
                coverage to those with eligible individuals who live,
 +
                work, or reside in the service area for such network
 +
                plan; and
 +
                    ``(B) within the service area of such plan, deny
 +
                such coverage to such employers if the issuer has
 +
                demonstrated, if required, to the applicable State
 +
                authority that--
 +
                          ``(i) it will not have the capacity to deliver
 +
                      services adequately to enrollees of any additional
 +
                      groups because of its obligations to existing
 +
                      group contract holders and enrollees, and
 +
                          ``(ii) it is applying this paragraph uniformly
 +
                      to all employers without regard to the claims
 +
                      experience of those employers and their employees
 +
                      (and their dependents) or any health status-
 +
                      related factor relating to such employees and
 +
                      dependents.
 +
            ``(2) 180-day suspension upon denial of coverage.--An
 +
        issuer, upon denying health insurance coverage in any service
 +
        area in accordance with paragraph (1)(B), may not offer coverage
 +
        in the small group market within such service area for a period
 +
        of 180 days after the date such coverage is denied.
 +
 +
    ``(d) Application of Financial Capacity Limits.--
 +
            ``(1) In general.--A health insurance issuer may deny health
 +
        insurance coverage in the small group market if the issuer has
 +
        demonstrated, if required, to the applicable State authority
 +
        that--
 +
                    ``(A) it does not have the financial reserves
 +
                necessary to underwrite additional coverage; and
 +
                    ``(B) it is applying this paragraph uniformly to all
 +
                employers in the small group market in the State
 +
                consistent with applicable State law and without regard
 +
                to the claims experience of those employers and their
 +
                employees (and their dependents) or any health status-
 +
                related factor relating to such employees and
 +
                dependents.
 +
            ``(2) 180-day suspension upon denial of coverage.--A health
 +
        insurance issuer upon denying health insurance coverage in
 +
        connection with group health plans in accordance with paragraph
 +
        (1) in a State may not offer coverage in connection with group
 +
        health plans in the small group market in the State for a period
 +
        of 180 days after the date such coverage is denied or until the
 +
        issuer has demonstrated to the applicable State authority, if
 +
        required under applicable State law, that the issuer has
 +
        sufficient financial reserves to underwrite additional coverage,
 +
        whichever is later. An applicable State authority may provide
 +
        for the application of this subsection on a service-area-
 +
        specific basis.
 +
 +
    ``(e) Exception to Requirement for Failure To Meet Certain Minimum
 +
Participation or Contribution Rules.--
 +
            ``(1) In general.--Subsection (a) shall not be construed to
 +
        preclude a health insurance issuer from establishing employer
 +
        contribution rules or group participation rules for the offering
 +
        of health insurance coverage in connection
 +
with a group health plan in the small group market, as allowed under
 +
applicable State law.
 +
            ``(2) Rules defined.--For purposes of paragraph (1)--
 +
                    ``(A) the term `employer contribution rule' means a
 +
                requirement relating to the minimum level or amount of
 +
                employer contribution toward the premium for enrollment
 +
                of participants and beneficiaries; and
 +
                    ``(B) the term `group participation rule' means a
 +
                requirement relating to the minimum number of
 +
                participants or beneficiaries that must be enrolled in
 +
                relation to a specified percentage or number of eligible
 +
                individuals or employees of an employer.
 +
 +
    ``(f) Exception for Coverage Offered Only to Bona Fide Association
 +
Members.--Subsection (a) shall not apply to health insurance coverage
 +
offered by a health insurance issuer if such coverage is made available
 +
in the small group market only through one or more bona fide
 +
associations (as defined in section 2791(d)(3)).
 +
``SEC. 2712. GUARANTEED <<NOTE: 42 USC 300gg-12.>>  RENEWABILITY
 +
                            OF COVERAGE FOR EMPLOYERS IN THE GROUP
 +
                            MARKET.
 +
 +
    ``(a) In General.--Except as provided in this section, if a health
 +
insurance issuer offers health insurance coverage in the small or large
 +
group market in connection with a group health plan, the issuer must
 +
renew or continue in force such coverage at the option of the plan
 +
sponsor of the plan.
 +
    ``(b) General Exceptions.--A health insurance issuer may nonrenew or
 +
discontinue health insurance coverage offered in connection with a group
 +
health plan in the small or large group market based only on one or more
 +
of the following:
 +
            ``(1) Nonpayment of premiums.--The plan sponsor has failed
 +
        to pay premiums or contributions in accordance with the terms of
 +
        the health insurance coverage or the issuer has not received
 +
        timely premium payments.
 +
            ``(2) Fraud.--The plan sponsor has performed an act or
 +
        practice that constitutes fraud or made an intentional
 +
        misrepresentation of material fact under the terms of the
 +
        coverage.
 +
            ``(3) Violation of participation or contribution rules.--The
 +
        plan sponsor has failed to comply with a material plan provision
 +
        relating to employer contribution or group participation rules,
 +
        as permitted under section 2711(e) in the case of the small
 +
        group market or pursuant to applicable State law in the case of
 +
        the large group market.
 +
            ``(4) Termination of coverage.--The issuer is ceasing to
 +
        offer coverage in such market in accordance with subsection (c)
 +
        and applicable State law.
 +
            ``(5) Movement outside service area.--In the case of a
 +
        health insurance issuer that offers health insurance coverage in
 +
        the market through a network plan, there is no longer any
 +
        enrollee in connection with such plan who lives, resides, or
 +
        works in the service area of the issuer (or in the area for
 +
        which the issuer is authorized to do business) and, in the case
 +
        of the small group market, the issuer would deny enrollment with
 +
        respect to such plan under section 2711(c)(1)(A).
 +
            ``(6) Association membership ceases.--In the case of health
 +
        insurance coverage that is made available in the small or large
 +
        group market (as the case may be) only through one or more bona
 +
        fide associations, the membership of an employer in the
 +
        association (on the basis of which the coverage is provided)
 +
        ceases but only if such coverage is terminated under this
 +
        paragraph uniformly without regard to any health status-related
 +
        factor relating to any covered individual.
 +
 +
    ``(c) Requirements for Uniform Termination of Coverage.--
 +
            ``(1) Particular type of coverage not offered.--In any case
 +
        in which an issuer decides to discontinue offering a particular
 +
        type of group health insurance coverage offered in the small or
 +
        large group market, coverage of such type may be discontinued by
 +
        the issuer in accordance with applicable State law in such
 +
        market only if--
 +
                    ``(A) the issuer provides notice to each plan
 +
                sponsor provided coverage of this type in such market
 +
                (and participants and beneficiaries covered under such
 +
                coverage) of such discontinuation at least 90 days prior
 +
                to the date of the discontinuation of such coverage;
 +
                    ``(B) the issuer offers to each plan sponsor
 +
                provided coverage of this type in such market, the
 +
                option to purchase all (or, in the case of the large
 +
                group market, any) other health insurance coverage
 +
                currently being offered by the issuer to a group health
 +
                plan in such market; and
 +
                    ``(C) in exercising the option to discontinue
 +
                coverage of this type and in offering the option of
 +
                coverage under subparagraph (B), the issuer acts
 +
                uniformly without regard to the claims experience of
 +
                those sponsors or any health status-related factor
 +
                relating to any participants or beneficiaries covered or
 +
                new participants or beneficiaries who may become
 +
                eligible for such coverage.
 +
            ``(2) Discontinuance of all coverage.--
 +
                    ``(A) In general.--In any case in which a health
 +
                insurance issuer elects to discontinue offering all
 +
                health insurance coverage in the small group market or
 +
                the large group market, or both markets, in a State,
 +
                health insurance coverage may be discontinued by the
 +
                issuer only in accordance with applicable State law and
 +
                if--
 +
                          ``(i) the issuer provides notice to the
 +
                      applicable State authority and to each plan
 +
                      sponsor (and participants and beneficiaries
 +
                      covered under such coverage) of such
 +
                      discontinuation at least 180 days prior to the
 +
                      date of the discontinuation of such coverage; and
 +
                          ``(ii) all health insurance issued or
 +
                      delivered for issuance in the State in such market
 +
                      (or markets) are discontinued and coverage under
 +
                      such health insurance coverage in such market (or
 +
                      markets) is not renewed.
 +
                    ``(B) Prohibition on market reentry.--In the case of
 +
                a discontinuation under subparagraph (A) in a market,
 +
                the issuer may not provide for the issuance of any
 +
                health insurance coverage in the market and State
 +
                involved during the 5-year period beginning on the date
 +
                of the discontinuation of the last health insurance
 +
                coverage not so renewed.
 +
 +
    ``(d) Exception for Uniform Modification of Coverage.--At the time
 +
of coverage renewal, a health insurance issuer may modify the health
 +
insurance coverage for a product offered to a group health plan--
 +
            ``(1) in the large group market; or
 +
            ``(2) in the small group market if, for coverage that is
 +
        available in such market other than only through one or more
 +
        bona fide associations, such modification is consistent with
 +
        State law and effective on a uniform basis among group health
 +
        plans with that product.
 +
 +
    ``(e) Application to Coverage Offered Only Through Associations.--In
 +
applying this section in the case of health insurance coverage that is
 +
made available by a health insurance issuer in the small or large group
 +
market to employers only through one or more associations, a reference
 +
to `plan sponsor' is deemed, with respect to coverage provided to an
 +
employer member of the association, to include a reference to such
 +
employer.
 +
 +
``SEC. 2713. <<NOTE: 42 USC 300gg-13.>>  DISCLOSURE OF INFORMATION.
 +
 +
    ``(a) Disclosure of Information by Health Plan Issuers.--In
 +
connection with the offering of any health insurance coverage to a small
 +
employer, a health insurance issuer--
 +
            ``(1) shall make a reasonable disclosure to such employer,
 +
        as part of its solicitation and sales materials, of the
 +
        availability of information described in subsection (b), and
 +
            ``(2) upon request of such a small employer, provide such
 +
        information.
 +
 +
    ``(b) Information Described.--
 +
            ``(1) In general.--Subject to paragraph (3), with respect to
 +
        a health insurance issuer offering health insurance coverage to
 +
        a small employer, information described in this subsection is
 +
        information concerning--
 +
                    ``(A) the provisions of such coverage concerning
 +
                issuer's right to change premium rates and the factors
 +
                that may affect changes in premium rates;
 +
                    ``(B) the provisions of such coverage relating to
 +
                renewability of coverage;
 +
                    ``(C) the provisions of such coverage relating to
 +
                any preexisting condition exclusion; and
 +
                    ``(D) the benefits and premiums available under all
 +
                health insurance coverage for which the employer is
 +
                qualified.
 +
            ``(2) Form of information.--Information under this
 +
        subsection shall be provided to small employers in a manner
 +
        determined to be understandable by the average small employer,
 +
        and shall be sufficient to reasonably inform small employers of
 +
        their rights and obligations under the health insurance
 +
        coverage.
 +
            ``(3) Exception.--An issuer is not required under this
 +
        section to disclose any information that is proprietary and
 +
        trade secret information under applicable law.
 +
 +
        ``Subpart 3--Exclusion of Plans; Enforcement; Preemption
 +
 +
``SEC. 2721. <<NOTE: 42 USC 300gg-21.>>  EXCLUSION OF CERTAIN PLANS.
 +
 +
    ``(a) Exception for Certain Small Group Health Plans.--The
 +
requirements of subparts 1 and 2 shall not apply to any group health
 +
plan (and health insurance coverage offered in connection with a group
 +
health plan) for any plan year if, on the first day of such plan year,
 +
such plan has less than 2 participants who are current employees.
 +
    ``(b) Limitation on Application of Provisions Relating to Group
 +
Health Plans.--
 +
            ``(1) In general.--The requirements of subparts 1 and 2
 +
        shall apply with respect to group health plans only--
 +
                    ``(A) subject to paragraph (2), in the case of a
 +
                plan that is a nonfederal governmental plan, and
 +
                    ``(B) with respect to health insurance coverage
 +
                offered in connection with a group health plan
 +
                (including such a plan that is a church plan or a
 +
                governmental plan).
 +
            ``(2) Treatment of nonfederal governmental plans.--
 +
                    ``(A) Election to be excluded.--If the plan sponsor
 +
                of a nonfederal governmental plan which is a group
 +
                health plan to which the provisions of subparts 1 and 2
 +
                otherwise apply makes an election under this
 +
                subparagraph (in such form and manner as the Secretary
 +
                may by regulations prescribe), then the requirements of
 +
                such subparts insofar as they apply directly to group
 +
                health plans (and not merely to group health insurance
 +
                coverage) shall not apply to such governmental plans for
 +
                such period except as provided in this paragraph.
 +
                    ``(B) Period of election.--An election under
 +
                subparagraph (A) shall apply--
 +
                          ``(i) for a single specified plan year, or
 +
                          ``(ii) in the case of a plan provided pursuant
 +
                      to a collective bargaining agreement, for the term
 +
                      of such agreement.
 +
                An election under clause (i) may be extended through
 +
                subsequent elections under this paragraph.
 +
                    ``(C) Notice to enrollees.--Under such an election,
 +
                the plan shall provide for--
 +
                          ``(i) notice to enrollees (on an annual basis
 +
                      and at the time of enrollment under the plan) of
 +
                      the fact and consequences of such election, and
 +
                          ``(ii) certification and disclosure of
 +
                      creditable coverage under the plan with respect to
 +
                      enrollees in accordance with section 2701(e).
 +
 +
    ``(c) Exception for Certain Benefits.--The requirements of subparts
 +
1 and 2 shall not apply to any group health plan (or group health
 +
insurance coverage) in relation to its provision of excepted benefits
 +
described in section 2791(c)(1).
 +
    ``(d) Exception for Certain Benefits If Certain Conditions Met.--
 +
            ``(1) Limited, excepted benefits.--The requirements of
 +
        subparts 1 and 2 shall not apply to any group health plan (and
 +
        group health insurance coverage offered in connection with a
 +
        group health plan) in relation to its provision of excepted
 +
        benefits described in section 2791(c)(2) if the benefits--
 +
                    ``(A) are provided under a separate policy,
 +
                certificate, or contract of insurance; or
 +
                    ``(B) are otherwise not an integral part of the
 +
                plan.
 +
            ``(2) Noncoordinated, excepted benefits.--The requirements
 +
        of subparts 1 and 2 shall not apply to any group health plan
 +
        (and group health insurance coverage offered in connection with
 +
        a group health plan) in relation to its provision of excepted
 +
        benefits described in section 2791(c)(3) if all of the following
 +
        conditions are met:
 +
                    ``(A) The benefits are provided under a separate
 +
                policy, certificate, or contract of insurance.
 +
                    ``(B) There is no coordination between the provision
 +
                of such benefits and any exclusion of benefits under any
 +
                group health plan maintained by the same plan sponsor.
 +
                    ``(C) Such benefits are paid with respect to an
 +
                event without regard to whether benefits are provided
 +
                with respect to such an event under any group health
 +
                plan maintained by the same plan sponsor.
 +
            ``(3) Supplemental excepted benefits.--The requirements of
 +
        this part shall not apply to any group health plan (and group
 +
        health insurance coverage) in relation to its provision of
 +
        excepted benefits described in section 27971(c)(4) if the
 +
        benefits are provided under a separate policy, certificate, or
 +
        contract of insurance.
 +
 +
    ``(e) Treatment of Partnerships.--For purposes of this part--
 +
            ``(1) Treatment as a group health plan.--Any plan, fund, or
 +
        program which would not be (but for this subsection) an employee
 +
        welfare benefit plan and which is established or maintained by a
 +
        partnership, to the extent that such plan, fund, or program
 +
        provides medical care (including items and services paid for as
 +
        medical care) to present or former partners in the partnership
 +
        or to their dependents (as defined under the terms of the plan,
 +
        fund, or program), directly or through insurance, reimbursement,
 +
        or otherwise, shall be treated (subject to paragraph (2)) as an
 +
        employee welfare benefit plan which is a group health plan.
 +
            ``(2) Employer.--In the case of a group health plan, the
 +
        term `employer' also includes the partnership in relation to any
 +
        partner.
 +
            ``(3) Participants of group health plans.--In the case of a
 +
        group health plan, the term `participant' also includes--
 +
                    ``(A) in connection with a group health plan
 +
                maintained by a partnership, an individual who is a
 +
                partner in relation to the partnership, or
 +
                    ``(B) in connection with a group health plan
 +
                maintained by a self-employed individual (under which
 +
                one or more employees are participants), the self-
 +
                employed individual,
 +
        if such individual is, or may become, eligible to receive a
 +
        benefit under the plan or such individual's beneficiaries may be
 +
        eligible to receive any such benefit.
 +
 +
``SEC. 2722. <<NOTE: 42 USC 2722.>>  ENFORCEMENT.
 +
 +
    ``(a) State Enforcement.--
 +
            ``(1) State authority.--Subject to section 2723, each State
 +
        may require that health insurance issuers that issue, sell,
 +
        renew, or offer health insurance coverage in the State in the
 +
        small or large group markets meet the requirements of this part
 +
        with respect to such issuers.
 +
            ``(2) Failure to implement provisions.--In the case of a
 +
        determination by the Secretary that a State has failed to
 +
        substantially enforce a provision (or provisions) in this part
 +
        with respect to health insurance issuers in the State, the
 +
        Secretary shall enforce such provision (or provisions) under
 +
        subsection (b) insofar as they relate to the issuance, sale,
 +
        renewal, and offering of health insurance coverage in connection
 +
        with group health plans in such State.
 +
 +
    ``(b) Secretarial Enforcement Authority.--
 +
            ``(1) Limitation.--The provisions of this subsection shall
 +
        apply to enforcement of a provision (or provisions) of this part
 +
        only--
 +
                    ``(A) as provided under subsection (a)(2); and
 +
                    ``(B) with respect to group health plans that are
 +
                non-Federal governmental plans.
 +
            ``(2) Imposition of penalties.--In the cases described in
 +
        paragraph (1)--
 +
                    ``(A) In general.--Subject to the succeeding
 +
                provisions of this subsection, any non-Federal
 +
                governmental plan that is a group health plan and any
 +
                health insurance issuer that fails to meet a provision
 +
                of this part applicable to such plan or issuer is
 +
                subject to a civil money penalty under this subsection.
 +
                    ``(B) Liability for penalty.--In the case of a
 +
                failure by--
 +
                          ``(i) a health insurance issuer, the issuer is
 +
                      liable for such penalty, or
 +
                          ``(ii) a group health plan that is a non-
 +
                      Federal governmental plan which is--
 +
                                    ``(I) sponsored by 2 or more
 +
                                employers, the plan is liable for such
 +
                                penalty, or
 +
                                    ``(II) not so sponsored, the
 +
                                employer is liable for such penalty.
 +
                    ``(C) Amount of penalty.--
 +
                          ``(i) In general.--The maximum amount of
 +
                      penalty imposed under this paragraph is $100 for
 +
                      each day for each individual with respect to which
 +
                      such a failure occurs.
 +
                          ``(ii) Considerations in imposition.--In
 +
                      determining the amount of any penalty to be
 +
                      assessed under this paragraph, the Secretary shall
 +
                      take into account the previous record of
 +
                      compliance of the entity being assessed with the
 +
                      applicable provisions of this part and the gravity
 +
                      of the violation.
 +
                          ``(iii) Limitations.--
 +
                                    ``(I) Penalty not to apply where
 +
                                failure not discovered exercising
 +
                                reasonable diligence.--No civil money
 +
                                penalty shall be imposed under this
 +
                                paragraph on any failure during any
 +
                                period for which it is established to
 +
                                the satisfaction of the Secretary that
 +
                                none of the entities against whom the
 +
                                penalty would be imposed knew, or
 +
                                exercising reasonable diligence would
 +
                                have known, that such failure existed.
 +
                                    ``(II) Penalty not to apply to
 +
                                failures corrected within 30 days.--No
 +
                                civil money penalty shall be imposed
 +
                                under this paragraph on any failure if
 +
                                such failure was due to reasonable cause
 +
                                and not to willful neglect, and such
 +
                                failure is corrected during the 30-day
 +
                                period beginning on the first day any of
 +
                                the entities against whom the penalty
 +
                                would be imposed knew, or exercising
 +
                                reasonable diligence would have known,
 +
                                that such failure existed.
 +
                    ``(D) Administrative review.--
 +
                          ``(i) Opportunity for hearing.--The entity
 +
                      assessed shall be afforded an opportunity for
 +
                      hearing by the Secretary upon request made within
 +
                      30 days after the date of the issuance of a notice
 +
                      of assessment. In such hearing the decision shall
 +
                      be made on the record pursuant to section 554 of
 +
                      title 5, United States Code. If no hearing is
 +
                      requested, the assessment shall constitute a final
 +
                      and unappealable order.
 +
                          ``(ii) Hearing procedure.--If a hearing is
 +
                      requested, the initial agency decision shall be
 +
                      made by an administrative law judge, and such
 +
                      decision shall become the final order unless the
 +
                      Secretary modifies or vacates the decision. Notice
 +
                      of intent to modify or vacate the decision of the
 +
                      administrative law judge shall be issued to the
 +
                      parties within 30 days after the date of the
 +
                      decision of the judge. A final order which takes
 +
                      effect under this paragraph shall be
 +
                      subject to review only as provided under
 +
                      subparagraph (E).
 +
                    ``(E) Judicial review.--
 +
                          ``(i) Filing of action for review.--Any entity
 +
                      against whom an order imposing a civil money
 +
                      penalty has been entered after an agency hearing
 +
                      under this paragraph may obtain review by the
 +
                      United States district court for any district in
 +
                      which such entity is located or the United States
 +
                      District Court for the District of Columbia by
 +
                      filing a notice of appeal in such court within 30
 +
                      days from the date of such order, and
 +
                      simultaneously sending a copy of such notice by
 +
                      registered mail to the Secretary.
 +
                          ``(ii) Certification of administrative
 +
                      record.--The Secretary shall promptly certify and
 +
                      file in such court the record upon which the
 +
                      penalty was imposed.
 +
                          ``(iii) Standard for review.--The findings of
 +
                      the Secretary shall be set aside only if found to
 +
                      be unsupported by substantial evidence as provided
 +
                      by section 706(2)(E) of title 5, United States
 +
                      Code.
 +
                          ``(iv) Appeal.--Any final decision, order, or
 +
                      judgment of the district court concerning such
 +
                      review shall be subject to appeal as provided in
 +
                      chapter 83 of title 28 of such Code.
 +
                    ``(F) Failure to pay assessment; maintenance of
 +
                action.--
 +
                          ``(i) Failure to pay assessment.--If any
 +
                      entity fails to pay an assessment after it has
 +
                      become a final and unappealable order, or after
 +
                      the court has entered final judgment in favor of
 +
                      the Secretary, the Secretary shall refer the
 +
                      matter to the Attorney General who shall recover
 +
                      the amount assessed by action in the appropriate
 +
                      United States district court.
 +
                          ``(ii) Nonreviewability.--In such action the
 +
                      validity and appropriateness of the final order
 +
                      imposing the penalty shall not be subject to
 +
                      review.
 +
                    ``(G) Payment of penalties.--Except as otherwise
 +
                provided, penalties collected under this paragraph shall
 +
                be paid to the Secretary (or other officer) imposing the
 +
                penalty and shall be available without appropriation and
 +
                until expended for the purpose of enforcing the
 +
                provisions with respect to which the penalty was
 +
                imposed.
 +
 +
``SEC. 2723. <<NOTE: 42 USC 300gg-23.>>  PREEMPTION; STATE FLEXIBILITY;
 +
            CONSTRUCTION.
 +
 +
    ``(a) Continued Applicability of State Law With Respect to Health
 +
Insurance Issuers.--
 +
            ``(1) In General.--Subject to paragraph (2) and except as
 +
        provided in subsection (b), this part and part C insofar as it
 +
        relates to this part shall not be construed to supersede any
 +
        provision of State law which establishes, implements, or
 +
        continues in effect any standard or requirement solely relating
 +
        to health insurance issuers in connection with group health
 +
        insurance coverage except to the extent that such standard or
 +
        requirement prevents the application of a requirement of this
 +
        part.
 +
            ``(2) Continued preemption with respect to group health
 +
        plans.--Nothing in this part shall be construed to affect or
 +
        modify the provisions of section 514 of the Employee Retirement
 +
        Income Security Act of 1974 with respect to group health plans.
 +
 +
    ``(b) Special Rules in Case of Portability Requirements.--
 +
            ``(1) In general.--Subject to paragraph (2), the provisions
 +
        of this part relating to health insurance coverage offered by a
 +
        health insurance issuer supersede any provision of State law
 +
        which establishes, implements, or continues in effect a standard
 +
        or requirement applicable to imposition of a preexisting
 +
        condition exclusion specifically governed by section 701 which
 +
        differs from the standards or requirements specified in such
 +
        section.
 +
            ``(2) Exceptions.--Only in relation to health insurance
 +
        coverage offered by a health insurance issuer, the provisions of
 +
        this part do not supersede any provision of State law to the
 +
        extent that such provision--
 +
                    ``(i) substitutes for the reference to `6-month
 +
                period' in section 2701(a)(1) a reference to any shorter
 +
                period of time;
 +
                    ``(ii) substitutes for the reference to `12 months'
 +
                and `18 months' in section 2701(a)(2) a reference to any
 +
                shorter period of time;
 +
                    ``(iii) substitutes for the references to `63' days
 +
                in sections 2701(c)(2)(A) and 2701(d)(4)(A) a reference
 +
                to any greater number of days;
 +
                    ``(iv) substitutes for the reference to `30-day
 +
                period' in sections 2701(b)(2) and 2701(d)(1) a
 +
                reference to any greater period;
 +
                    ``(v) prohibits the imposition of any preexisting
 +
                condition exclusion in cases not described in section
 +
                2701(d) or expands the exceptions described in such
 +
                section;
 +
                    ``(vi) requires special enrollment periods in
 +
                addition to those required under section 2701(f); or
 +
                    ``(vii) reduces the maximum period permitted in an
 +
                affiliation period under section 2701(g)(1)(B).
 +
 +
    ``(c) Rules of Construction.--Nothing in this part shall be
 +
construed as requiring a group health plan or health insurance coverage
 +
to provide specific benefits under the terms of such plan or coverage.
 +
    ``(d) Definitions.--For purposes of this section--
 +
            ``(1) State law.--The term `State law' includes all laws,
 +
        decisions, rules, regulations, or other State action having the
 +
        effect of law, of any State. A law of the United States
 +
        applicable only to the District of Columbia shall be treated as
 +
        a State law rather than a law of the United States.
 +
            ``(2) State.--The term `State' includes a State (including
 +
        the Northern Mariana Islands), any political subdivisions of a
 +
        State or such Islands, or any agency or instrumentality of
 +
        either.
 +
 +
            ``Part C--Definitions; Miscellaneous Provisions
 +
 +
``SEC. 2791 <<NOTE: 42 USC 300gg-91.>> . DEFINITIONS.
 +
 +
    ``(a) Group Health Plan.--
 +
            ``(1) Definition.--The term `group health plan' means an
 +
        employee welfare benefit plan (as defined in section 3(1) of the
 +
        Employee Retirement Income Security Act of 1974) to the extent
 +
        that the plan provides medical care (as defined in paragraph
 +
        (2)) and including items and services paid for as medical care)
 +
        to employees or their dependents (as defined under the terms of
 +
        the plan) directly or through insurance, reimbursement, or
 +
        otherwise.
 +
            ``(2) Medical care.--The term `medical care' means amounts
 +
        paid for--
 +
                    ``(A) the diagnosis, cure, mitigation, treatment, or
 +
                prevention of disease, or amounts paid for the purpose
 +
                of affecting any structure or function of the body,
 +
                    ``(B) amounts paid for transportation primarily for
 +
                and essential to medical care referred to in
 +
                subparagraph (A), and
 +
                    ``(C) amounts paid for insurance covering medical
 +
                care referred to in subparagraphs (A) and (B).
 +
            ``(3) Treatment of certain plans as group health plan for
 +
        notice provision.--A program under which creditable coverage
 +
        described in subparagraph (C), (D), (E), or (F) of section
 +
        2701(c)(1) is provided shall be treated as a group health plan
 +
        for purposes of applying section 2701(e).
 +
 +
    ``(b) Definitions Relating to Health Insurance.--
 +
            ``(1) Health insurance coverage.--The term `health insurance
 +
        coverage' means benefits consisting of medical care (provided
 +
        directly, through insurance or reimbursement, or otherwise and
 +
        including items and services paid for as medical care) under any
 +
        hospital or medical service policy or certificate, hospital or
 +
        medical service plan contract, or health maintenance
 +
        organization contract offered by a health insurance issuer.
 +
            ``(2) Health insurance issuer.--The term `health insurance
 +
        issuer' means an insurance company, insurance service, or
 +
        insurance organization (including a health maintenance
 +
        organization, as defined in paragraph (3)) which is licensed to
 +
        engage in the business of insurance in a State and which is
 +
        subject to State law which regulates insurance (within the
 +
        meaning of section 514(b)(2) of the Employee Retirement Income
 +
        Security Act of 1974). Such term does not include a group health
 +
        plan.
 +
            ``(3) Health maintenance organization.--The term `health
 +
        maintenance organization' means--
 +
                    ``(A) a Federally qualified health maintenance
 +
                organization (as defined in section 1301(a)),
 +
                    ``(B) an organization recognized under State law as
 +
                a health maintenance organization, or
 +
                    ``(C) a similar organization regulated under State
 +
                law for solvency in the same manner and to the same
 +
                extent as such a health maintenance organization.
 +
            ``(4) Group health insurance coverage.--The term `group
 +
        health insurance coverage' means, in connection with a group
 +
        health plan, health insurance coverage offered in connection
 +
        with such plan.
 +
            ``(5) Individual health insurance coverage.--The term
 +
        `individual health insurance coverage' means health insurance
 +
        coverage offered to individuals in the individual market, but
 +
        does not include short-term limited duration insurance.
 +
 +
    ``(c) Excepted Benefits.--For purposes of this title, the term
 +
`excepted benefits' means benefits under one or more (or any combination
 +
thereof) of the following:
 +
            ``(1) Benefits not subject to requirements.--
 +
                    ``(A) Coverage only for accident, or disability
 +
                income insurance, or any combination thereof.
 +
                    ``(B) Coverage issued as a supplement to liability
 +
                insurance.
 +
                    ``(C) Liability insurance, including general
 +
                liability insurance and automobile liability insurance.
 +
                    ``(D) Workers' compensation or similar insurance.
 +
                    ``(E) Automobile medical payment insurance.
 +
                    ``(F) Credit-only insurance.
 +
                    ``(G) Coverage for on-site medical clinics.
 +
                    ``(H) Other similar insurance coverage, specified in
 +
                regulations, under which benefits for medical care are
 +
                secondary or incidental to other insurance benefits.
 +
            ``(2) Benefits not subject to requirements if offered
 +
        separately.--
 +
                    ``(A) Limited scope dental or vision benefits.
 +
                    ``(B) Benefits for long-term care, nursing home
 +
                care, home health care, community-based care, or any
 +
                combination thereof.
 +
                    ``(C) Such other similar, limited benefits as are
 +
                specified in regulations.
 +
            ``(3) Benefits not subject to requirements if offered as
 +
        independent, noncoordinated benefits.--
 +
                    ``(A) Coverage only for a specified disease or
 +
                illness.
 +
                    ``(B) Hospital indemnity or other fixed
 +
                indemnity insurance.
 +
            ``(4) Benefits not subject to requirements if offered as
 +
        separate insurance policy.--Medicare supplemental health
 +
        insurance (as defined under section 1882(g)(1) of the Social
 +
        Security Act), coverage supplemental to the coverage provided
 +
        under chapter 55 of title 10, United States Code, and similar
 +
        supplemental coverage provided to coverage under a group health
 +
        plan.
 +
 +
    ``(d) Other Definitions.--
 +
            ``(1) Applicable state authority.--The term `applicable
 +
        State authority' means, with respect to a health insurance
 +
        issuer in a State, the State insurance commissioner or official
 +
        or officials designated by the State to enforce the requirements
 +
        of this title for the State involved with respect to such
 +
        issuer.
 +
            ``(2) Beneficiary.--The term `beneficiary' has the meaning
 +
        given such term under section 3(8) of the Employee Retirement
 +
        Income Security Act of 1974.
 +
            ``(3) Bona fide association.--The term `bona fide
 +
        association' means, with respect to health insurance coverage
 +
        offered in a State, an association which--
 +
                    ``(A) has been actively in existence for at least 5
 +
                years;
 +
                    ``(B) has been formed and maintained in good faith
 +
                for purposes other than obtaining insurance;
 +
                    ``(C) does not condition membership in the
 +
                association on any health status-related factor relating
 +
                to an individual (including an employee of an employer
 +
                or a dependent of an employee);
 +
                    ``(D) makes health insurance coverage offered
 +
                through the association available to all members
 +
                regardless of any health status-related factor relating
 +
                to such members (or individuals eligible for coverage
 +
                through a member);
 +
                    ``(E) does not make health insurance coverage
 +
                offered through the association available other than in
 +
                connection with a member of the association; and
 +
                    ``(F) meets such additional requirements as may be
 +
                imposed under State law.
 +
            ``(4) COBRA continuation provision.--The term `COBRA
 +
        continuation provision' means any of the following:
 +
                    ``(A) Section 4980B of the Internal Revenue Code of
 +
                1986, other than subsection (f)(1) of such section
 +
                insofar as it relates to pediatric vaccines.
 +
                    ``(B) Part 6 of subtitle B of title I of the
 +
                Employee Retirement Income Security Act of 1974, other
 +
                than section 609 of such Act.
 +
                    ``(C) Title XXII of this Act.
 +
            ``(5) Employee.--The term `employee' has the meaning given
 +
        such term under section 3(6) of the Employee Retirement Income
 +
        Security Act of 1974.
 +
            ``(6) Employer.--The term `employer' has the meaning given
 +
        such term under section 3(5) of the Employee Retirement Income
 +
        Security Act of 1974, except that such term shall include only
 +
        employers of two or more employees.
 +
            ``(7) Church plan.--The term `church plan' has the meaning
 +
        given such term under section 3(33) of the Employee Retirement
 +
        Income Security Act of 1974.
 +
            ``(8) Governmental plan.--(A) The term `governmental plan'
 +
        has the meaning given such term under section 3(32) of the
 +
        Employee Retirement Income Security Act of 1974 and any Federal
 +
        governmental plan.
 +
            ``(B) Federal governmental plan.--The term `Federal
 +
        governmental plan' means a governmental plan established or
 +
        maintained for its employees by the Government of the United
 +
        States or by any agency or instrumentality of such Government.
 +
            ``(C) Non-Federal governmental plan.--The term `non-Federal
 +
        governmental plan' means a governmental plan that is not a
 +
        Federal governmental plan.
 +
            ``(9) Health status-related factor.--The term `health
 +
        status-related factor' means any of the factors described in
 +
        section 2702(a)(1).
 +
            ``(10) Network plan.--The term `network plan' means health
 +
        insurance coverage of a health insurance issuer under which the
 +
        financing and delivery of medical care (including items and
 +
        services paid for as medical care) are provided, in whole or in
 +
        part, through a defined set of providers under contract with the
 +
        issuer.
 +
            ``(11) Participant.--The term `participant' has the meaning
 +
        given such term under section 3(7) of the Employee Retirement
 +
        Income Security Act of 1974.
 +
            ``(12) Placed for adoption defined.--The term `placement',
 +
        or being `placed', for adoption, in connection with any
 +
        placement for adoption of a child with any person, means the
 +
        assumption and retention by such person of a legal obligation
 +
        for total or partial support of such child in anticipation of
 +
        adoption of such child. The child's placement with such person
 +
        terminates upon the termination of such legal obligation.
 +
            ``(13) Plan sponsor.--The term `plan sponsor' has the
 +
        meaning given such term under section 3(16)(B) of the Employee
 +
        Retirement Income Security Act of 1974.
 +
            ``(14) State.--The term `State' means each of the several
 +
        States, the District of Columbia, Puerto Rico, the Virgin
 +
        Islands, Guam, American Samoa, and the Northern Mariana Islands.
 +
 +
    ``(e) Definitions Relating to Markets and Small Em-
 +
ployers.--For purposes of this title:
 +
            ``(1) Individual market.--
 +
                    ``(A) In general.--The term `individual market'
 +
                means the market for health insurance coverage offered
 +
                to individuals other than in connection with a group
 +
                health plan.
 +
                    ``(B) Treatment of very small groups.--
 +
                          ``(i) In general.--Subject to clause (ii),
 +
                      such terms includes coverage offered in connection
 +
                      with a group health plan that has fewer than two
 +
                      participants as current employees on the first day
 +
                      of the plan year.
 +
                          ``(ii) State exception.--Clause (i) shall not
 +
                      apply in the case of a State that elects to
 +
                      regulate the coverage described in such clause as
 +
                      coverage in the small group market.
 +
            ``(2) Large employer.--The term `large employer' means, in
 +
        connection with a group health plan with respect to a calendar
 +
        year and a plan year, an employer who employed an average of at
 +
        least 51 employees on business
 +
days during the preceding calendar year and who employs at least 2
 +
employees on the first day of the plan year.
 +
            ``(3) Large group market.--The term `large group market'
 +
        means the health insurance market under which individuals obtain
 +
        health insurance coverage (directly or through any arrangement)
 +
        on behalf of themselves (and their dependents) through a group
 +
        health plan maintained by a large employer.
 +
            ``(4) Small employer.--The term `small employer' means, in
 +
        connection with a group health plan with respect to a calendar
 +
        year and a plan year, an employer who employed an average of at
 +
        least 2 but not more than 50 employees on business days during
 +
        the preceding calendar year and who employs at least 2 employees
 +
        on the first day of the plan year.
 +
            ``(5) Small group market.--The term `small group market'
 +
        means the health insurance market under which individuals obtain
 +
        health insurance coverage (directly or through any arrangement)
 +
        on behalf of themselves (and their dependents) through a group
 +
        health plan maintained by a small employer.
 +
            ``(6) Application of certain rules in determination of
 +
        employer size.--For purposes of this subsection--
 +
                    ``(A) Application of aggregation rule for
 +
                employers.--all persons treated as a single employer
 +
                under subsection (b), (c), (m), or (o) of section 414 of
 +
                the Internal Revenue Code of 1986 shall be treated as 1
 +
                employer.
 +
                    ``(B) Employers not in existence in preceding
 +
                year.--In the case of an employer which was not in
 +
                existence throughout the preceding calendar year, the
 +
                determination of whether such employer is a small or
 +
                large employer shall be based on the average number of
 +
                employees that it is reasonably expected such employer
 +
                will employ on business days in the current calendar
 +
                year.
 +
                    ``(C) Predecessors.--Any reference in this
 +
                subsection to an employer shall include a reference to
 +
                any predecessor of such employer.
 +
 +
``SEC. 2792. <<NOTE: 42 USC 300gg-92.>>  REGULATIONS.
 +
 +
    ``The Secretary, consistent with section 104 of the Health Care
 +
Portability and Accountability Act of 1996, may promulgate such
 +
regulations as may be necessary or appropriate to carry out the
 +
provisions of this title. The Secretary may promulgate any interim final
 +
rules as the Secretary determines are appropriate to carry out this
 +
title.''.
 +
    (b) Application of Rules by Certain Health Maintenance
 +
Organizations.--Section 1301 of such Act (42 U.S.C. 300e) is amended by
 +
adding at the end the following new subsection:
 +
    ``(d) An organization that offers health benefits coverage shall not
 +
be considered as failing to meet the requirements of this section
 +
notwithstanding that it provides, with respect to coverage offered in
 +
connection with a group health plan in the small or large group market
 +
(as defined in section 2791(e)), an affiliation period consistent with
 +
the provisions of section 2701(g).''.
 +
    (c) Effective <<NOTE: 42 USC 300gg note.>>  Date.--
 +
            (1) In general.--Except as provided in this subsection, part
 +
        A of title XXVII of the Public Health Service Act (as added by
 +
        subsection (a)) shall apply with respect to group health plans,
 +
        and health insurance coverage offered in connection with group
 +
        health plans, for plan years beginning after June 30, 1997.
 +
            (2) Determination of creditable coverage.--
 +
                    (A) Period of coverage.--
 +
                          (i) In general.--Subject to clause (ii), no
 +
                      period before July 1, 1996, shall be taken into
 +
                      account under part A of title XXVII of the Public
 +
                      Health Service Act (as added by this section) in
 +
                      determining creditable coverage.
 +
                          (ii) Special rule for certain periods.--The
 +
                      Secretary of Health and Human Services, consistent
 +
                      with section 104, shall provide for a process
 +
                      whereby individuals who need to establish
 +
                      creditable coverage for periods before July 1,
 +
                      1996, and who would have such coverage credited
 +
                      but for clause (i) may be given credit for
 +
                      creditable coverage for such periods through the
 +
                      presentation of documents or other means.
 +
                    (B) Certifications, etc.--
 +
                          (i) In general.--Subject to clauses (ii) and
 +
                      (iii), subsection (e) of section 2701 of the
 +
                      Public Health Service Act (as added by this
 +
                      section) shall apply to events occurring after
 +
                      June 30, 1996.
 +
                          (ii) No certification required to be provided
 +
                      before june 1, 1997.--In no case is a
 +
                      certification required to be provided under such
 +
                      subsection before June 1, 1997.
 +
                          (iii) Certification only on written request
 +
                      for events occurring before october 1, 1996.--In
 +
                      the case of an event occurring after June 30,
 +
                      1996, and before October 1, 1996, a certification
 +
                      is not required to be provided under such
 +
                      subsection unless an individual (with respect to
 +
                      whom the certification is otherwise required to be
 +
                      made) requests such certification in writing.
 +
                    (C) Transitional rule.--In the case of an individual
 +
                who seeks to establish creditable coverage for any
 +
                period for which certification is not required because
 +
                it relates to an event occurring before June 30, 1996--
 +
                          (i) the individual may present other credible
 +
                      evidence of such coverage in order to establish
 +
                      the period of creditable coverage; and
 +
                          (ii) a group health plan and a health
 +
                      insurance issuer shall not be subject to any
 +
                      penalty or enforcement action with respect to the
 +
                      plan's or issuer's crediting (or not crediting)
 +
                      such coverage if the plan or issuer has sought to
 +
                      comply in good faith with the applicable
 +
                      requirements under the amendments made by this
 +
                      section.
 +
            (3) Special rule for collective bargaining agreements.--
 +
        Except as provided in paragraph (2)(B), in the case of a group
 +
        health plan maintained pursuant to 1 or more collective
 +
        bargaining agreements between employee representatives and one
 +
        or more employers ratified before the date of the enactment of
 +
        this Act, part A of title XXVII of the Public Health Service Act
 +
        (other than section 2701(e) thereof) shall not apply to plan
 +
        years beginning before the later of--
 +
                    (A) the date on which the last of the collective
 +
                bargaining agreements relating to the plan terminates
 +
                (determined without regard to any extension thereof
 +
                agreed to after the date of the enactment of this Act),
 +
                or
 +
                    (B) July 1, 1997.
 +
        For purposes of subparagraph (A), any plan amendment made
 +
        pursuant to a collective bargaining agreement relating to the
 +
        plan which amends the plan solely to conform to any requirement
 +
        of such part shall not be treated as a termination of such
 +
        collective bargaining agreement.
 +
            (4) Timely regulations.--The Secretary of Health and Human
 +
        Services, consistent with section 104, shall first issue by not
 +
        later than April 1, 1997, such regulations as may be necessary
 +
        to carry out the amendments made by this section and section
 +
        111.
 +
            (5) Limitation on actions.--No enforcement action shall be
 +
        taken, pursuant to the amendments made by this section, against
 +
        a group health plan or health insurance issuer with respect to a
 +
        violation of a requirement imposed by such amendments before
 +
        January 1, 1998, or, if later, the date of issuance of
 +
        regulations referred to in paragraph (4), if the plan or issuer
 +
        has sought to comply in good faith with such requirements.
 +
 +
    (d) Miscellaneous Correction.--Section 2208(1) of the Public Health
 +
Service Act (42 U.S.C. 300bb-8(1)) is amended by striking ``section
 +
162(i)(2)'' and inserting ``5000(b)''.
 +
SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE INTERNAL REVENUE
 +
                        CODE OF 1986.
 +
 +
    For provisions amending the Internal Revenue Code of 1986 to provide
 +
for application and enforcement of rules for group health plans similar
 +
to those provided under the amendments made by section 101(a), see
 +
section 401.
 +
 +
SEC. 104. <<NOTE: 42 USC 300gg-92 note.>>  ASSURING COORDINATION.
 +
 +
    The Secretary of the Treasury, the Secretary of Health and Human
 +
Services, and the Secretary of Labor shall ensure, through the execution
 +
of an interagency memorandum of understanding among such Secretaries,
 +
that--
 +
            (1) regulations, rulings, and interpretations issued by such
 +
        Secretaries relating to the same matter over which two or more
 +
        such Secretaries have responsibility under this subtitle (and
 +
        the amendments made by this subtitle and section 401) are
 +
        administered so as to have the same effect at all times; and
 +
            (2) coordination of policies relating to enforcing the same
 +
        requirements through such Secretaries in order to have a
 +
        coordinated enforcement strategy that avoids duplication of
 +
        enforcement efforts and assigns priorities in enforcement.
 +
 +
                  Subtitle B--Individual Market Rules
 +
 +
SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.
 +
 +
    (a) In General.--Title XXVII of the Public Health Service Act, as
 +
added by section 102(a) of this Act, is amended by inserting after part
 +
A the following new part:
 +
 +
                    ``Part B--Individual Market Rules
 +
 +
``SEC. 2741 <<NOTE: 42 USC 300gg-41.>> . GUARANTEED AVAILABILITY
 +
                            OF INDIVIDUAL HEALTH INSURANCE
 +
                            COVERAGE TO CERTAIN INDIVIDUALS WITH
 +
                            PRIOR GROUP COVERAGE.
 +
 +
    ``(a) Guaranteed Availability.--
 +
            ``(1) In general.--Subject to the succeeding subsections of
 +
        this section and section 2744, each health insurance issuer that
 +
        offers health insurance coverage (as defined in section
 +
        2791(b)(1)) in the individual market in a State may not, with
 +
        respect to an eligible individual (as defined in subsection (b))
 +
        desiring to enroll in individual health insurance coverage--
 +
                    ``(A) decline to offer such coverage to, or deny
 +
                enrollment of, such individual; or
 +
                    ``(B) impose any preexisting condition exclusion (as
 +
                defined in section 2701(b)(1)(A)) with respect to such
 +
                coverage.
 +
            ``(2) Substitution by state of acceptable alternative
 +
        mechanism.--The requirement of paragraph (1) shall not apply to
 +
        health insurance coverage offered in the individual market in a
 +
        State in which the State is implementing an acceptable
 +
        alternative mechanism under section 2744.
 +
 +
    ``(b) Eligible Individual Defined.--In this part, the term `eligible
 +
individual' means an individual--
 +
            ``(1)(A) for whom, as of the date on which the individual
 +
        seeks coverage under this section, the aggregate of the periods
 +
        of creditable coverage (as defined in section 2701(c)) is 18 or
 +
        more months and (B) whose most recent prior creditable coverage
 +
        was under a group health plan, governmental plan, or church plan
 +
        (or health insurance coverage offered in connection with any
 +
        such plan);
 +
            ``(2) who is not eligible for coverage under (A) a group
 +
        health plan, (B) part A or part B of title XVIII of the Social
 +
        Security Act, or (C) a State plan under title XIX of such Act
 +
        (or any successor program), and does not have other health
 +
        insurance coverage;
 +
            ``(3) with respect to whom the most recent coverage within
 +
        the coverage period described in paragraph (1)(A) was not
 +
        terminated based on a factor described in paragraph (1) or (2)
 +
        of section 2712(b) (relating to nonpayment of premiums or
 +
        fraud);
 +
            ``(4) if the individual had been offered the option of
 +
        continuation coverage under a COBRA continuation provision or
 +
        under a similar State program, who elected such coverage; and
 +
            ``(5) who, if the individual elected such continuation
 +
        coverage, has exhausted such continuation coverage under such
 +
        provision or program.
 +
 +
    ``(c) Alternative Coverage Permitted Where No State Mechanism.--
 +
            ``(1) In general.--In the case of health insurance coverage
 +
        offered in the individual market in a State in which the State
 +
        is not implementing an acceptable alternative mechanism under
 +
        section 2744, the health insurance issuer may elect to limit the
 +
        coverage offered under subsection (a) so long as it offers at
 +
        least two different policy forms of health insurance coverage
 +
        both of which--
 +
                    ``(A) are designed for, made generally available to,
 +
                and actively marketed to, and enroll both eligible and
 +
                other individuals by the issuer; and
 +
                    ``(B) meet the requirement of paragraph (2) or (3),
 +
                as elected by the issuer.
 +
        For purposes of this subsection, policy forms which have
 +
        different cost-sharing arrangements or different riders shall be
 +
        considered to be different policy forms.
 +
            ``(2) Choice of most popular policy forms.--The requirement
 +
        of this paragraph is met, for health insurance coverage policy
 +
        forms offered by an issuer in the individual market, if the
 +
        issuer offers the policy forms for individual health insurance
 +
        coverage with the largest, and next to
 +
largest, premium volume of all such policy forms offered by the issuer
 +
in the State or applicable marketing or service area (as may be
 +
prescribed in regulation) by the issuer in the individual market in the
 +
period involved.
 +
            ``(3) Choice of 2 policy forms with representative
 +
        coverage.--
 +
                    ``(A) In general.--The requirement of this paragraph
 +
                is met, for health insurance coverage policy forms
 +
                offered by an issuer in the individual market, if the
 +
                issuer offers a lower-level coverage policy form (as
 +
                defined in subparagraph (B)) and a higher-level coverage
 +
                policy form (as defined in subparagraph (C)) each of
 +
                which includes benefits substantially similar to other
 +
                individual health insurance coverage offered by the
 +
                issuer in that State and each of which is covered under
 +
                a method described in section 2744(c)(3)(A) (relating to
 +
                risk adjustment, risk spreading, or financial
 +
                subsidization).
 +
                    ``(B) Lower-level of coverage described.--A policy
 +
                form is described in this subparagraph if the actuarial
 +
                value of the benefits under the coverage is at least 85
 +
                percent but not greater than 100 percent of a weighted
 +
                average (described in subparagraph (D)).
 +
                    ``(C) Higher-level of coverage described.--A policy
 +
                form is described in this subparagraph if--
 +
                          ``(i) the actuarial value of the benefits
 +
                      under the coverage is at least 15 percent greater
 +
                      than the actuarial value of the coverage described
 +
                      in subparagraph (B) offered by the issuer in the
 +
                      area involved; and
 +
                          ``(ii) the actuarial value of the benefits
 +
                      under the coverage is at least 100 percent but not
 +
                      greater than 120 percent of a weighted average
 +
                      (described in subparagraph (D)).
 +
                    ``(D) Weighted average.--For purposes of this
 +
                paragraph, the weighted average described in this
 +
                subparagraph is the average actuarial value of the
 +
                benefits provided by all the health insurance coverage
 +
                issued (as elected by the issuer) either by that issuer
 +
                or by all issuers in the State in the individual market
 +
                during the previous year (not including coverage issued
 +
                under this section), weighted by enrollment for the
 +
                different coverage.
 +
            ``(4) Election.--The issuer elections under this subsection
 +
        shall apply uniformly to all eligible individuals in the State
 +
        for that issuer. Such an election shall be effective for
 +
        policies offered during a period of not shorter than 2 years.
 +
            ``(5) Assumptions.--For purposes of paragraph (3), the
 +
        actuarial value of benefits provided under individual health
 +
        insurance coverage shall be calculated based on a standardized
 +
        population and a set of standardized utilization and cost
 +
        factors.
 +
 +
    ``(d) Special Rules for Network Plans.--
 +
            ``(1) In general.--In the case of a health insurance issuer
 +
        that offers health insurance coverage in the individual market
 +
        through a network plan, the issuer may--
 +
                    ``(A) limit the individuals who may be enrolled
 +
                under such coverage to those who live, reside, or work
 +
                within the service area for such network plan; and
 +
                    ``(B) within the service area of such plan, deny
 +
                such coverage to such individuals if the issuer has
 +
                demonstrated, if required, to the applicable State
 +
                authority that--
 +
                          ``(i) it will not have the capacity to deliver
 +
                      services adequately to additional individual
 +
                      enrollees because of its obligations to existing
 +
                      group contract holders and enrollees and
 +
                      individual enrollees, and
 +
                          ``(ii) it is applying this paragraph uniformly
 +
                      to individuals without regard to any health
 +
                      status-related factor of such individuals and
 +
                      without regard to whether the individuals are
 +
                      eligible individuals.
 +
            ``(2) 180-day suspension upon denial of coverage.--An
 +
        issuer, upon denying health insurance coverage in any service
 +
        area in accordance with paragraph (1)(B), may not offer coverage
 +
        in the individual market within such service area for a period
 +
        of 180 days after such coverage is denied.
 +
 +
    ``(e) Application of Financial Capacity Limits.--
 +
            ``(1) In general.--A health insurance issuer may deny health
 +
        insurance coverage in the individual market to an eligible
 +
        individual if the issuer has demonstrated, if required, to the
 +
        applicable State authority that--
 +
                    ``(A) it does not have the financial reserves
 +
                necessary to underwrite additional coverage; and
 +
                    ``(B) it is applying this paragraph uniformly to all
 +
                individuals in the individual market in the State
 +
                consistent with applicable State law and without regard
 +
                to any health status-related factor of such individuals
 +
                and without regard to whether the individuals are
 +
                eligible individuals.
 +
            ``(2) 180-day suspension upon denial of coverage.--An issuer
 +
        upon denying individual health insurance coverage in any service
 +
        area in accordance with paragraph (1) may not offer such
 +
        coverage in the individual market within such service area for a
 +
        period of 180 days after the date such coverage is denied or
 +
        until the issuer has demonstrated, if required under applicable
 +
        State law, to the applicable State authority that the issuer has
 +
        sufficient financial reserves to underwrite additional coverage,
 +
        whichever is later. A State may provide for the application of
 +
        this paragraph on a service-area-specific basis.
 +
 +
    ``(e) Market Requirements.--
 +
            ``(1) In general.--The provisions of subsection (a) shall
 +
        not be construed to require that a health insurance issuer
 +
        offering health insurance coverage only in connection with group
 +
        health plans or through one or more bona fide associations, or
 +
        both, offer such health insurance coverage in the individual
 +
        market.
 +
            ``(2) Conversion policies.--A health insurance issuer
 +
        offering health insurance coverage in connection with group
 +
        health plans under this title shall not be deemed to be a health
 +
        insurance issuer offering individual health insurance coverage
 +
        solely because such issuer offers a conversion policy.
 +
 +
    ``(f) Construction.--Nothing in this section shall be
 +
construed--
 +
            ``(1) to restrict the amount of the premium rates that an
 +
        issuer may charge an individual for health insurance coverage
 +
        provided in the individual market under applicable State law; or
 +
            ``(2) to prevent a health insurance issuer offering health
 +
        insurance coverage in the individual market from establishing
 +
        premium discounts or rebates or modifying otherwise applicable
 +
        copayments or deductibles in return for adherence to programs of
 +
        health promotion and disease prevention.
 +
``SEC. 2742. GUARANTEED <<NOTE: 42 USC 300gg-42.>>  RENEWABILITY
 +
                            OF INDIVIDUAL HEALTH INSURANCE
 +
                            COVERAGE.
 +
 +
    ``(a) In General.--Except as provided in this section, a health
 +
insurance issuer that provides individual health insurance coverage to
 +
an individual shall renew or continue in force such coverage at the
 +
option of the individual.
 +
    ``(b) General Exceptions.--A health insurance issuer may nonrenew or
 +
discontinue health insurance coverage of an individual in the individual
 +
market based only on one or more of the following:
 +
            ``(1) Nonpayment of premiums.--The individual has failed to
 +
        pay premiums or contributions in accordance with the terms of
 +
        the health insurance coverage or the issuer has not received
 +
        timely premium payments.
 +
            ``(2) Fraud.--The individual has performed an act or
 +
        practice that constitutes fraud or made an intentional
 +
        misrepresentation of material fact under the terms of the
 +
        coverage.
 +
            ``(3) Termination of plan.--The issuer is ceasing to offer
 +
        coverage in the individual market in accordance with subsection
 +
        (c) and applicable State law.
 +
            ``(4) Movement outside service area.--In the case of a
 +
        health insurance issuer that offers health insurance coverage in
 +
        the market through a network plan, the individual no longer
 +
        resides, lives, or works in the service area (or in an area for
 +
        which the issuer is authorized to do business) but only if such
 +
        coverage is terminated under this paragraph uniformly without
 +
        regard to any health status-related factor of covered
 +
        individuals.
 +
            ``(5) Association membership ceases.--In the case of health
 +
        insurance coverage that is made available in the individual
 +
        market only through one or more bona fide associations, the
 +
        membership of the individual in the association (on the basis of
 +
        which the coverage is provided) ceases but only if such coverage
 +
        is terminated under this paragraph uniformly without regard to
 +
        any health status-related factor of covered individuals.
 +
 +
    ``(c) Requirements for Uniform Termination of Coverage.--
 +
            ``(1) Particular type of coverage not offered.--In any case
 +
        in which an issuer decides to discontinue offering a particular
 +
        type of health insurance coverage offered in the individual
 +
        market, coverage of such type may be discontinued by the issuer
 +
        only if--
 +
                    ``(A) the issuer provides notice to each covered
 +
                individual provided coverage of this type in such market
 +
                of such discontinuation at least 90 days prior to the
 +
                date of the discontinuation of such coverage;
 +
                    ``(B) the issuer offers to each individual in the
 +
                individual market provided coverage of this type, the
 +
                option to purchase any other individual health insurance
 +
                coverage currently being offered by the issuer for
 +
                individuals in such market; and
 +
                    ``(C) in exercising the option to discontinue
 +
                coverage of this type and in offering the option of
 +
                coverage under subparagraph (B), the issuer acts
 +
                uniformly without regard to any health status-related
 +
                factor of enrolled individuals or individuals who may
 +
                become eligible for such coverage.
 +
            ``(2) Discontinuance of all coverage.--
 +
                    ``(A) In general.--Subject to subparagraph (C), in
 +
                any case in which a health insurance issuer elects to
 +
                discontinue offering all health insurance coverage in
 +
                the individual market in a State, health insurance
 +
                coverage may be discontinued by the issuer only if--
 +
                          ``(i) the issuer provides notice to the
 +
                      applicable State authority and to each individual
 +
                      of such discontinuation at least 180 days prior to
 +
                      the date of the expiration of such coverage, and
 +
                          ``(ii) all health insurance issued or
 +
                      delivered for issuance in the State in such market
 +
                      are discontinued and coverage under such health
 +
                      insurance coverage in such market is not renewed.
 +
                    ``(B) Prohibition on market reentry.--In the case of
 +
                a discontinuation under subparagraph (A) in the
 +
                individual market, the issuer may not provide for the
 +
                issuance of any health insurance coverage in the market
 +
                and State involved during the 5-year period beginning on
 +
                the date of the discontinuation of the last health
 +
                insurance coverage not so renewed.
 +
 +
    ``(d) Exception for Uniform Modification of Coverage.--At the time
 +
of coverage renewal, a health insurance issuer may modify the health
 +
insurance coverage for a policy form offered to individuals in the
 +
individual market so long as such modification is consistent with State
 +
law and effective on a uniform basis among all individuals with that
 +
policy form.
 +
    ``(e) Application to Coverage Offered Only Through Associations.--In
 +
applying this section in the case of health insurance coverage that is
 +
made available by a health insurance issuer in the individual market to
 +
individuals only through one or more associations, a reference to an
 +
`individual' is deemed to include a reference to such an association (of
 +
which the individual is a member).
 +
 +
``SEC. 2743. <<NOTE: 42 USC 300gg-43.>>  CERTIFICATION OF COVERAGE.
 +
 +
    ``The provisions of section 2701(e) shall apply to health insurance
 +
coverage offered by a health insurance issuer in the individual market
 +
in the same manner as it applies to health insurance coverage offered by
 +
a health insurance issuer in connection with a group health plan in the
 +
small or large group market.
 +
 +
``SEC. 2744. <<NOTE: 42 USC 300gg-44.>>  STATE FLEXIBILITY IN INDIVIDUAL
 +
            MARKET REFORMS.
 +
 +
    ``(a) Waiver of Requirements Where Implementation of Acceptable
 +
Alternative Mechanism.--
 +
            ``(1) In general.--The requirements of section 2741 shall
 +
        not apply with respect to health insurance coverage offered in
 +
        the individual market in the State so long as a State is found
 +
        to be implementing, in accordance with this section and
 +
        consistent with section 2746(b), an alternative mechanism (in
 +
        this section referred to as an `acceptable alternative
 +
        mechanism')--
 +
                    ``(A) under which all eligible individuals are
 +
                provided a choice of health insurance coverage;
 +
                    ``(B) under which such coverage does not impose any
 +
                preexisting condition exclusion with respect to such
 +
                coverage;
 +
                    ``(C) under which such choice of coverage includes
 +
                at least one policy form of coverage that is comparable
 +
                to comprehensive health insurance coverage offered in
 +
                the individual market in such State or that is
 +
                comparable to a standard option of coverage available
 +
                under the group or individual health insurance laws of
 +
                such State; and
 +
                    ``(D) in a State which is implementing--
 +
                          ``(i) a model act described in subsection
 +
                      (c)(1),
 +
                          ``(ii) a qualified high risk pool described in
 +
                      subsection (c)(2), or
 +
                          ``(iii) a mechanism described in subsection
 +
                      (c)(3).
 +
            ``(2) Permissible Forms of mechanisms.--A private or public
 +
        individual health insurance mechanism (such as a health
 +
        insurance coverage pool or programs, mandatory group conversion
 +
        policies, guaranteed issue of one or more plans of individual
 +
        health insurance coverage, or open enrollment by one or more
 +
        health insurance issuers), or combination of such mechanisms,
 +
        that is designed to provide access to health benefits for
 +
        individuals in the individual market in the State in accordance
 +
        with this section may constitute an acceptable alternative
 +
        mechanism.
 +
 +
    ``(b) Application of Acceptable Alternative Mechanisms.--
 +
            ``(1) Presumption.--
 +
                    ``(A) In general.--Subject to the succeeding
 +
                provisions of this subsection, a State is presumed to be
 +
                implementing an acceptable alternative mechanism in
 +
                accordance with this section as of July 1, 1997, if, by
 +
                not later than April 1, 1997, the chief executive
 +
                officer of a State--
 +
                          ``(i) notifies the Secretary that the State
 +
                      has enacted or intends to enact (by not later than
 +
                      January 1, 1998, or July 1, 1998, in the case of a
 +
                      State described in subparagraph (B)(ii)) any
 +
                      necessary legislation to provide for the
 +
                      implementation of a mechanism reasonably designed
 +
                      to be an acceptable alternative mechanism as of
 +
                      January 1, 1998, (or, in the case of a State
 +
                      described in subparagraph (B)(ii), July 1, 1998);
 +
                      and
 +
                          ``(ii) provides the Secretary with such
 +
                      information as the Secretary may require to review
 +
                      the mechanism and its implementation (or proposed
 +
                      implementation) under this subsection.
 +
                    ``(B) Delay permitted for certain states.--
 +
                          ``(i) Effect of delay.--In the case of a State
 +
                      described in clause (ii) that provides notice
 +
                      under subparagraph (A)(i), for the presumption to
 +
                      continue on and after July 1, 1998, the chief
 +
                      executive officer of the State by April 1, 1998--
 +
                                    ``(I) must notify the Secretary that
 +
                                the State has enacted any necessary
 +
                                legislation to provide for the
 +
                                implementation of a mechanism reasonably
 +
                                designed to be an acceptable alternative
 +
                                mechanism as of July 1, 1998; and
 +
                                    ``(II) must provide the Secretary
 +
                                with such information as the Secretary
 +
                                may require to review the mechanism and
 +
                                its implementation (or proposed
 +
                                implementation) under this subsection.
 +
                          ``(ii) States described.--A State described in
 +
                      this clause is a State that has a legislature that
 +
                      does not meet within the 12-month period beginning
 +
                      on the date of enactment of this Act.
 +
                    ``(C) Continued application.--In order for a
 +
                mechanism to continue to be presumed to be an acceptable
 +
                alternative mechanism, the State shall provide the
 +
                Secretary every 3 years with information described in
 +
                subparagraph (A)(ii) or (B)(i)(II) (as the case may be).
 +
            ``(2) Notice.--If the Secretary finds, after review of
 +
        information provided under paragraph (1) and in consultation
 +
        with the chief executive officer of the State and the insurance
 +
        commissioner or chief insurance regulatory official of the
 +
        State, that such a mechanism is not an acceptable alternative
 +
        mechanism or is not (or no longer) being implemented, the
 +
        Secretary--
 +
                    ``(A) shall notify the State of--
 +
                          ``(i) such preliminary determination, and
 +
                          ``(ii) the consequences under paragraph (3) of
 +
                      a failure to implement such a mechanism; and
 +
                    ``(B) shall permit the State a reasonable
 +
                opportunity in which to modify the mechanism (or to
 +
                adopt another mechanism) in a manner so that may be an
 +
                acceptable alternative mechanism or to provide for
 +
                implementation of such a mechanism.
 +
            ``(3) Final determination.--If, after providing notice and
 +
        opportunity under paragraph (2), the Secretary finds that the
 +
        mechanism is not an acceptable alternative mechanism or the
 +
        State is not implementing such a mechanism, the Secretary shall
 +
        notify the State that the State is no longer considered to be
 +
        implementing an acceptable alternative mechanism and that the
 +
        requirements of section 2741 shall apply to health insurance
 +
        coverage offered in the individual market in the State,
 +
        effective as of a date specified in the notice.
 +
            ``(4) Limitation on secretarial authority.--The Secretary
 +
        shall not make a determination under paragraph (2) or (3) on any
 +
        basis other than the basis that a mechanism is not an acceptable
 +
        alternative mechanism or is not being implemented.
 +
            ``(5) Future adoption of mechanisms.--If a State, after
 +
        January 1, 1997, submits the notice and information described in
 +
        paragraph (1), unless the Secretary makes a finding described in
 +
        paragraph (3) within the 90-day period beginning on the date of
 +
        submission of the notice and information, the mechanism shall be
 +
        considered to be an acceptable alternative mechanism for
 +
        purposes of this section, effective 90 days after the end of
 +
        such period, subject to the second sentence of paragraph (1).
 +
 +
    ``(c) Provision Related to Risk.--
 +
            ``(1) Adoption of naic models.--The model act referred to in
 +
        subsection (a)(1)(D)(i) is the Small Employer and Individual
 +
        Health Insurance Availability Model Act (adopted by the National
 +
        Association of Insurance Commissioners on June 3, 1996) insofar
 +
        as it applies to individual health insurance coverage or the
 +
        Individual Health Insurance Portability Model Act (also adopted
 +
        by such Association on such date).
 +
            ``(2) Qualified high risk pool.--For purposes of subsection
 +
        (a)(1)(D)(ii), a `qualified high risk pool' described in this
 +
        paragraph is a high risk pool that--
 +
                    ``(A) provides to all eligible individuals health
 +
                insurance coverage (or comparable coverage) that does
 +
                not impose any preexisting condition exclusion with
 +
                respect to such coverage for all eligible individuals,
 +
                and
 +
                    ``(B) provides for premium rates and covered
 +
                benefits for such coverage consistent with standards
 +
                included in the NAIC Model Health Plan for Uninsurable
 +
                Individuals Act (as in effect as of the date of the
 +
                enactment of this title).
 +
            ``(3) Other mechanisms.--For purposes of subsection
 +
        (a)(1)(D)(iii), a mechanism described in this paragraph--
 +
                    ``(A) provides for risk adjustment, risk spreading,
 +
                or a risk spreading mechanism (among issuers or policies
 +
                of an issuer) or otherwise provides for some financial
 +
                subsidization for eligible individuals, including
 +
                through assistance to participating issuers; or
 +
                    ``(B) is a mechanism under which each eligible
 +
                individual is provided a choice of all individual health
 +
                insurance coverage otherwise available.
 +
 +
``SEC. 2745. <<NOTE: 42 USC 300gg-45.>>  ENFORCEMENT.
 +
 +
    ``(a) State Enforcement.--
 +
            ``(1) State authority.--Subject to section 2746, each State
 +
        may require that health insurance issuers that issue, sell,
 +
        renew, or offer health insurance coverage in the State in the
 +
        individual market meet the requirements established under this
 +
        part with respect to such issuers.
 +
            ``(2) Failure to implement requirements.--In the case of a
 +
        State that fails to substantially enforce the requirements set
 +
        forth in this part with respect to health insurance issuers in
 +
        the State, the Secretary shall enforce the requirements of this
 +
        part under subsection (b) insofar as they relate to the
 +
        issuance, sale, renewal, and offering of health insurance
 +
        coverage in the individual market in such State.
 +
 +
    ``(b) Secretarial Enforcement Authority.--The Secretary shall have
 +
the same authority in relation to enforcement of the provisions of this
 +
part with respect to issuers of health insurance coverage in the
 +
individual market in a State as the Secretary has under section
 +
2722(b)(2) in relation to the enforcement of the provisions of part A
 +
with respect to issuers of health insurance coverage in the small group
 +
market in the State.
 +
 +
``SEC. <<NOTE: 42 USC 300gg-46.>>  2746. PREEMPTION.
 +
 +
    ``(a) In General.--Subject to subsection (b), nothing in this part
 +
(or part C insofar as it applies to this part) shall be construed to
 +
prevent a State from establishing, implementing, or continuing in effect
 +
standards and requirements unless such standards and requirements
 +
prevent the application of a requirement of this part.
 +
    ``(b) Rules of Construction.--Nothing in this part (or part C
 +
insofar as it applies to this part) shall be construed to affect or
 +
modify the provisions of section 514 of the Employee Retirement Income
 +
Security Act of 1974 (29 U.S.C. 1144).
 +
 +
``SEC. 2747. <<NOTE: 42 USC 300gg-47.>>  GENERAL EXCEPTIONS.
 +
 +
    ``(a) Exception for Certain Benefits.--The requirements of this part
 +
shall not apply to any health insurance coverage in relation to its
 +
provision of excepted benefits described in section 2791(c)(1).
 +
    ``(b) Exception for Certain Benefits If Certain Conditions Met.--The
 +
requirements of this part shall not apply to any health insurance
 +
coverage in relation to its provision of excepted benefits described in
 +
paragraph (2), (3), or (4) of section 2791(c) if the benefits are
 +
provided under a separate policy, certificate, or contract of
 +
insurance.''.
 +
    (b) Effective <<NOTE: 42 USC 300gg-41 note.>>  Date.--
 +
            (1) In general.--Except as provided in this subsection, part
 +
        B of title XXVII of the Public Health Service Act (as inserted
 +
        by subsection (a)) shall apply with respect to health insurance
 +
        coverage offered, sold, issued, renewed, in effect, or operated
 +
        in the individual market after June 30, 1997, regardless of when
 +
        a period of creditable coverage occurs.
 +
            (2) Application of certification rules.--The provisions of
 +
        section 102(d)(2) of this Act shall apply to section 2743 of the
 +
        Public Health Service Act in the same manner as it applies to
 +
        section 2701(e) of such Act.
 +
 +
            Subtitle C--General and Miscellaneous Provisions
 +
 +
SEC. 191. <<NOTE: 42 USC 300gg note.>>  HEALTH COVERAGE AVAILABILITY
 +
            STUDIES.
 +
 +
    (a) Studies.--
 +
            (1) Study on effectiveness of reforms.--The Secretary of
 +
        Health and Human Services shall provide for a study on the
 +
        effectiveness of the provisions of this title and the various
 +
        State laws, in ensuring the availability of reasonably priced
 +
        health coverage to employers purchasing group coverage and
 +
        individuals purchasing coverage on a non-group basis.
 +
            (2) Study on access and choice.--The Secretary also shall
 +
        provide for a study on--
 +
                    (A) the extent to which patients have direct access
 +
                to, and choice of, health care providers, including
 +
                specialty providers, within a network plan, as well as
 +
                the opportunity to utilize providers outside of the
 +
                network plan, under the various types of coverage
 +
                offered under the provisions of this title; and
 +
                    (B) the cost and cost-effectiveness to health
 +
                insurance issuers of providing access to out-of-network
 +
                providers, and the potential impact of providing such
 +
                access on the cost and quality of health insurance
 +
                coverage offered under provisions of this title.
 +
            (3) Consultation.--The studies under this subsection shall
 +
        be conducted in consultation with the Secretary of Labor,
 +
        representatives of State officials, consumers, and other
 +
        representatives of individuals and entities that have expertise
 +
        in health insurance and employee benefits.
 +
 +
    (b) Reports.--Not later than January 1, 2000, the Secretary shall
 +
submit to the appropriate committees of Congress a report on each of the
 +
studies under subsection (a).
 +
 +
SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.
 +
 +
    The Health Care Financing Administration shall complete its ongoing
 +
study of Medicare reimbursement of all telemedicine services and submit
 +
a report to Congress on Medicare reimbursement of telemedicine services
 +
by not later than March 1, 1997. The report shall--
 +
            (1) utilize data compiled from the current demonstration
 +
        projects already under review and gather data from other ongoing
 +
        telemedicine networks;
 +
            (2) include an analysis of the cost of services provided via
 +
        telemedicine; and
 +
            (3) include a proposal for Medicare reimbursement of such
 +
        services.
 +
SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH
 +
                        DEDUCTIBLE PLANS.
 +
 +
    Section 1301(b) of the Public Health Service Act (42 U.S.C. 300e(b))
 +
is amended by adding at the end the following new paragraph:
 +
            ``(6) A health maintenance organization that otherwise meets
 +
        the requirements of this title may offer a high-deductible
 +
        health plan (as defined in section 220(c)(2) of the Internal
 +
        Revenue Code of 1986).''.
 +
SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT
 +
                        FREE CLINICS.
 +
 +
    Section 224 of the Public Health Service Act (42 U.S.C. 233) is
 +
amended by adding at the end the following subsection:
 +
    ``(o)(1) For purposes of this section, a free clinic health
 +
professional shall in providing a qualifying health service to an
 +
individual be deemed to be an employee of the Public Health Service for
 +
a calendar year that begins during a fiscal year for which a transfer
 +
was made under paragraph (6)(D). The preceding sentence is subject to
 +
the provisions of this subsection.
 +
    ``(2) In providing a health service to an individual, a health care
 +
practitioner shall for purposes of this subsection be considered to be a
 +
free clinic health professional if the following conditions are met:
 +
            ``(A) The service is provided to the individual at a free
 +
        clinic, or through offsite programs or events carried out by the
 +
        free clinic.
 +
            ``(B) The free clinic is sponsoring the health care
 +
        practitioner pursuant to paragraph (5)(C).
 +
            ``(C) The service is a qualifying health service (as defined
 +
        in paragraph (4)).
 +
            ``(D) Neither the health care practitioner nor the free
 +
        clinic receives any compensation for the service from the
 +
        individual or from any third-party payor (including
 +
        reimbursement under any insurance policy or health plan, or
 +
        under any Federal or State health benefits program). With
 +
        respect to compliance with such condition:
 +
                    ``(i) The health care practitioner may receive
 +
                repayment from the free clinic for reasonable expenses
 +
                incurred by the health care practitioner in the
 +
                provision of the service to the individual.
 +
                    ``(ii) The free clinic may accept voluntary
 +
                donations for the provision of the service by the health
 +
                care practitioner to the individual.
 +
            ``(E) Before the service is provided, the health care
 +
        practitioner or the free clinic provides written notice to the
 +
        individual of the extent to which the legal liability of the
 +
        health care practitioner is limited pursuant to this subsection
 +
        (or in the case of an emergency, the written notice is provided
 +
        to the individual as soon after the emergency as is
 +
        practicable). If the individual is a minor or is otherwise
 +
        legally incompetent, the condition under this subparagraph is
 +
        that the written notice be provided to a legal guardian or other
 +
        person with legal responsibility for the care of the individual.
 +
            ``(F) At the time the service is provided, the health care
 +
        practitioner is licensed or certified in accordance with
 +
        applicable law regarding the provision of the service.
 +
 +
    ``(3)(A) For purposes of this subsection, the term `free clinic'
 +
means a health care facility operated by a nonprofit private entity
 +
meeting the following requirements:
 +
            ``(i) The entity does not, in providing health services
 +
        through the facility, accept reimbursement from any third-party
 +
        payor (including reimbursement under any insurance policy or
 +
        health plan, or under any Federal or State health benefits
 +
        program).
 +
            ``(ii) The entity, in providing health services through the
 +
        facility, either does not impose charges on the individuals to
 +
        whom the services are provided, or imposes a charge according to
 +
        the ability of the individual involved to pay the charge.
 +
            ``(iii) The entity is licensed or certified in accordance
 +
        with applicable law regarding the provision of health services.
 +
 +
    ``(B) With respect to compliance with the conditions under
 +
subparagraph (A), the entity involved may accept voluntary donations for
 +
the provision of services.
 +
    ``(4) For purposes of this subsection, the term `qualifying health
 +
service' means any medical assistance required or authorized to be
 +
provided in the program under title XIX of the Social Security Act,
 +
without regard to whether the medical assistance is included in the plan
 +
submitted under such program by the State in which the health care
 +
practitioner involved provides the medical assistance. References in the
 +
preceding sentence to such program shall as applicable be considered to
 +
be references to any successor to such program.
 +
    ``(5) Subsection (g) (other than paragraphs (3) through (5)) and
 +
subsections (h), (i), and (l) apply to a health care practitioner for
 +
purposes of this subsection to the same extent and in the same manner as
 +
such subsections apply to an officer, governing board member, employee,
 +
or contractor of an entity described in subsection (g)(4), subject to
 +
paragraph (6) and subject to the
 +
following:
 +
            ``(A) The first sentence of paragraph (1) applies in lieu of
 +
        the first sentence of subsection (g)(1)(A).
 +
            ``(B) This subsection may not be construed as deeming any
 +
        free clinic to be an employee of the Public Health Service for
 +
        purposes of this section.
 +
            ``(C) With respect to a free clinic, a health care
 +
        practitioner is not a free clinic health professional unless the
 +
        free clinic sponsors the health care practitioner. For purposes
 +
        of this subsection, the free clinic shall be considered to be
 +
        sponsoring the health care practitioner if--
 +
                    ``(i) with respect to the health care practitioner,
 +
                the free clinic submits to the Secretary an application
 +
                meeting the requirements of subsection (g)(1)(D); and
 +
                    ``(ii) the Secretary, pursuant to subsection
 +
                (g)(1)(E), determines that the health care practitioner
 +
                is deemed to be an employee of the Public Health
 +
                Service.
 +
            ``(D) In the case of a health care practitioner who is
 +
        determined by the Secretary pursuant to subsection (g)(1)(E) to
 +
        be a free clinic health professional, this subsection applies to
 +
        the health care practitioner (with respect to the free clinic
 +
        sponsoring the health care practitioner pursuant to subparagraph
 +
        (C)) for any cause of action arising from an act or omission of
 +
        the health care practitioner
 +
occurring on or after the date on which the Secretary makes such
 +
determination.
 +
            ``(E) Subsection (g)(1)(F) applies to a health care
 +
        practitioner for purposes of this subsection only to the extent
 +
        that, in providing health services to an individual, each of the
 +
        conditions specified in paragraph (2) is met.
 +
 +
    ``(6)(A) For purposes of making payments for judgments against the
 +
United States (together with related fees and expenses of witnesses)
 +
pursuant to this section arising from the acts or omissions of free
 +
clinic health professionals, there is authorized to be appropriated
 +
$10,000,000 for each fiscal year.
 +
    ``(B) The Secretary shall establish a fund for purposes of this
 +
subsection. Each fiscal year amounts appropriated under subparagraph (A)
 +
shall be deposited in such fund.
 +
    ``(C) Not later <<NOTE: Reports.>>  than May 1 of each fiscal year,
 +
the Attorney General, in consultation with the Secretary, shall submit
 +
to the Congress a report providing an estimate of the amount of claims
 +
(together with related fees and expenses of witnesses) that, by reason
 +
of the acts or omissions of free clinic health professionals, will be
 +
paid pursuant to this section during the calendar year that begins in
 +
the following fiscal year. Subsection (k)(1)(B) applies to the estimate
 +
under the preceding sentence regarding free clinic health professionals
 +
to the same extent and in the same manner as such subsection applies to
 +
the estimate under such subsection regarding officers, governing board
 +
members, employees, and contractors of entities described in subsection
 +
(g)(4).
 +
 +
    ``(D) Not later than December 31 of each fiscal year, the Secretary
 +
shall transfer from the fund under subparagraph (B) to the appropriate
 +
accounts in the Treasury an amount equal to the estimate made under
 +
subparagraph (C) for the calendar year beginning in such fiscal year,
 +
subject to the extent of amounts in the fund.
 +
    ``(7)(A) This <<NOTE: Effective date.>>  subsection takes effect on
 +
the date of the enactment of the first appropriations Act that makes an
 +
appropriation under paragraph (6)(A), except as provided in subparagraph
 +
(B)(i).
 +
 +
    ``(B)(i) Effective on the date of the enactment of the Health
 +
Insurance Portability and Accountability Act of 1996--
 +
            ``(I) the Secretary may issue regulations for carrying out
 +
        this subsection, and the Secretary may accept and consider
 +
        applications submitted pursuant to paragraph (5)(C); and
 +
            ``(II) reports under paragraph (6)(C) may be submitted to
 +
        the Congress.
 +
 +
    ``(ii) For the first fiscal year for which an appropriation is made
 +
under subparagraph (A) of paragraph (6), if an estimate under
 +
subparagraph (C) of such paragraph has not been made for the calendar
 +
year beginning in such fiscal year, the transfer under subparagraph (D)
 +
of such paragraph shall be made notwithstanding the lack of the
 +
estimate, and the transfer shall be made in an amount equal to the
 +
amount of such appropriation.''.
 +
 +
SEC. 195. FINDINGS; <<NOTE: 42 USC 300gg note.>>  SEVERABILITY.
 +
 +
    (a) Findings Relating to Exercise of Commerce Clause Authority.--
 +
Congress finds the following in relation to the provisions of this
 +
title:
 +
            (1) Provisions in group health plans and health insurance
 +
        coverage that impose certain preexisting condition exclusions
 +
        impact the ability of employees to seek employment in interstate
 +
        commerce, thereby impeding such commerce.
 +
            (2) Health insurance coverage is commercial in nature and is
 +
        in and affects interstate commerce.
 +
            (3) It is a necessary and proper exercise of Congressional
 +
        authority to impose requirements under this title on group
 +
        health plans and health insurance coverage (including coverage
 +
        offered to individuals previously covered under group health
 +
        plans) in order to promote commerce among the States.
 +
            (4) Congress, however, intends to defer to States, to the
 +
        maximum extent practicable, in carrying out such requirements
 +
        with respect to insurers and health maintenance organizations
 +
        that are subject to State regulation, consistent with the
 +
        provisions of the Employee Retirement Income Security Act of
 +
        1974.
 +
 +
    (b) Severability.--If any provision of this title or the application
 +
of such provision to any person or circumstance is held to be
 +
unconstitutional, the remainder of this title and the application of the
 +
provisions of such to any person or circumstance shall not be affected
 +
thereby.
 +
 +
    TITLE II--PREVENTING HEALTH CARE FRAUD AND ABUSE; ADMINISTRATIVE
 +
                            SIMPLIFICATION
 +
 +
SEC. 200. REFERENCES IN TITLE.
 +
 +
    Except as otherwise specifically provided, whenever in this title an
 +
amendment is expressed in terms of an amendment to or repeal of a
 +
section or other provision, the reference shall be considered to be made
 +
to that section or other provision of the Social Security Act.
 +
 +
              Subtitle A--Fraud and Abuse Control Program
 +
 +
SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.
 +
 +
    (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et seq.) is
 +
amended by inserting after section 1128B the following new section:
 +
 +
                    ``fraud and abuse control program
 +
 +
    ``Sec. 1128C. (a) <<NOTE: 42 USC 1320a-7c.>>  Establishment of
 +
Program.--
 +
            ``(1) In general.--Not later than January 1, 1997, the
 +
        Secretary, acting through the Office of the Inspector General of
 +
        the Department of Health and Human Services, and the Attorney
 +
        General shall establish a program--
 +
                    ``(A) to coordinate Federal, State, and local law
 +
                enforcement programs to control fraud and abuse with
 +
                respect to health plans,
 +
                    ``(B) to conduct investigations, audits,
 +
                evaluations, and inspections relating to the delivery of
 +
                and payment for health care in the United States,
 +
                    ``(C) to facilitate the enforcement of the
 +
                provisions of sections 1128, 1128A, and 1128B and other
 +
                statutes applicable to health care fraud and abuse,
 +
                    ``(D) to provide for the modification and
 +
                establishment of safe harbors and to issue advisory
 +
                opinions and special fraud alerts pursuant to section
 +
                1128D, and
 +
                    ``(E) to provide for the reporting and disclosure of
 +
                certain final adverse actions against health care
 +
                providers, suppliers, or practitioners pursuant to the
 +
                data collection system established under section 1128E.
 +
            ``(2) Coordination with health plans.--In carrying out the
 +
        program established under paragraph (1), the Secretary and the
 +
        Attorney General shall consult with, and arrange for the sharing
 +
        of data with representatives of health plans.
 +
            ``(3) Guidelines.--
 +
                    ``(A) In general.--The Secretary and the Attorney
 +
                General shall issue guidelines to carry out the program
 +
                under paragraph (1). The provisions of sections 553,
 +
                556, and 557 of title 5, United States Code, shall not
 +
                apply in the issuance of such guidelines.
 +
                    ``(B) Information guidelines.--
 +
                          ``(i) In general.--Such guidelines shall
 +
                      include guidelines relating to the furnishing of
 +
                      information by health plans, providers, and others
 +
                      to enable the Secretary and the Attorney General
 +
                      to carry out the program (including coordination
 +
                      with health plans under paragraph (2)).
 +
                          ``(ii) Confidentiality.--Such guidelines shall
 +
                      include procedures to assure that such information
 +
                      is provided and utilized in a manner that
 +
                      appropriately protects the confidentiality of the
 +
                      information and the privacy of individuals
 +
                      receiving health care services and items.
 +
                          ``(iii) Qualified immunity for providing
 +
                      information.--The provisions of section 1157(a)
 +
                      (relating to limitation on liability) shall apply
 +
                      to a person providing information to the Secretary
 +
                      or the Attorney General in conjunction with their
 +
                      performance of duties under this section.
 +
            ``(4) Ensuring access to documentation.--The Inspector
 +
        General of the Department of Health and Human Services is
 +
        authorized to exercise such authority described in paragraphs
 +
        (3) through (9) of section 6 of the Inspector General Act of
 +
        1978 (5 U.S.C. App.) as necessary with respect to the activities
 +
        under the fraud and abuse control program established under this
 +
        subsection.
 +
            ``(5) Authority of inspector general.--Nothing in this Act
 +
        shall be construed to diminish the authority of any Inspector
 +
        General, including such authority as provided in the Inspector
 +
        General Act of 1978 (5 U.S.C. App.).
 +
 +
    ``(b) Additional Use of Funds by Inspector General.--
 +
            ``(1) Reimbursements for investigations.--The Inspector
 +
        General of the Department of Health and Human Services is
 +
        authorized to receive and retain for current use reimbursement
 +
        for the costs of conducting investigations and audits and for
 +
        monitoring compliance plans when such costs are ordered by a
 +
        court, voluntarily agreed to by the payor, or otherwise.
 +
            ``(2) Crediting.--Funds received by the Inspector General
 +
        under paragraph (1) as reimbursement for costs of conducting
 +
        investigations shall be deposited to the credit of the
 +
        appropriation from which initially paid, or to appropriations
 +
        for similar purposes currently available at the time of deposit,
 +
        and shall remain available for obligation for 1 year from the
 +
        date of the deposit of such funds.
 +
 +
    ``(c) Health Plan Defined.--For purposes of this section, the term
 +
`health plan' means a plan or program that provides health benefits,
 +
whether directly, through insurance, or otherwise, and includes--
 +
            ``(1) a policy of health insurance;
 +
            ``(2) a contract of a service benefit organization; and
 +
            ``(3) a membership agreement with a health maintenance
 +
        organization or other prepaid health plan.''.
 +
 +
    (b) Establishment of Health Care Fraud and Abuse Control Account in
 +
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i)
 +
is amended by adding at the end the following new subsection:
 +
    ``(k) Health Care Fraud and Abuse Control Account.--
 +
            ``(1) Establishment.--There is hereby established in the
 +
        Trust Fund an expenditure account to be known as the `Health
 +
        Care Fraud and Abuse Control Account' (in this subsection
 +
        referred to as the `Account').
 +
            ``(2) Appropriated amounts to trust fund.--
 +
                    ``(A) In general.--There are hereby appropriated to
 +
                the Trust Fund--
 +
                          ``(i) such gifts and bequests as may be made
 +
                      as provided in subparagraph (B);
 +
                          ``(ii) such amounts as may be deposited in the
 +
                      Trust Fund as provided in sections 242(b) and
 +
                      249(c) of the Health Insurance Portability and
 +
                      Accountability Act of 1996, and title XI; and
 +
                          ``(iii) such amounts as are transferred to the
 +
                      Trust Fund under subparagraph (C).
 +
                    ``(B) Authorization to accept gifts.--The Trust Fund
 +
                is authorized to accept on behalf of the United States
 +
                money gifts and bequests made unconditionally to the
 +
                Trust Fund, for the benefit of the Account or any
 +
                activity financed through the Account.
 +
                    ``(C) Transfer of amounts.--The Managing Trustee
 +
                shall transfer to the Trust Fund, under rules similar to
 +
                the rules in section 9601 of the Internal Revenue Code
 +
                of 1986, an amount equal to the sum of the following:
 +
                          ``(i) Criminal fines recovered in cases
 +
                      involving a Federal health care offense (as
 +
                      defined in section 982(a)(6)(B) of title 18,
 +
                      United States Code).
 +
                          ``(ii) Civil monetary penalties and
 +
                      assessments imposed in health care cases,
 +
                      including amounts recovered under titles XI,
 +
                      XVIII, and XIX, and chapter 38 of title 31, United
 +
                      States Code (except as otherwise provided by law).
 +
                          ``(iii) Amounts resulting from the forfeiture
 +
                      of property by reason of a Federal health care
 +
                      offense.
 +
                          ``(iv) Penalties and damages obtained and
 +
                      otherwise creditable to miscellaneous receipts of
 +
                      the general fund of the Treasury obtained under
 +
                      sections 3729 through 3733 of title 31, United
 +
                      States Code (known as the False Claims Act), in
 +
                      cases involving claims related to the provision of
 +
                      health care items and services (other than funds
 +
                      awarded to a relator, for restitution or otherwise
 +
                      authorized by law).
 +
                    ``(D) Application.--Nothing in subparagraph (C)(iii)
 +
                shall be construed to limit the availability of
 +
                recoveries and forfeitures obtained under title I of the
 +
                Employee Retirement Income Security Act of 1974 for the
 +
                purpose of providing equitable or remedial relief for
 +
                employee welfare benefit plans, and for participants and
 +
                beneficiaries under such plans, as authorized under such
 +
                title.
 +
            ``(3) Appropriated amounts to account for fraud and abuse
 +
        control program, etc.--
 +
                    ``(A) Departments of health and human services and
 +
                justice.--
 +
                          ``(i) In general.--There are hereby
 +
                      appropriated to the Account from the Trust Fund
 +
                      such sums as the Secretary and the Attorney
 +
                      General certify are necessary to carry out the
 +
                      purposes described in subparagraph (C), to be
 +
                      available without further appropriation, in an
 +
                      amount not to exceed--
 +
                                    ``(I) for fiscal year 1997,
 +
                                $104,000,000,
 +
                                    ``(II) for each of the fiscal years
 +
                                1998 through 2003, the limit for the
 +
                                preceding fiscal year, increased by 15
 +
                                percent; and
 +
                                    ``(III) for each fiscal year after
 +
                                fiscal year 2003, the limit for fiscal
 +
                                year 2003.
 +
                          ``(ii) Medicare and medicaid activities.--For
 +
                      each fiscal year, of the amount appropriated in
 +
                      clause (i), the following amounts shall be
 +
                      available only for the purposes of the activities
 +
                      of the Office of the Inspector General of the
 +
                      Department of Health and Human Services with
 +
                      respect to the Medicare and medicaid programs--
 +
                                    ``(I) for fiscal year 1997, not less
 +
                                than $60,000,000 and not more than
 +
                                $70,000,000;
 +
                                    ``(II) for fiscal year 1998, not
 +
                                less than $80,000,000 and not more than
 +
                                $90,000,000;
 +
                                    ``(III) for fiscal year 1999, not
 +
                                less than $90,000,000 and not more than
 +
                                $100,000,000;
 +
                                    ``(IV) for fiscal year 2000, not
 +
                                less than $110,000,000 and not more than
 +
                                $120,000,000;
 +
                                    ``(V) for fiscal year 2001, not less
 +
                                than $120,000,000 and not more than
 +
                                $130,000,000;
 +
                                    ``(VI) for fiscal year 2002, not
 +
                                less than $140,000,000 and not more than
 +
                                $150,000,000; and
 +
                                    ``(VII) for each fiscal year after
 +
                                fiscal year 2002, not less than
 +
                                $150,000,000 and not more than
 +
                                $160,000,000.
 +
                    ``(B) Federal bureau of investigation.--There are
 +
                hereby appropriated from the general fund of the United
 +
                States Treasury and hereby appropriated to the Account
 +
                for transfer to the Federal Bureau of Investigation to
 +
                carry out the purposes described in subparagraph (C), to
 +
                be available without further appropriation--
 +
                          ``(i) for fiscal year 1997, $47,000,000;
 +
                          ``(ii) for fiscal year 1998, $56,000,000;
 +
                          ``(iii) for fiscal year 1999, $66,000,000;
 +
                          ``(iv) for fiscal year 2000, $76,000,000;
 +
                          ``(v) for fiscal year 2001, $88,000,000;
 +
                          ``(vi) for fiscal year 2002, $101,000,000; and
 +
                          ``(vii) for each fiscal year after fiscal year
 +
                      2002, $114,000,000.
 +
                    ``(C) Use of funds.--The purposes described in this
 +
                subparagraph are to cover the costs (including
 +
                equipment, salaries and benefits, and travel and
 +
                training) of the administration and operation of the
 +
                health care fraud and abuse control program established
 +
                under section 1128C(a), including the costs of--
 +
                          ``(i) prosecuting health care matters (through
 +
                      criminal, civil, and administrative proceedings);
 +
                          ``(ii) investigations;
 +
                          ``(iii) financial and performance audits of
 +
                      health care programs and operations;
 +
                          ``(iv) inspections and other evaluations; and
 +
                          ``(v) provider and consumer education
 +
                      regarding compliance with the provisions of title
 +
                      XI.
 +
            ``(4) Appropriated amounts to account for Medicare integrity
 +
        program.--
 +
                    ``(A) In general.--There are hereby appropriated to
 +
                the Account from the Trust Fund for each fiscal year
 +
                such amounts as are necessary to carry out the Medicare
 +
                Integrity Program under section 1893, subject to
 +
                subparagraph (B) and to be available without further
 +
                appropriation.
 +
                    ``(B) Amounts specified.--The amount appropriated
 +
                under subparagraph (A) for a fiscal year is as follows:
 +
                          ``(i) For fiscal year 1997, such amount shall
 +
                      be not less than $430,000,000 and not more than
 +
                      $440,000,000.
 +
                          ``(ii) For fiscal year 1998, such amount shall
 +
                      be not less than $490,000,000 and not more than
 +
                      $500,000,000.
 +
                          ``(iii) For fiscal year 1999, such amount
 +
                      shall be not less than $550,000,000 and not more
 +
                      than $560,000,000.
 +
                          ``(iv) For fiscal year 2000, such amount shall
 +
                      be not less than $620,000,000 and not more than
 +
                      $630,000,000.
 +
                          ``(v) For fiscal year 2001, such amount shall
 +
                      be not less than $670,000,000 and not more than
 +
                      $680,000,000.
 +
                          ``(vi) For fiscal year 2002, such amount shall
 +
                      be not less than $690,000,000 and not more than
 +
                      $700,000,000.
 +
                          ``(vii) For each fiscal year after fiscal year
 +
                      2002, such amount shall be not less than
 +
                      $710,000,000 and not more than $720,000,000.
 +
            ``(5) Annual report.--Not later than January 1, the
 +
        Secretary and the Attorney General shall submit jointly a report
 +
        to Congress which identifies--
 +
                    ``(A) the amounts appropriated to the Trust Fund for
 +
                the previous fiscal year under paragraph (2)(A) and the
 +
                source of such amounts; and
 +
                    ``(B) the amounts appropriated from the Trust Fund
 +
                for such year under paragraph (3) and the justification
 +
                for the expenditure of such amounts.
 +
            ``(6) GAO report.--Not later than January 1 of 2000, 2002,
 +
        and 2004, the Comptroller General of the United States shall
 +
        submit a report to Congress which--
 +
                    ``(A) identifies--
 +
                          ``(i) the amounts appropriated to the Trust
 +
                      Fund for the previous two fiscal years under
 +
                      paragraph (2)(A) and the source of such amounts;
 +
                      and
 +
                          ``(ii) the amounts appropriated from the Trust
 +
                      Fund for such fiscal years under paragraph (3) and
 +
                      the justification for the expenditure of such
 +
                      amounts;
 +
                    ``(B) identifies any expenditures from the Trust
 +
                Fund with respect to activities not involving the
 +
                Medicare program under title XVIII;
 +
                    ``(C) identifies any savings to the Trust Fund, and
 +
                any other savings, resulting from expenditures from the
 +
                Trust Fund; and
 +
                    ``(D) analyzes such other aspects of the operation
 +
                of the Trust Fund as the Comptroller General of the
 +
                United States considers appropriate.''.
 +
 +
SEC. 202. MEDICARE INTEGRITY PROGRAM.
 +
 +
    (a) Establishment of Medicare Integrity Program.--Title XVIII is
 +
amended by adding at the end the following new section:
 +
 +
                      ``medicare integrity program
 +
 +
    ``Sec. 1893. (a) Establishment <<NOTE: 42 USC 1395ddd.>>  of
 +
Program.--There is hereby established the Medicare Integrity Program (in
 +
this section referred to as the `Program') under which the Secretary
 +
shall promote the integrity of the Medicare program by entering into
 +
contracts in accordance with this section with eligible entities to
 +
carry out the activities described in subsection (b).
 +
 +
    ``(b) Activities Described.--The activities described in this
 +
subsection are as follows:
 +
            ``(1) Review of activities of providers of services or other
 +
        individuals and entities furnishing items and services for which
 +
        payment may be made under this title (including skilled nursing
 +
        facilities and home health agencies), including medical and
 +
        utilization review and fraud review (employing similar
 +
        standards, processes, and technologies used by private health
 +
        plans, including equipment and software technologies which
 +
        surpass the capability of the equipment and technologies used in
 +
        the review of claims under this title as of the date of the
 +
        enactment of this section).
 +
            ``(2) Audit of cost reports.
 +
            ``(3) Determinations as to whether payment should not be, or
 +
        should not have been, made under this title by reason of section
 +
        1862(b), and recovery of payments that should not have been
 +
        made.
 +
            ``(4) Education of providers of services, beneficiaries, and
 +
        other persons with respect to payment integrity and benefit
 +
        quality assurance issues.
 +
            ``(5) Developing (and periodically updating) a list of items
 +
        of durable medical equipment in accordance with section
 +
        1834(a)(15) which are subject to prior authorization under such
 +
        section.
 +
 +
    ``(c) Eligibility of Entities.--An entity is eligible to enter into
 +
a contract under the Program to carry out any of the activities
 +
described in subsection (b) if--
 +
            ``(1) the entity has demonstrated capability to carry out
 +
        such activities;
 +
            ``(2) in carrying out such activities, the entity agrees to
 +
        cooperate with the Inspector General of the Department of Health
 +
        and Human Services, the Attorney General, and other law
 +
        enforcement agencies, as appropriate, in the investigation and
 +
        deterrence of fraud and abuse in relation to this title and in
 +
        other cases arising out of such activities;
 +
            ``(3) the entity complies with such conflict of interest
 +
        standards as are generally applicable to Federal acquisition and
 +
        procurement; and
 +
            ``(4) the entity meets such other requirements as the
 +
        Secretary may impose.
 +
 +
In the case of the activity described in subsection (b)(5), an entity
 +
shall be deemed to be eligible to enter into a contract under the
 +
Program to carry out the activity if the entity is a carrier with a
 +
contract in effect under section 1842.
 +
    ``(d) Process <<NOTE: Regulations.>>  for Entering Into Contracts.--
 +
The Secretary shall enter into contracts under the Program in accordance
 +
with such procedures as the Secretary shall by regulation establish,
 +
except that such procedures shall include the following:
 +
            ``(1) Procedures for identifying, evaluating, and resolving
 +
        organizational conflicts of interest that are generally
 +
        applicable to Federal acquisition and procurement.
 +
            ``(2) Competitive procedures to be used--
 +
                    ``(A) when entering into new contracts under this
 +
                section;
 +
                    ``(B) when entering into contracts that may result
 +
                in the elimination of responsibilities of an individual
 +
                fiscal intermediary or carrier under section 202(b) of
 +
                the Health Insurance Portability and Accountability Act
 +
                of 1996; and
 +
                    ``(C) at any other time considered appropriate by
 +
                the Secretary,
 +
        except that the Secretary may continue to contract with entities
 +
        that are carrying out the activities described in this section
 +
        pursuant to agreements under section 1816 or contracts under
 +
        section 1842 in effect on the date of the enactment of this
 +
        section.
 +
            ``(3) Procedures under which a contract under this section
 +
        may be renewed without regard to any provision of law requiring
 +
        competition if the contractor has met or exceeded the
 +
        performance requirements established in the current contract.
 +
 +
The Secretary may enter into such contracts without regard to final
 +
rules having been promulgated.
 +
    ``(e) Limitation <<NOTE: Regulations.>>  on Contractor Liability.--
 +
The Secretary shall by regulation provide for the limitation of a
 +
contractor's liability for actions taken to carry out a contract under
 +
the Program, and such regulation shall, to the extent the Secretary
 +
finds appropriate, employ the same or comparable standards and other
 +
substantive and procedural provisions as are contained in section
 +
1157.''.
 +
 +
    (b) Elimination of FI and Carrier Responsibility for Carrying Out
 +
Activities Subject to Program.--
 +
            (1) Responsibilities of fiscal intermediaries under part
 +
        a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the
 +
        end the following new subsection:
 +
 +
    ``(l) No agency or organization may carry out (or receive payment
 +
for carrying out) any activity pursuant to an agreement under this
 +
section to the extent that the activity is carried out pursuant to a
 +
contract under the Medicare Integrity Program under
 +
section 1893.''.
 +
            (2) Responsibilities of carriers under part b.--Section
 +
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end the
 +
        following new paragraph:
 +
 +
    ``(6) No carrier may carry out (or receive payment for carrying out)
 +
any activity pursuant to a contract under this subsection to the extent
 +
that the activity is carried out pursuant to a contract under the
 +
Medicare Integrity Program under section 1893. The previous sentence
 +
shall not apply with respect to the activity described in section
 +
1893(b)(5) (relating to prior authorization of certain items of durable
 +
medical equipment under section 1834(a)(15)).''.
 +
 +
SEC. 203. BENEFICIARY <<NOTE: 42 USC 1395b-5.>>  INCENTIVE PROGRAMS.
 +
 +
    (a) Clarification of Requirement to Provide Explanation of Medicare
 +
Benefits.--The Secretary of Health and Human Services (in this section
 +
referred to as the ``Secretary'') shall provide an explanation of
 +
benefits under the Medicare program under title XVIII of the Social
 +
Security Act with respect to each item or service for which payment may
 +
be made under the program which is furnished to an individual, without
 +
regard to whether or not a deductible or coinsurance may be imposed
 +
against the individual with respect to the item or service.
 +
    (b) Program To Collect Information on Fraud and Abuse.--
 +
            (1) Establishment of program.--Not later than 3 months after
 +
        the date of the enactment of this Act, the Secretary shall
 +
        establish a program under which the Secretary shall encourage
 +
        individuals to report to the Secretary information on
 +
        individuals and entities who are engaging in or who have engaged
 +
        in acts or omissions which constitute grounds for the imposition
 +
        of a sanction under section 1128, 1128A, or 1128B of the Social
 +
        Security Act, or who have otherwise engaged in fraud and abuse
 +
        against the Medicare program under title XVIII of such act for
 +
        which there is a sanction provided under law. The program shall
 +
        discourage provision of, and not consider, information which is
 +
        frivolous or otherwise not relevant or material to the
 +
        imposition of such a sanction.
 +
            (2) Payment of portion of amounts collected.--If an
 +
        individual reports information to the Secretary under the
 +
        program established under paragraph (1) which serves as the
 +
        basis for the collection by the Secretary or the Attorney
 +
        General of any amount of at least $100 (other than any amount
 +
        paid as a penalty under section 1128B of the Social Security
 +
        Act), the Secretary may pay a portion of the amount collected to
 +
        the individual (under procedures similar to those applicable
 +
        under section 7623 of the Internal Revenue Code of 1986 to
 +
        payments to individuals providing information on violations of
 +
        such Code).
 +
 +
    (c) Program To Collect Information on Program
 +
Efficiency.--
 +
            (1) Establishment of program.--Not later than 3 months after
 +
        the date of the enactment of this Act, the Secretary shall
 +
        establish a program under which the Secretary shall encourage
 +
        individuals to submit to the Secretary suggestions on methods to
 +
        improve the efficiency of the Medicare program.
 +
            (2) Payment of portion of program savings.--If an individual
 +
        submits a suggestion to the Secretary under the program
 +
        established under paragraph (1) which is adopted by the
 +
        Secretary and which results in savings to the program, the
 +
        Secretary may make a payment to the individual of such amount as
 +
        the Secretary considers appropriate.
 +
SEC. 204. APPLICATION OF CERTAIN HEALTH ANTIFRAUD AND ABUSE
 +
                          SANCTIONS TO FRAUD AND ABUSE AGAINST
 +
                          FEDERAL HEALTH CARE PROGRAMS.
 +
 +
    (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as
 +
follows:
 +
            (1) In the heading, by striking ``Medicare or state health
 +
        care programs'' and inserting ``federal health care programs''.
 +
            (2) In subsection (a)(1), by striking ``a program under
 +
        title XVIII or a State health care program (as defined in
 +
        section 1128(h))'' and inserting ``a Federal health care program
 +
        (as defined in subsection (f))''.
 +
            (3) In subsection (a)(5), by striking ``a program under
 +
        title XVIII or a State health care program'' and inserting ``a
 +
        Federal health care program''.
 +
            (4) In the second sentence of subsection (a)--
 +
                    (A) by striking ``a State plan approved under title
 +
                XIX'' and inserting ``a Federal health care program'',
 +
                and
 +
                    (B) by striking ``the State may at its option
 +
                (notwithstanding any other provision of that title or of
 +
                such plan)'' and inserting ``the administrator of such
 +
                program may at its option (notwithstanding any other
 +
                provision of such program)''.
 +
            (5) In subsection (b), by striking ``title XVIII or a State
 +
        health care program'' each place it appears and inserting ``a
 +
        Federal health care program''.
 +
            (6) In subsection (c), by inserting ``(as defined in section
 +
        1128(h))'' after ``a State health care program''.
 +
            (7) By adding at the end the following new subsection:
 +
 +
    ``(f) For purposes of this section, the term `Federal health care
 +
program' means--
 +
            ``(1) any plan or program that provides health benefits,
 +
        whether directly, through insurance, or otherwise, which is
 +
        funded directly, in whole or in part, by the United States
 +
        Government (other than the health insurance program under
 +
        chapter 89 of title 5, United States Code); or
 +
            ``(2) any State health care program, as defined in section
 +
        1128(h).''.
 +
 +
    (b) Effective <<NOTE: 42 USC 1320a-7b note.>>  Date.--The amendments
 +
made by this section shall take effect on January 1, 1997.
 +
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND
 +
                        ABUSE SANCTIONS.
 +
 +
    Title XI (42 U.S.C. 1301 et seq.), as amended by section 201, is
 +
amended by inserting after section 1128C the following new section:
 +
 +
    ``guidance regarding application of health care fraud and abuse
 +
                                sanctions
 +
 +
    ``Sec. 1128D. (a) Solicitation <<NOTE: 42 USC 1320a-7d.>>  and
 +
Publication of Modifications to Existing Safe Harbors and New Safe
 +
Harbors.--
 +
            ``(1) In general.--
 +
                    ``(A) Solicitation <<NOTE: Federal Register,
 +
                publication.>>  of proposals for safe harbors.--Not
 +
                later than January 1, 1997, and not less than annually
 +
                thereafter, the Secretary shall publish a notice in the
 +
                Federal Register soliciting proposals, which will be
 +
                accepted during a 60-day period, for--
 +
                          ``(i) modifications to existing safe harbors
 +
                      issued pursuant to section 14(a) of the Medicare
 +
                      and Medicaid Patient and Program Protection Act of
 +
                      1987 (42 U.S.C. 1320a-7b note);
 +
                          ``(ii) additional safe harbors specifying
 +
                      payment practices that shall not be treated as a
 +
                      criminal offense under section 1128B(b) and shall
 +
                      not serve as the basis for an exclusion under
 +
                      section 1128(b)(7);
 +
                          ``(iii) advisory opinions to be issued
 +
                      pursuant to subsection (b); and
 +
                          ``(iv) special fraud alerts to be issued
 +
                      pursuant to subsection (c).
 +
                    ``(B) Publication of proposed modifications and
 +
                proposed additional safe <<NOTE: Federal Register,
 +
                publication.>>  harbors.--After considering the
 +
                proposals described in clauses (i) and (ii) of
 +
                subparagraph (A), the Secretary, in consultation with
 +
                the Attorney General, shall publish in the Federal
 +
                Register proposed modifications to existing safe harbors
 +
                and proposed additional safe harbors, if appropriate,
 +
                with a 60-day comment period. After considering any
 +
                public comments received during this period, the
 +
                Secretary shall issue final rules modifying the existing
 +
                safe harbors and establishing new safe harbors, as
 +
                appropriate.
 +
                    ``(C) Report.--The Inspector General of the
 +
                Department of Health and Human Services (in this section
 +
                referred to as the `Inspector General') shall, in an
 +
                annual report to Congress or as part of the year-end
 +
                semiannual report required by section 5 of the Inspector
 +
                General Act of 1978 (5 U.S.C. App.), describe the
 +
                proposals received under clauses (i) and (ii) of
 +
                subparagraph (A) and explain which proposals were
 +
                included in the publication described in subparagraph
 +
                (B), which proposals were not included in that
 +
                publication, and the reasons for the rejection of the
 +
                proposals that were not included.
 +
            ``(2) Criteria for modifying and establishing safe
 +
        harbors.--In modifying and establishing safe harbors under
 +
        paragraph (1)(B), the Secretary may consider the extent to which
 +
        providing a safe harbor for the specified payment practice may
 +
        result in any of the following:
 +
                    ``(A) An increase or decrease in access to health
 +
                care services.
 +
                    ``(B) An increase or decrease in the quality of
 +
                health care services.
 +
                    ``(C) An increase or decrease in patient freedom of
 +
                choice among health care providers.
 +
                    ``(D) An increase or decrease in competition among
 +
                health care providers.
 +
                    ``(E) An increase or decrease in the ability of
 +
                health care facilities to provide services in medically
 +
                underserved areas or to medically underserved
 +
                populations.
 +
                    ``(F) An increase or decrease in the cost to Federal
 +
                health care programs (as defined in section 1128B(f)).
 +
                    ``(G) An increase or decrease in the potential
 +
                overutilization of health care services.
 +
                    ``(H) The existence or nonexistence of any potential
 +
                financial benefit to a health care professional or
 +
                provider which may vary based on their decisions of--
 +
                          ``(i) whether to order a health care item or
 +
                      service; or
 +
                          ``(ii) whether to arrange for a referral of
 +
                      health care items or services to a particular
 +
                      practitioner or provider.
 +
                    ``(I) Any other factors the Secretary deems
 +
                appropriate in the interest of preventing fraud and
 +
                abuse in Federal health care programs (as so defined).
 +
 +
    ``(b) Advisory Opinions.--
 +
            ``(1) Issuance of advisory opinions.--The Secretary, in
 +
        consultation with the Attorney General, shall issue written
 +
        advisory opinions as provided in this subsection.
 +
            ``(2) Matters subject to advisory opinions.--The Secretary
 +
        shall issue advisory opinions as to the following matters:
 +
                    ``(A) What constitutes prohibited remuneration
 +
                within the meaning of section 1128B(b).
 +
                    ``(B) Whether an arrangement or proposed arrangement
 +
                satisfies the criteria set forth in section 1128B(b)(3)
 +
                for activities which do not result in prohibited
 +
                remuneration.
 +
                    ``(C) Whether an arrangement or proposed arrangement
 +
                satisfies the criteria which the Secretary has
 +
                established, or shall establish by regulation for
 +
                activities which do not result in prohibited
 +
                remuneration.
 +
                    ``(D) What constitutes an inducement to reduce or
 +
                limit services to individuals entitled to benefits under
 +
                title XVIII or title XIX within the meaning of section
 +
                1128B(b).
 +
                    ``(E) Whether any activity or proposed activity
 +
                constitutes grounds for the imposition of a sanction
 +
                under section 1128, 1128A, or 1128B.
 +
            ``(3) Matters not subject to advisory opinions.--Such
 +
        advisory opinions shall not address the following matters:
 +
                    ``(A) Whether the fair market value shall be, or was
 +
                paid or received for any goods, services or property.
 +
                    ``(B) Whether an individual is a bona fide employee
 +
                within the requirements of section 3121(d)(2) of the
 +
                Internal Revenue Code of 1986.
 +
            ``(4) Effect of advisory opinions.--
 +
                    ``(A) Binding as to secretary and parties
 +
                involved.--Each advisory opinion issued by the Secretary
 +
                shall be binding as to the Secretary and the party or
 +
                parties requesting the opinion.
 +
                    ``(B) Failure to seek opinion.--The failure of a
 +
                party to seek an advisory opinion may not be introduced
 +
                into evidence to prove that the party intended to
 +
                violate the provisions of sections 1128, 1128A, or
 +
                1128B.
 +
            ``(5) Regulations.--
 +
                    ``(A) In general.--Not later than 180 days after the
 +
                date of the enactment of this section, the Secretary
 +
                shall issue regulations to carry out this section. Such
 +
                regulations shall provide for--
 +
                          ``(i) the procedure to be followed by a party
 +
                      applying for an advisory opinion;
 +
                          ``(ii) the procedure to be followed by the
 +
                      Secretary in responding to a request for an
 +
                      advisory opinion;
 +
                          ``(iii) the interval in which the Secretary
 +
                      shall respond;
 +
                          ``(iv) the reasonable fee to be charged to the
 +
                      party requesting an advisory opinion; and
 +
                          ``(v) the manner in which advisory opinions
 +
                      will be made available to the public.
 +
                    ``(B) Specific contents.--Under the regulations
 +
                promulgated pursuant to subparagraph (A)--
 +
                          ``(i) the Secretary shall be required to issue
 +
                      to a party requesting an advisory opinion by not
 +
                      later than 60 days after the request is received;
 +
                      and
 +
                          ``(ii) the fee charged to the party requesting
 +
                      an advisory opinion shall be equal to the costs
 +
                      incurred by the Secretary in responding to the
 +
                      request.
 +
            ``(6) Application of subsection.--This subsection shall
 +
        apply to requests for advisory opinions made on or after the
 +
        date which is 6 months after the date of enactment of this
 +
        section and before the date which is 4 years after such date of
 +
        enactment.
 +
 +
    ``(c) Special Fraud Alerts.--
 +
            ``(1) In general.--
 +
                    ``(A) Request for special fraud alerts.--Any person
 +
                may present, at any time, a request to the Inspector
 +
                General for a notice which informs the public of
 +
                practices which the Inspector General considers to be
 +
                suspect or of particular concern under the Medicare
 +
                program under title XVIII or a State health care
 +
                program, as defined in section 1128(h) (in this
 +
                subsection referred to as a `special fraud alert').
 +
                    ``(B) Issuance and publication of special fraud
 +
                alerts.--Upon receipt of a request described in
 +
                subparagraph (A), the Inspector General shall
 +
                investigate the subject matter of the request to
 +
                determine whether a special fraud alert should be
 +
                issued. If appropriate, the Inspector General shall
 +
                issue a special fraud alert in response to the request.
 +
                All special fraud alerts issued pursuant to this
 +
                subparagraph shall be published in the Federal Register.
 +
            ``(2) Criteria for special fraud alerts.--In determining
 +
        whether to issue a special fraud alert upon a request described
 +
        in paragraph (1), the Inspector General may consider--
 +
                    ``(A) whether and to what extent the practices that
 +
                would be identified in the special fraud alert may
 +
                result in any of the consequences described in
 +
                subsection (a)(2); and
 +
                    ``(B) the volume and frequency of the conduct that
 +
                would be identified in the special fraud alert.''.
 +
 +
    Subtitle B--Revisions to Current Sanctions for Fraud and Abuse
 +
 +
SEC. 211. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE AND
 +
                        STATE HEALTH CARE PROGRAMS.
 +
 +
    (a) Individual Convicted of Felony Relating to Health Care Fraud.--
 +
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is
 +
        amended by adding at the end the following new paragraph:
 +
            ``(3) Felony conviction relating to health care fraud.--Any
 +
        individual or entity that has been convicted for an offense
 +
        which occurred after the date of the enactment of the Health
 +
        Insurance Portability and Accountability Act of 1996, under
 +
        Federal or State law, in connection with the delivery of a
 +
        health care item or service or with respect to any act or
 +
        omission in a health care program (other than those specifically
 +
        described in paragraph (1)) operated by or financed in whole or
 +
        in part by any Federal, State, or local government agency, of a
 +
        criminal offense consisting of a felony relating to fraud,
 +
        theft, embezzlement, breach of fiduciary responsibility, or
 +
        other financial misconduct.''.
 +
            (2) Conforming amendment.--Paragraph (1) of section 1128(b)
 +
        (42 U.S.C. 1320a-7(b)) is amended to read as follows:
 +
            ``(1) Conviction relating to fraud.--Any individual or
 +
        entity that has been convicted for an offense which occurred
 +
        after the date of the enactment of the Health Insurance
 +
        Portability and Accountability Act of 1996, under Federal or
 +
        State law--
 +
                    ``(A) of a criminal offense consisting of a
 +
                misdemeanor relating to fraud, theft, embezzlement,
 +
                breach of fiduciary responsibility, or other financial
 +
                misconduct--
 +
                          ``(i) in connection with the delivery of a
 +
                      health care item or service, or
 +
                          ``(ii) with respect to any act or omission in
 +
                      a health care program (other than those
 +
                      specifically described in subsection (a)(1))
 +
                      operated by or financed in whole or in part by any
 +
                      Federal, State, or local government agency; or
 +
                    ``(B) of a criminal offense relating to fraud,
 +
                theft, embezzlement, breach of fiduciary responsibility,
 +
                or other financial misconduct with respect to any act or
 +
                omission in a program (other than a health care program)
 +
                operated by or financed in whole or in part by any
 +
                Federal, State, or local government agency.''.
 +
 +
    (b) Individual Convicted of Felony Relating to Controlled
 +
Substance.--
 +
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as
 +
        amended by subsection (a), is amended by adding at the end the
 +
        following new paragraph:
 +
            ``(4) Felony conviction relating to controlled substance.--
 +
        Any individual or entity that has been convicted for an offense
 +
        which occurred after the date of the enactment of the Health
 +
        Insurance Portability and Accountability Act of 1996, under
 +
        Federal or State law, of a criminal offense consisting of a
 +
        felony relating to the unlawful manufacture, distribution,
 +
        prescription, or dispensing of a controlled substance.''.
 +
            (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C.
 +
        1320a-7(b)(3)) is amended--
 +
                    (A) in the heading, by striking ``Conviction'' and
 +
                inserting ``Misdemeanor conviction''; and
 +
                    (B) by striking ``criminal offense'' and inserting
 +
                ``criminal offense consisting of a misdemeanor''.
 +
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN
 +
                        INDIVIDUALS AND ENTITIES SUBJECT TO
 +
                        PERMISSIVE EXCLUSION FROM MEDICARE AND
 +
                        STATE HEALTH CARE PROGRAMS.
 +
 +
    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at
 +
the end the following new subparagraphs:
 +
    ``(D) In the case of an exclusion of an individual or entity under
 +
paragraph (1), (2), or (3) of subsection (b), the period of the
 +
exclusion shall be 3 years, unless the Secretary determines in
 +
accordance with published regulations that a shorter period is
 +
appropriate because of mitigating circumstances or that a longer period
 +
is appropriate because of aggravating circumstances.
 +
    ``(E) In the case of an exclusion of an individual or entity under
 +
subsection (b)(4) or (b)(5), the period of the exclusion shall not be
 +
less than the period during which the individual's or entity's license
 +
to provide health care is revoked, suspended, or surrendered, or the
 +
individual or the entity is excluded or suspended from a Federal or
 +
State health care program.
 +
    ``(F) In the case of an exclusion of an individual or entity under
 +
subsection (b)(6)(B), the period of the exclusion shall be not less than
 +
1 year.''.
 +
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR
 +
                        CONTROL INTEREST IN SANCTIONED ENTITIES.
 +
 +
    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the
 +
end the following new paragraph:
 +
            ``(15) Individuals controlling a sanctioned entity.--(A) Any
 +
        individual--
 +
                    ``(i) who has a direct or indirect ownership or
 +
                control interest in a sanctioned entity and who knows or
 +
                should know (as defined in section 1128A(i)(6)) of the
 +
                action constituting the basis for the conviction or
 +
                exclusion described in subparagraph (B); or
 +
                    ``(ii) who is an officer or managing employee (as
 +
                defined in section 1126(b)) of such an entity.
 +
            ``(B) For purposes of subparagraph (A), the term `sanctioned
 +
        entity' means an entity--
 +
                    ``(i) that has been convicted of any offense
 +
                described in subsection (a) or in paragraph (1), (2), or
 +
                (3) of this subsection; or
 +
                    ``(ii) that has been excluded from participation
 +
                under a program under title XVIII or under a State
 +
                health care program.''.
 +
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE
 +
                        TO COMPLY WITH STATUTORY OBLIGATIONS.
 +
 +
    (a) Minimum Period of Exclusion for Practitioners and Persons
 +
Failing To Meet Statutory Obligations.--
 +
            (1) In general.--The second sentence of section 1156(b)(1)
 +
        (42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may
 +
        prescribe)'' and inserting ``may prescribe, except that such
 +
        period may not be less than 1 year)''.
 +
            (2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C.
 +
        1320c-5(b)(2)) is amended by striking ``shall remain'' and
 +
        inserting ``shall (subject to the minimum period specified in
 +
        the second sentence of paragraph (1)) remain''.
 +
 +
    (b) Repeal of ``Unwilling or Unable'' Condition for Imposition of
 +
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--
 +
            (1) in the second sentence, by striking ``and determines''
 +
        and all that follows through ``such obligations,''; and
 +
            (2) by striking the third sentence.
 +
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE
 +
                        ORGANIZATIONS.
 +
 +
    (a) Application of Intermediate Sanctions for any Program
 +
Violations.--
 +
            (1) In general.--Section 1876(i)(1) (42 U.S.C. 1395mm(i)(1))
 +
        is amended by striking ``the Secretary may terminate'' and all
 +
        that follows and inserting ``in accordance with procedures
 +
        established under paragraph (9), the Secretary may at any time
 +
        terminate any such contract or may impose the intermediate
 +
        sanctions described in paragraph (6)(B) or (6)(C) (whichever is
 +
        applicable) on the eligible organization if the Secretary
 +
        determines that the organization--
 +
            ``(A) has failed substantially to carry out the contract;
 +
            ``(B) is carrying out the contract in a manner substantially
 +
        inconsistent with the efficient and effective administration of
 +
        this section; or
 +
            ``(C) no longer substantially meets the applicable
 +
        conditions of subsections (b), (c), (e), and (f).''.
 +
            (2) Other intermediate sanctions for miscellaneous program
 +
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is
 +
        amended by adding at the end the following new subparagraph:
 +
 +
    ``(C) In the case of an eligible organization for which the
 +
Secretary makes a determination under paragraph (1), the basis of which
 +
is not described in subparagraph (A), the Secretary may apply the
 +
following intermediate sanctions:
 +
            ``(i) Civil money penalties of not more than $25,000 for
 +
        each determination under paragraph (1) if the deficiency that is
 +
        the basis of the determination has directly adversely affected
 +
        (or has the substantial likelihood of adversely affecting) an
 +
        individual covered under the organization's contract.
 +
            ``(ii) Civil money penalties of not more than $10,000 for
 +
        each week beginning after the initiation of procedures by the
 +
        Secretary under paragraph (9) during which the deficiency that
 +
        is the basis of a determination under paragraph (1) exists.
 +
            ``(iii) Suspension of enrollment of individuals under this
 +
        section after the date the Secretary notifies the organization
 +
        of a determination under paragraph (1) and until the Secretary
 +
        is satisfied that the deficiency that is the basis for the
 +
        determination has been corrected and is not likely to recur.''.
 +
            (3) Procedures for imposing sanctions.--Section 1876(i) (42
 +
        U.S.C. 1395mm(i)) is amended by adding at the end the following
 +
        new paragraph:
 +
 +
    ``(9) The Secretary may terminate a contract with an eligible
 +
organization under this section or may impose the intermediate sanctions
 +
described in paragraph (6) on the organization in accordance with formal
 +
investigation and compliance procedures established by the Secretary
 +
under which--
 +
            ``(A) the Secretary first provides the organization with the
 +
        reasonable opportunity to develop and implement a corrective
 +
        action plan to correct the deficiencies that were the basis of
 +
        the Secretary's determination under paragraph (1) and the
 +
        organization fails to develop or implement such a plan;
 +
            ``(B) in deciding whether to impose sanctions, the Secretary
 +
        considers aggravating factors such as whether an organization
 +
        has a history of deficiencies or has not taken action to correct
 +
        deficiencies the Secretary has brought to the organization's
 +
        attention;
 +
            ``(C) there are no unreasonable or unnecessary delays
 +
        between the finding of a deficiency and the imposition of
 +
        sanctions; and
 +
            ``(D) the Secretary provides the organization with
 +
        reasonable notice and opportunity for hearing (including the
 +
        right to appeal an initial decision) before imposing any
 +
        sanction or terminating the contract.''.
 +
            (4) Conforming amendments.--Section 1876(i)(6)(B) (42 U.S.C.
 +
        1395mm(i)(6)(B)) is amended by striking the second sentence.
 +
 +
    (b) Agreements With Peer Review Organizations.--Section
 +
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ``an
 +
agreement'' and inserting ``a written agreement''.
 +
    (c) Effective <<NOTE: 42 USC 1395mm note.>>  Date.--The amendments
 +
made by this section shall apply with respect to contract years
 +
beginning on or after January 1, 1997.
 +
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR
 +
                        RISK-SHARING ARRANGEMENTS.
 +
 +
    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is
 +
amended--
 +
            (1) by striking ``and'' at the end of subparagraph (D);
 +
            (2) by striking the period at the end of subparagraph (E)
 +
        and inserting ``; and''; and
 +
            (3) by adding at the end the following new subparagraph:
 +
            ``(F) any remuneration between an organization and an
 +
        individual or entity providing items or services, or a
 +
        combination thereof, pursuant to a written agreement between the
 +
        organization and the individual or entity if the organization is
 +
        an eligible organization under section 1876 or if the written
 +
        agreement, through a risk-sharing arrangement, places the
 +
        individual or entity at substantial financial risk for the cost
 +
        or utilization of the items or services, or a combination
 +
        thereof, which the individual or entity is obligated to
 +
        provide.''.
 +
 +
    (b) Negotiated <<NOTE: 42 USC 1320a-7b note.>>  Rulemaking for Risk-
 +
Sharing Exception.--
 +
            (1) Establishment.--
 +
                    (A) In general.--The Secretary of Health and Human
 +
                Services (in this subsection referred to as the
 +
                ``Secretary'') shall establish, on an expedited basis
 +
                and using a negotiated rulemaking process under
 +
                subchapter 3 of chapter 5 of title 5, United States
 +
                Code, standards relating to the exception for risk-
 +
                sharing arrangements to the anti-kickback penalties
 +
                described in section 1128B(b)(3)(F) of the Social
 +
                Security Act, as added by subsection (a).
 +
                    (B) Factors to consider.--In establishing standards
 +
                relating to the exception for risk-sharing arrangements
 +
                to the anti-kickback penalties under subparagraph (A),
 +
                the Secretary--
 +
                          (i) shall consult with the Attorney General
 +
                      and representatives of the hospital, physician,
 +
                      other health practitioner, and health plan
 +
                      communities, and other interested parties; and
 +
                          (ii) shall take into account--
 +
                                    (I) the level of risk appropriate to
 +
                                the size and type of arrangement;
 +
                                    (II) the frequency of assessment and
 +
                                distribution of incentives;
 +
                                    (III) the level of capital
 +
                                contribution; and
 +
                                    (IV) the extent to which the risk-
 +
                                sharing arrangement provides incentives
 +
                                to control the cost and quality of
 +
                                health care services.
 +
            (2) Publication of notice.--In carrying out the rulemaking
 +
        process under this subsection, the Secretary shall publish the
 +
        notice provided for under section 564(a) of title 5, United
 +
        States Code, by not later than 45 days after the date of the
 +
        enactment of this Act.
 +
            (3) Target date for publication of rule.--As part of the
 +
        notice under paragraph (2), and for purposes of this subsection,
 +
        the ``target date for publication'' (referred to in section
 +
        564(a)(5) of such title) shall be January 1, 1997.
 +
            (4) Abbreviated period for submission of comments.--In
 +
        applying section 564(c) of such title under this subsection,
 +
        ``15 days'' shall be substituted for ``30 days''.
 +
            (5) Appointment of negotiated rulemaking committee and
 +
        facilitator.--The Secretary shall provide for--
 +
                    (A) the appointment of a negotiated rulemaking
 +
                committee under section 565(a) of such title by not
 +
                later than 30 days after the end of the comment period
 +
                provided for under section 564(c) of such title (as
 +
                shortened under paragraph (4)), and
 +
                    (B) the nomination of a facilitator under section
 +
                566(c) of such title by not later than 10 days after the
 +
                date of appointment of the committee.
 +
            (6) Preliminary committee report.--The negotiated rulemaking
 +
        committee appointed under paragraph (5) shall report to the
 +
        Secretary, by not later than October 1, 1996, regarding the
 +
        committee's progress on achieving a consensus with regard to the
 +
        rulemaking proceeding and whether such consensus is likely to
 +
        occur before one month before the target date for publication of
 +
        the rule. If the committee reports that the committee has failed
 +
        to make significant progress toward such consensus or is
 +
        unlikely to reach such consensus by the target date, the
 +
        Secretary may terminate such process and provide for the
 +
        publication of a rule under this subsection through such other
 +
        methods as the Secretary may provide.
 +
            (7) Final committee report.--If the committee is not
 +
        terminated under paragraph (6), the rulemaking committee shall
 +
        submit a report containing a proposed rule by not later than one
 +
        month before the target publication date.
 +
            (8) Interim, final <<NOTE: Federal Register, publication.>> 
 +
        effect.--The Secretary shall publish a rule under this
 +
        subsection in the Federal Register by not later than the target
 +
        publication date. Such rule shall be effective and final
 +
        immediately on an interim basis, but is subject to change and
 +
        revision after public notice and opportunity for a period (of
 +
        not less than 60 days) for public comment. In connection with
 +
        such rule, the Secretary shall specify the process for the
 +
        timely review and approval of applications of entities to be
 +
        certified as provider-sponsored organizations pursuant to such
 +
        rules and consistent with this subsection.
 +
            (9) Publication of rule after public comment.--The Secretary
 +
        shall provide for consideration of such comments and
 +
        republication of such rule by not later than 1 year after the
 +
        target publication date.
 +
 +
    (c) Effective <<NOTE: 42 USC 1320a-7b note.>>  Date.--The amendments
 +
made by subsection (a) shall apply to written agreements entered into on
 +
or after January 1, 1997, without regard to whether regulations have
 +
been issued to implement such amendments.
 +
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN
 +
                        ORDER TO OBTAIN MEDICAID BENEFITS.
 +
 +
    Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
 +
            (1) by striking ``or'' at the end of paragraph (4);
 +
            (2) by adding ``or'' at the end of paragraph (5); and
 +
            (3) by inserting after paragraph (5) the following new
 +
        paragraph:
 +
            ``(6) knowingly and willfully disposes of assets (including
 +
        by any transfer in trust) in order for an individual to become
 +
        eligible for medical assistance under a State plan under title
 +
        XIX, if disposing of the assets results in the imposition of a
 +
        period of ineligibility for such assistance under section
 +
        1917(c),''.
 +
SEC. 218. EFFECTIVE <<NOTE: 42 USC 1320a-7 note.>>  DATE.
 +
 +
    Except as otherwise provided, the amendments made by this subtitle
 +
shall take effect January 1, 1997.
 +
 +
                      Subtitle C--Data Collection
 +
 +
SEC. 221. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE DATA
 +
            COLLECTION PROGRAM.
 +
 +
    (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as amended by
 +
sections 201 and 205, is amended by inserting after section 1128D the
 +
following new section:
 +
 +
          ``health care fraud and abuse data collection program
 +
 +
    ``Sec. 1128E. (a) General <<NOTE: 42 USC 1320a-7e.>>  Purpose.--Not
 +
later than January 1, 1997, the Secretary shall establish a national
 +
health care fraud and abuse data collection program for the reporting of
 +
final adverse actions (not including settlements in which no findings of
 +
liability have been made) against health care providers, suppliers, or
 +
practitioners as required by subsection (b), with access as set forth in
 +
subsection (c), and shall maintain a database of the information
 +
collected under this section.
 +
 +
    ``(b) Reporting of Information.--
 +
            ``(1) In general.--Each Government agency and health plan
 +
        shall report any final adverse action (not including settlements
 +
        in which no findings of liability have been made) taken against
 +
        a health care provider, supplier, or practitioner.
 +
            ``(2) Information to be reported.--The information to be
 +
        reported under paragraph (1) includes:
 +
                    ``(A) The name and TIN (as defined in section
 +
                7701(a)(41) of the Internal Revenue Code of 1986) of any
 +
                health care provider, supplier, or practitioner who is
 +
                the subject of a final adverse action.
 +
                    ``(B) The name (if known) of any health care entity
 +
                with which a health care provider, supplier, or
 +
                practitioner, who is the subject of a final adverse
 +
                action, is affiliated or associated.
 +
                    ``(C) The nature of the final adverse action and
 +
                whether such action is on appeal.
 +
                    ``(D) A description of the acts or omissions and
 +
                injuries upon which the final adverse action was based,
 +
                and such other information as the Secretary determines
 +
                by regulation is required for appropriate interpretation
 +
                of information reported under this section.
 +
            ``(3) Confidentiality.--In determining what information is
 +
        required, the Secretary shall include procedures to assure that
 +
        the privacy of individuals receiving health care services is
 +
        appropriately protected.
 +
            ``(4) Timing and form of reporting.--The information
 +
        required to be reported under this subsection shall be reported
 +
        regularly (but not less often than monthly) and in such form and
 +
        manner as the Secretary prescribes. Such information shall first
 +
        be required to be reported on a date specified by the Secretary.
 +
            ``(5) To whom reported.--The information required to be
 +
        reported under this subsection shall be reported to the
 +
        Secretary.
 +
 +
    ``(c) Disclosure and Correction of Information.--
 +
            ``(1) Disclosure.--With respect to the information about
 +
        final adverse actions (not including settlements in which no
 +
        findings of liability have been made) reported to the Secretary
 +
        under this section with respect to a health care provider,
 +
        supplier, or practitioner, the Secretary shall, by regulation,
 +
        provide for--
 +
                    ``(A) disclosure of the information, upon request,
 +
                to the health care provider, supplier, or licensed
 +
                practitioner, and
 +
                    ``(B) procedures in the case of disputed accuracy of
 +
                the information.
 +
            ``(2) Corrections.--Each Government agency and health plan
 +
        shall report corrections of information already reported about
 +
        any final adverse action taken against a health care provider,
 +
        supplier, or practitioner, in such form and manner that the
 +
        Secretary prescribes by regulation.
 +
 +
    ``(d) Access to Reported Information.--
 +
            ``(1) Availability.--The information in the database
 +
        maintained under this section shall be available to Federal and
 +
        State government agencies and health plans pursuant to
 +
        procedures that the Secretary shall provide by regulation.
 +
            ``(2) Fees for disclosure.--The Secretary may establish or
 +
        approve reasonable fees for the disclosure of information in
 +
        such database (other than with respect to requests by Federal
 +
        agencies). The amount of such a fee shall be sufficient to
 +
        recover the full costs of operating the database. Such fees
 +
        shall be available to the Secretary or, in the Secretary's
 +
        discretion to the agency designated under this section to cover
 +
        such costs.
 +
 +
    ``(e) Protection From Liability for Reporting.--No person or entity,
 +
including the agency designated by the Secretary in subsection (b)(5)
 +
shall be held liable in any civil action with respect to any report made
 +
as required by this section, without knowledge of the falsity of the
 +
information contained in the report.
 +
    ``(f) Coordination With National Practitioner Data Bank.--The
 +
Secretary shall implement this section in such a manner as to avoid
 +
duplication with the reporting requirements established for the National
 +
Practitioner Data Bank under the Health Care Quality Improvement Act of
 +
1986 (42 U.S.C. 11101 et seq.).
 +
    ``(g) Definitions and Special Rules.--For purposes of this section:
 +
            ``(1) Final adverse action.--
 +
                    ``(A) In general.--The term `final adverse action'
 +
                includes:
 +
                          ``(i) Civil judgments against a health care
 +
                      provider, supplier, or practitioner in Federal or
 +
                      State court related to the delivery of a health
 +
                      care item or service.
 +
                          ``(ii) Federal or State criminal convictions
 +
                      related to the delivery of a health care item or
 +
                      service.
 +
                          ``(iii) Actions by Federal or State agencies
 +
                      responsible for the licensing and certification of
 +
                      health care providers, suppliers, and licensed
 +
                      health care practitioners, including--
 +
                                    ``(I) formal or official actions,
 +
                                such as revocation or suspension of a
 +
                                license (and the length of any such
 +
                                suspension), reprimand, censure or
 +
                                probation,
 +
                                    ``(II) any other loss of license or
 +
                                the right to apply for, or renew, a
 +
                                license of the provider, supplier, or
 +
                                practitioner, whether by operation of
 +
                                law, voluntary surrender, non-
 +
                                renewability, or otherwise, or
 +
                                    ``(III) any other negative action or
 +
                                finding by such Federal or State agency
 +
                                that is publicly available information.
 +
                          ``(iv) Exclusion from participation in Federal
 +
                      or State health care programs (as defined in
 +
                      sections 1128B(f) and 1128(h), respectively).
 +
                          ``(v) Any other adjudicated actions or
 +
                      decisions that the Secretary shall establish by
 +
                      regulation.
 +
                    ``(B) Exception.--The term does not include any
 +
                action with respect to a malpractice claim.
 +
            ``(2) Practitioner.--The terms `licensed health care
 +
        practitioner', `licensed practitioner', and `practitioner' mean,
 +
        with respect to a State, an individual who is licensed or
 +
        otherwise authorized by the State to provide health care
 +
        services (or any individual who, without authority holds himself
 +
        or herself out to be so licensed or authorized).
 +
            ``(3) Government agency.--The term `Government agency' shall
 +
        include:
 +
                    ``(A) The Department of Justice.
 +
                    ``(B) The Department of Health and Human Services.
 +
                    ``(C) Any other Federal agency that either
 +
                administers or provides payment for the delivery of
 +
                health care services, including, but not limited to the
 +
                Department of Defense and the Veterans' Administration.
 +
                    ``(D) State law enforcement agencies.
 +
                    ``(E) State medicaid fraud control units.
 +
                    ``(F) Federal or State agencies responsible for the
 +
                licensing and certification of health care providers and
 +
                licensed health care practitioners.
 +
            ``(4) Health plan.--The term `health plan' has the meaning
 +
        given such term by section 1128C(c).
 +
            ``(5) Determination of conviction.--For purposes of
 +
        paragraph (1), the existence of a conviction shall be determined
 +
        under paragraph (4) of section 1128(i).''.
 +
 +
    (b) Improved Prevention in Issuance of Medicare Provider Numbers.--
 +
Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end the
 +
following new sentence: ``Under such system, the Secretary may impose
 +
appropriate fees on such physicians to cover the costs of investigation
 +
and recertification activities with respect to the issuance of the
 +
identifiers.''.
 +
 +
                  Subtitle D--Civil Monetary Penalties
 +
 +
SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.
 +
 +
    (a) General Civil Monetary Penalties.--Section 1128A (42 U.S.C.
 +
1320a-7a) is amended as follows:
 +
            (1) In the third sentence of subsection (a), by striking
 +
        ``programs under title XVIII'' and inserting ``Federal health
 +
        care programs (as defined in section 1128B(f)(1))''.
 +
            (2) In subsection (f)--
 +
                    (A) by redesignating paragraph (3) as paragraph
 +
                (4); and
 +
                    (B) by inserting after paragraph (2) the following
 +
                new paragraph:
 +
            ``(3) With respect to amounts recovered arising out of a
 +
        claim under a Federal health care program (as defined in section
 +
        1128B(f)), the portion of such amounts as is determined to have
 +
        been paid by the program shall be repaid to the program, and the
 +
        portion of such amounts attributable to the amounts recovered
 +
        under this section by reason of the amendments made by the
 +
        Health Insurance Portability and Accountability Act of 1996 (as
 +
        estimated by the Secretary) shall be deposited into the Federal
 +
        Hospital Insurance Trust Fund pursuant to section
 +
        1817(k)(2)(C).''.
 +
            (3) In subsection (i)--
 +
                    (A) in paragraph (2), by striking ``title V, XVIII,
 +
                XIX, or XX of this Act'' and inserting ``a Federal
 +
                health care program (as defined in section 1128B(f))'',
 +
                    (B) in paragraph (4), by striking ``a health
 +
                insurance or medical services program under title XVIII
 +
                or XIX of this Act'' and inserting ``a Federal health
 +
                care program (as so defined)'', and
 +
                    (C) in paragraph (5), by striking ``title V, XVIII,
 +
                XIX, or XX'' and inserting ``a Federal health care
 +
                program (as so defined)''.
 +
            (4) By adding at the end the following new subsection:
 +
 +
    ``(m)(1) For purposes of this section, with respect to a Federal
 +
health care program not contained in this Act, references to the
 +
Secretary in this section shall be deemed to be references to the
 +
Secretary or Administrator of the department or agency with jurisdiction
 +
over such program and references to the Inspector General of the
 +
Department of Health and Human Services in this section shall be deemed
 +
to be references to the Inspector General of the applicable department
 +
or agency.
 +
    ``(2)(A) The Secretary and Administrator of the departments and
 +
agencies referred to in paragraph (1) may include in any action pursuant
 +
to this section, claims within the jurisdiction of other Federal
 +
departments or agencies as long as the following conditions are
 +
satisfied:
 +
            ``(i) The case involves primarily claims submitted to the
 +
        Federal health care programs of the department or agency
 +
        initiating the action.
 +
            ``(ii) The Secretary or Administrator of the department or
 +
        agency initiating the action gives notice and an opportunity to
 +
        participate in the investigation to the Inspector General of the
 +
        department or agency with primary jurisdiction over the Federal
 +
        health care programs to which the claims were submitted.
 +
 +
    ``(B) If the conditions specified in subparagraph (A) are fulfilled,
 +
the Inspector General of the department or agency initiating the action
 +
is authorized to exercise all powers granted under the Inspector General
 +
Act of 1978 (5 U.S.C. App.) with respect to the claims submitted to the
 +
other departments or agencies to the same manner and extent as provided
 +
in that Act with respect to claims submitted to such departments or
 +
agencies.''.
 +
    (b) Excluded Individual Retaining Ownership or Control Interest in
 +
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
 +
amended--
 +
            (1) by striking ``or'' at the end of paragraph (1)(D);
 +
            (2) by striking ``, or'' at the end of paragraph (2) and
 +
        inserting a semicolon;
 +
            (3) by striking the semicolon at the end of paragraph (3)
 +
        and inserting ``; or''; and
 +
            (4) by inserting after paragraph (3) the following new
 +
        paragraph:
 +
            ``(4) in the case of a person who is not an organization,
 +
        agency, or other entity, is excluded from participating in a
 +
        program under title XVIII or a State health care program in
 +
        accordance with this subsection or under section 1128 and who,
 +
        at the time of a violation of this subsection--
 +
                    ``(A) retains a direct or indirect ownership or
 +
                control interest in an entity that is participating in a
 +
                program under title XVIII or a State health care
 +
                program, and who knows or should know of the action
 +
                constituting the basis for the exclusion; or
 +
                    ``(B) is an officer or managing employee (as defined
 +
                in section 1126(b)) of such an entity;''.
 +
 +
    (c) Modifications of Amounts of Penalties and Assessments.--Section
 +
1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is
 +
amended in the matter following paragraph (4)--
 +
            (1) by striking ``$2,000'' and inserting ``$10,000'';
 +
            (2) by inserting ``; in cases under paragraph (4), $10,000
 +
        for each day the prohibited relationship occurs'' after ``false
 +
        or misleading information was given''; and
 +
            (3) by striking ``twice the amount'' and inserting ``3 times
 +
        the amount''.
 +
 +
    (d) Clarification of Level of Knowledge Required for Imposition of
 +
Civil Monetary Penalties.--
 +
            (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is
 +
        amended--
 +
                    (A) in paragraphs (1) and (2), by inserting
 +
                ``knowingly'' before ``presents'' each place it appears;
 +
                and
 +
                    (B) in paragraph (3), by striking ``gives'' and
 +
                inserting ``knowingly gives or causes to be given''.
 +
            (2) Definition of standard.--Section 1128A(i) (42 U.S.C.
 +
        1320a-7a(i)), as amended by subsection (h)(2), is amended by
 +
        adding at the end the following new paragraph:
 +
            ``(7) The term `should know' means that a person, with
 +
        respect to information--
 +
                    ``(A) acts in deliberate ignorance of the truth or
 +
                falsity of the information; or
 +
                    ``(B) acts in reckless disregard of the truth or
 +
                falsity of the information,
 +
        and no proof of specific intent to defraud is required.''.
 +
 +
    (e) Claim for Item or Service Based on Incorrect Coding or Medically
 +
Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-7a(a)(1)),
 +
as amended by subsection (b), is amended--
 +
            (1) in subparagraph (A) by striking ``claimed,'' and
 +
        inserting ``claimed, including any person who engages in a
 +
        pattern or practice of presenting or causing to be presented a
 +
        claim for an item or service that is based on a code that the
 +
        person knows or should know will result in a greater payment to
 +
        the person than the code the person knows or should know is
 +
        applicable to the item or service actually provided,'';
 +
            (2) in subparagraph (C), by striking ``or'' at the end;
 +
            (3) in subparagraph (D), by striking the semicolon and
 +
        inserting ``, or''; and
 +
            (4) by inserting after subparagraph (D) the following new
 +
        subparagraph:
 +
                    ``(E) is for a pattern of medical or other items or
 +
                services that a person knows or should know are not
 +
                medically necessary;''.
 +
 +
    (f) Sanctions Against Practitioners and Persons for Failure To
 +
Comply With Statutory Obligations.--Section 1156(b)(3) (42 U.S.C. 1320c-
 +
5(b)(3)) is amended by striking ``the actual or estimated cost'' and
 +
inserting ``up to $10,000 for each instance''.
 +
    (g) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C.
 +
1395mm(i)(6)), as amended by section 215(a)(2), is amended by adding at
 +
the end the following new subparagraph:
 +
    ``(D) The provisions of section 1128A (other than subsections (a)
 +
and (b)) shall apply to a civil money penalty under subparagraph (B)(i)
 +
or (C)(i) in the same manner as such provisions apply to a civil money
 +
penalty or proceeding under section 1128A(a).''.
 +
    (h) Prohibition Against Offering Inducements to Individuals Enrolled
 +
Under Programs or Plans.--
 +
            (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C.
 +
        1320a-7a(a)), as amended by subsection (b), is amended--
 +
                    (A) by striking ``or'' at the end of paragraph (3);
 +
                    (B) by striking the semicolon at the end of
 +
                paragraph (4) and inserting ``; or''; and
 +
                    (C) by inserting after paragraph (4) the following
 +
                new paragraph:
 +
            ``(5) offers to or transfers remuneration to any individual
 +
        eligible for benefits under title XVIII of this Act, or under a
 +
        State health care program (as defined in section 1128(h)) that
 +
        such person knows or should know is likely to influence such
 +
        individual to order or receive from a particular provider,
 +
        practitioner, or supplier any item or service for which payment
 +
        may be made, in whole or in part, under title XVIII, or a State
 +
        health care program (as so defined);''.
 +
            (2) Remuneration defined.--Section 1128A(i) (42 U.S.C.
 +
        1320a-7a(i)) is amended by adding at the end the following new
 +
        paragraph:
 +
            ``(6) The term `remuneration' includes the waiver of
 +
        coinsurance and deductible amounts (or any part thereof), and
 +
        transfers of items or services for free or for other than fair
 +
        market value. The term `remuneration' does not include--
 +
                    ``(A) the waiver of coinsurance and deductible
 +
                amounts by a person, if--
 +
                          ``(i) the waiver is not offered as part of any
 +
                      advertisement or solicitation;
 +
                          ``(ii) the person does not routinely waive
 +
                      coinsurance or deductible amounts; and
 +
                          ``(iii) the person--
 +
                                    ``(I) waives the coinsurance and
 +
                                deductible amounts after determining in
 +
                                good faith that the individual is in
 +
                                financial need;
 +
                                    ``(II) fails to collect coinsurance
 +
                                or deductible amounts after making
 +
                                reasonable collection
 +
                                efforts; or
 +
                                    ``(III) provides for any permissible
 +
                                waiver as specified in section
 +
                                1128B(b)(3) or in regulations issued by
 +
                                the Secretary;
 +
                    ``(B) differentials in coinsurance and deductible
 +
                amounts as part of a benefit plan design as long as the
 +
                differentials have been disclosed in writing to all
 +
                beneficiaries, third party payers, and providers, to
 +
                whom claims are presented and as long as the
 +
                differentials meet the standards as defined in
 +
                regulations promulgated
 +
                by the Secretary not later than 180 days after the date
 +
                of the enactment of the Health Insurance Portability and
 +
                Accountability Act of 1996; or
 +
                    ``(C) incentives given to individuals to promote the
 +
                delivery of preventive care as determined by the
 +
                Secretary in regulations so promulgated.''.
 +
 +
    (i) Effective <<NOTE: 42 USC 1320a-7a note.>>  Date.--The amendments
 +
made by this section shall apply to acts or omissions occurring on or
 +
after January 1, 1997.
 +
SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH
 +
                        SERVICES.
 +
 +
    (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is amended
 +
by adding at the end the following new paragraph:
 +
    ``(3)(A) Any physician who executes a document described in
 +
subparagraph (B) with respect to an individual knowing that all of the
 +
requirements referred to in such subparagraph are not met with respect
 +
to the individual shall be subject to a civil monetary penalty of not
 +
more than the greater of--
 +
            ``(i) $5,000, or
 +
            ``(ii) three times the amount of the payments under title
 +
        XVIII for home health services which are made pursuant to such
 +
        certification.
 +
 +
    ``(B) A document described in this subparagraph is any document that
 +
certifies, for purposes of title XVIII, that an individual meets the
 +
requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) in the case of
 +
home health services furnished to the individual.''.
 +
    (b) Effective <<NOTE: 42 USC 1320a-7a note.>>  Date.--The amendment
 +
made by subsection (a) shall apply to certifications made on or after
 +
the date of the enactment of this Act.
 +
 +
                  Subtitle E--Revisions to Criminal Law
 +
 +
SEC. 241. DEFINITIONS RELATING TO FEDERAL HEALTH CARE OFFENSE.
 +
 +
    (a) In General.--Chapter 1 of title 18, United States Code, is
 +
amended by adding at the end the following:
 +
 +
``Sec. 24. Definitions relating to Federal health care offense
 +
 +
    ``(a) As used in this title, the term `Federal health care offense'
 +
means a violation of, or a criminal conspiracy to violate--
 +
            ``(1) section 669, 1035, 1347, or 1518 of this title;
 +
            ``(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343, or
 +
        1954 of this title, if the violation or conspiracy relates to a
 +
        health care benefit program.
 +
 +
    ``(b) As used in this title, the term `health care benefit program'
 +
means any public or private plan or contract, affecting commerce, under
 +
which any medical benefit, item, or service is provided to any
 +
individual, and includes any individual or entity who is providing a
 +
medical benefit, item, or service for which payment may be made under
 +
the plan or contract.''.
 +
    (b) Clerical Amendment.--The table of sections at the beginning of
 +
chapter 2 of title 18, United States Code, is amended by inserting after
 +
the item relating to section 23 the following new item:
 +
 +
``24. Definitions relating to Federal health care offense.''.
 +
 +
SEC. 242. HEALTH CARE FRAUD.
 +
 +
    (a) Offense.--
 +
            (1) In general.--Chapter 63 of title 18, United States Code,
 +
        is amended by adding at the end the following:
 +
 +
``Sec. 1347. Health care fraud
 +
 +
    ``Whoever knowingly and willfully executes, or attempts to execute,
 +
a scheme or artifice--
 +
            ``(1) to defraud any health care benefit program; or
 +
            ``(2) to obtain, by means of false or fraudulent pretenses,
 +
        representations, or promises, any of the money or property owned
 +
        by, or under the custody or control of, any health care benefit
 +
        program,
 +
 +
in connection with the delivery of or payment for health care benefits,
 +
items, or services, shall be fined under this title or imprisoned not
 +
more than 10 years, or both. If the violation results in serious bodily
 +
injury (as defined in section 1365 of this title), such person shall be
 +
fined under this title or imprisoned not more than 20 years, or both;
 +
and if the violation results in death, such person shall be fined under
 +
this title, or imprisoned for any term of years or for life, or both.''.
 +
            (2) Clerical amendment.--The table of sections at the
 +
        beginning of chapter 63 of title 18, United States Code, is
 +
        amended by adding at the end the following:
 +
 +
``1347. Health care fraud.''.
 +
 +
    (b) Criminal <<NOTE: 42 USC 1395i note.>>  Fines Deposited in
 +
Federal Hospital Insurance Trust Fund.--The Secretary of the Treasury
 +
shall deposit into the Federal Hospital Insurance Trust Fund pursuant to
 +
section 1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an
 +
amount equal to the criminal fines imposed under section 1347 of title
 +
18, United States Code (relating to health care fraud).
 +
 +
SEC. 243. THEFT OR EMBEZZLEMENT.
 +
 +
    (a) In General.--Chapter 31 of title 18, United States Code, is
 +
amended by adding at the end the following:
 +
 +
``Sec. 669. Theft or embezzlement in connection with health care
 +
 +
    ``(a) Whoever knowingly and willfully embezzles, steals, or
 +
otherwise without authority converts to the use of any person other than
 +
the rightful owner, or intentionally misapplies any of the moneys,
 +
funds, securities, premiums, credits, property, or other assets of a
 +
health care benefit program, shall be fined under this title or
 +
imprisoned not more than 10 years, or both; but if the value of such
 +
property does not exceed the sum of $100 the defendant shall be fined
 +
under this title or imprisoned not more than one year, or both.
 +
    ``(b) As used in this section, the term `health care benefit
 +
program' has the meaning given such term in section 24(b) of this
 +
title.''.
 +
    (b) Clerical Amendment.--The table of sections at the beginning of
 +
chapter 31 of title 18, United States Code, is amended by adding at the
 +
end the following:
 +
 +
``669. Theft or embezzlement in connection with health care.''.
 +
 +
SEC. 244. FALSE STATEMENTS.
 +
 +
    (a) In General.--Chapter 47 of title 18, United States Code, is
 +
amended by adding at the end the following:
 +
 +
``Sec. 1035. False statements relating to health care matters
 +
 +
    ``(a) Whoever, in any matter involving a health care benefit
 +
program, knowingly and willfully--
 +
            ``(1) falsifies, conceals, or covers up by any trick,
 +
        scheme, or device a material fact; or
 +
            ``(2) makes any materially false, fictitious, or fraudulent
 +
        statements or representations, or makes or uses any materially
 +
        false writing or document knowing the same to contain any
 +
        materially false, fictitious, or fraudulent statement or entry,
 +
 +
in connection with the delivery of or payment for health care benefits,
 +
items, or services, shall be fined under this title or imprisoned not
 +
more than 5 years, or both.
 +
    ``(b) As used in this section, the term `health care benefit
 +
program' has the meaning given such term in section 24(b) of this
 +
title.''.
 +
    (b) Clerical Amendment.--The table of sections at the beginning of
 +
chapter 47 of title 18, United States Code, is amended by adding at the
 +
end the following new item:
 +
 +
``1035. False statements relating to health care matters.''.
 +
 +
SEC. 245. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF HEALTH CARE
 +
            OFFENSES.
 +
 +
    (a) In General.--Chapter 73 of title 18, United States Code, is
 +
amended by adding at the end the following:
 +
``Sec. 1518. Obstruction of criminal investigations of health care
 +
                    offenses
 +
 +
    ``(a) Whoever willfully prevents, obstructs, misleads, delays or
 +
attempts to prevent, obstruct, mislead, or delay the communication of
 +
information or records relating to a violation of a Federal health care
 +
offense to a criminal investigator shall be fined under this title or
 +
imprisoned not more than 5 years, or both.
 +
    ``(b) As used in this section the term `criminal investigator' means
 +
any individual duly authorized by a department, agency, or armed force
 +
of the United States to conduct or engage in investigations for
 +
prosecutions for violations of health care offenses.''.
 +
    (b) Clerical Amendment.--The table of sections at the beginning of
 +
chapter 73 of title 18, United States Code, is amended by adding at the
 +
end the following new item:
 +
 +
``1518. Obstruction of criminal investigations of health care
 +
          offenses.''.
 +
 +
SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.
 +
 +
    Section 1956(c)(7) of title 18, United States Code, is amended by
 +
adding at the end the following:
 +
                    ``(F) Any act or activity constituting an offense
 +
                involving a Federal health care offense.''.
 +
 +
SEC. 247. INJUNCTIVE RELIEF RELATING TO HEALTH CARE OFFENSES.
 +
 +
    (a) In General.--Section 1345(a)(1) of title 18, United States Code,
 +
is amended--
 +
            (1) by striking ``or'' at the end of subparagraph (A);
 +
            (2) by inserting ``or'' at the end of subparagraph (B); and
 +
            (3) by adding at the end the following:
 +
            ``(C) committing or about to commit a Federal health care
 +
        offense.''.
 +
 +
    (b) Freezing of Assets.--Section 1345(a)(2) of title 18, United
 +
States Code, is amended by inserting ``or a Federal health care
 +
offense'' after ``title)''.
 +
 +
SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.
 +
 +
    (a) In General.--Chapter 223 of title 18, United States Code, is
 +
amended by adding after section 3485 the following:
 +
 +
``Sec. 3486. Authorized investigative demand procedures
 +
 +
    ``(a) Authorization.--(1) In any investigation relating to any act
 +
or activity involving a Federal health care offense, the Attorney
 +
General or the Attorney General's designee may issue in writing and
 +
cause to be served a subpoena--
 +
            ``(A) requiring the production of any records (including any
 +
        books, papers, documents, electronic media, or other objects or
 +
        tangible things), which may be relevant to an authorized law
 +
        enforcement inquiry, that a person or legal entity may possess
 +
        or have care, custody, or control; or
 +
            ``(B) requiring a custodian of records to give testimony
 +
        concerning the production and authentication of such records.
 +
 +
    ``(2) A subpoena under this subsection shall describe the objects
 +
required to be produced and prescribe a return date within a reasonable
 +
period of time within which the objects can be assembled and made
 +
available.
 +
 +
    ``(3) The production of records shall not be required under this
 +
section at any place more than 500 miles distant from the place where
 +
the subpoena for the production of such records is served.
 +
    ``(4) Witnesses summoned under this section shall be paid the same
 +
fees and mileage that are paid witnesses in the courts of the United
 +
States.
 +
    ``(b) Service.--A subpoena issued under this section may be served
 +
by any person who is at least 18 years of age and is designated in the
 +
subpoena to serve it. Service upon a natural person may be made by
 +
personal delivery of the subpoena to him. Service may be made upon a
 +
domestic or foreign corporation or upon a partnership or other
 +
unincorporated association which is subject to suit under a common name,
 +
by delivering the subpoena to an officer, to a managing or general
 +
agent, or to any other agent authorized by appointment or by law to
 +
receive service of process. The affidavit of the person serving the
 +
subpoena entered on a true copy thereof by the person serving it shall
 +
be proof of service.
 +
    ``(c) Enforcement.--In the case of contumacy by or refusal to obey a
 +
subpoena issued to any person, the Attorney General may invoke the aid
 +
of any court of the United States within the jurisdiction of which the
 +
investigation is carried on or of which the subpoenaed person is an
 +
inhabitant, or in which he carries on business or may be found, to
 +
compel compliance with the subpoena. The court may issue an order
 +
requiring the subpoenaed person to appear before the Attorney General to
 +
produce records, if so ordered, or to give testimony concerning the
 +
production and authentication of such records. Any failure to obey the
 +
order of the court may be punished by the court as a contempt thereof.
 +
All process in any such case may be served in any judicial district in
 +
which such person may be found.
 +
    ``(d) Immunity From Civil Liability.--Notwithstanding any Federal,
 +
State, or local law, any person, including officers, agents, and
 +
employees, receiving a summons under this section, who complies in good
 +
faith with the summons and thus produces the materials sought, shall not
 +
be liable in any court of any State or the United States to any customer
 +
or other person for such production or for nondisclosure of that
 +
production to the customer.
 +
    ``(e) Limitation on Use.--(1) Health information about an individual
 +
that is disclosed under this section may not be used in, or disclosed to
 +
any person for use in, any administrative, civil, or criminal action or
 +
investigation directed against the individual who is the subject of the
 +
information unless the action or investigation arises out of and is
 +
directly related to receipt of health care or payment for health care or
 +
action involving a fraudulent claim related to health; or if authorized
 +
by an appropriate order of a court of competent jurisdiction, granted
 +
after application showing good cause therefor.
 +
    ``(2) In assessing good cause, the court shall weigh the public
 +
interest and the need for disclosure against the injury to the patient,
 +
to the physician-patient relationship, and to the treatment services.
 +
    ``(3) Upon the granting of such order, the court, in determining the
 +
extent to which any disclosure of all or any part of any record is
 +
necessary, shall impose appropriate safeguards against unauthorized
 +
disclosure.''.
 +
    (b) Clerical Amendment.--The table of sections at the beginning of
 +
chapter 223 of title 18, United States Code, is amended by inserting
 +
after the item relating to section 3485 the following new item:
 +
 +
``3486. Authorized investigative demand procedures.''.
 +
 +
    (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 18, United
 +
States Code, is amended by inserting ``or a Department of Justice
 +
subpoena (issued under section 3486 of title 18),'' after ``subpoena''.
 +
 +
SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.
 +
 +
    (a) In General.--Section 982(a) of title 18, United States Code, is
 +
amended by adding after paragraph (5) the following new paragraph:
 +
    ``(6) The court, in imposing sentence on a person convicted of a
 +
Federal health care offense, shall order the person to forfeit property,
 +
real or personal, that constitutes or is derived, directly or
 +
indirectly, from gross proceeds traceable to the commission of the
 +
offense.''.
 +
 +
    (b) Conforming Amendment.--Section 982(b)(1)(A) of title 18, United
 +
States Code, is amended by inserting ``or (a)(6)'' after ``(a)(1)''.
 +
    (c) Property Forfeited <<NOTE: 42 USC 1395i note.>>  Deposited in
 +
Federal Hospital Insurance Trust Fund.--
 +
            (1) In general.--After the payment of the costs of asset
 +
        forfeiture has been made and after all restoration payments (if
 +
        any) have been made, and notwithstanding any other provision of
 +
        law, the Secretary of the Treasury shall deposit into the
 +
        Federal Hospital Insurance Trust Fund pursuant to section
 +
        1817(k)(2)(C) of the Social Security Act, as added by section
 +
        301(b), an amount equal to the net amount realized from the
 +
        forfeiture of property by reason of a Federal health care
 +
        offense pursuant to section 982(a)(6) of title 18, United States
 +
        Code.
 +
            (2) Costs of asset forfeiture.--For purposes of paragraph
 +
        (1), the term ``payment of the costs of asset forfeiture''
 +
        means--
 +
                    (A) the payment, at the discretion of the Attorney
 +
                General, of any expenses necessary to seize, detain,
 +
                inventory, safeguard, maintain, advertise, sell, or
 +
                dispose of property under seizure, detention, or
 +
                forfeited, or of any other necessary expenses incident
 +
                to the seizure, detention, forfeiture, or disposal of
 +
                such property, including payment for--
 +
                          (i) contract services;
 +
                          (ii) the employment of outside contractors to
 +
                      operate and manage properties or provide other
 +
                      specialized services necessary to dispose of such
 +
                      properties in an effort to maximize the return
 +
                      from such properties; and
 +
                          (iii) reimbursement of any Federal, State, or
 +
                      local agency for any expenditures made to perform
 +
                      the functions described in this subparagraph;
 +
                    (B) at the discretion of the Attorney General, the
 +
                payment of awards for information or assistance leading
 +
                to a civil or criminal forfeiture involving any Federal
 +
                agency participating in the Health Care Fraud and Abuse
 +
                Control Account;
 +
                    (C) the compromise and payment of valid liens and
 +
                mortgages against property that has been forfeited,
 +
                subject to the discretion of the Attorney General to
 +
                determine the validity of any such lien or mortgage and
 +
                the amount of payment to be made, and the employment of
 +
                attorneys and other personnel skilled in State real
 +
                estate law as necessary;
 +
                    (D) payment authorized in connection with remission
 +
                or mitigation procedures relating to property forfeited;
 +
                and
 +
                    (E) the payment of State and local property taxes on
 +
                forfeited real property that accrued between the date of
 +
                the violation giving rise to the forfeiture and the date
 +
                of the forfeiture order.
 +
            (3) Restoration payment.--Notwithstanding any other
 +
        provision of law, if the Federal health care offense referred to
 +
        in paragraph (1) resulted in a loss to an employee welfare
 +
        benefit plan within the meaning of section 3(1) of the Employee
 +
        Retirement Income Security Act of 1974, the Secretary of the
 +
        Treasury shall transfer to such employee welfare benefit plan,
 +
        from the amount realized from the forfeiture of property
 +
        referred to in paragraph (1), an amount equal to such loss. For
 +
        purposes of paragraph (1), the term ``restoration payment''
 +
        means the amount transferred to an employee welfare benefit plan
 +
        pursuant to this paragraph.
 +
 +
SEC. 250. RELATION <<NOTE: 29 USC 1136 note.>>  TO ERISA AUTHORITY.
 +
 +
    Nothing in this subtitle shall be construed as affecting the
 +
authority of the Secretary of Labor under section 506(b)
 +
of the Employee Retirement Income Security Act of 1974, including the
 +
Secretary's authority with respect to violations of title 18, United
 +
States Code (as amended by this subtitle).
 +
 +
                Subtitle F--Administrative Simplification
 +
 +
SEC. 261. <<NOTE: 42 USC 1320d note.>>  PURPOSE.
 +
 +
    It is the purpose of this subtitle to improve the Medicare program
 +
under title XVIII of the Social Security Act, the medicaid program under
 +
title XIX of such Act, and the efficiency and effectiveness of the
 +
health care system, by encouraging the development of a health
 +
information system through the establishment of standards and
 +
requirements for the electronic transmission of certain health
 +
information.
 +
 +
SEC. 262. ADMINISTRATIVE SIMPLIFICATION.
 +
 +
    (a) In General.--Title XI (42 U.S.C. 1301 et seq.) is amended by
 +
adding at the end the following:
 +
 +
                ``Part C--Administrative Simplification
 +
 +
                              ``definitions
 +
 +
    ``Sec. 1171. For <<NOTE: 42 USC 1320d.>>  purposes of this part:
 +
            ``(1) Code set.--The term `code set' means any set of codes
 +
        used for encoding data elements, such as tables of terms,
 +
        medical concepts, medical diagnostic codes, or medical procedure
 +
        codes.
 +
            ``(2) Health care clearinghouse.--The term `health care
 +
        clearinghouse' means a public or private entity that processes
 +
        or facilitates the processing of nonstandard data elements of
 +
        health information into standard data elements.
 +
            ``(3) Health care provider.--The term `health care provider'
 +
        includes a provider of services (as defined in section 1861(u)),
 +
        a provider of medical or other health services (as defined in
 +
        section 1861(s)), and any other person furnishing health care
 +
        services or supplies.
 +
            ``(4) Health information.--The term `health information'
 +
        means any information, whether oral or recorded in any form or
 +
        medium, that--
 +
                    ``(A) is created or received by a health care
 +
                provider, health plan, public health authority,
 +
                employer, life insurer, school or university, or health
 +
                care clearinghouse; and
 +
                    ``(B) relates to the past, present, or future
 +
                physical or mental health or condition of an individual,
 +
                the provision of health care to an individual, or the
 +
                past, present, or future payment for the provision of
 +
                health care to an individual.
 +
            ``(5) Health plan.--The term `health plan' means an
 +
        individual or group plan that provides, or pays the cost of,
 +
        medical care (as such term is defined in section 2791 of the
 +
        Public Health Service Act). Such term includes the following,
 +
        and any combination thereof:
 +
                    ``(A) A group health plan (as defined in section
 +
                2791(a) of the Public Health Service Act), but only if
 +
                the plan--
 +
                          ``(i) has 50 or more participants (as defined
 +
                      in section 3(7) of the Employee Retirement Income
 +
                      Security Act of 1974); or
 +
                          ``(ii) is administered by an entity other than
 +
                      the employer who established and maintains the
 +
                      plan.
 +
                    ``(B) A health insurance issuer (as defined in
 +
                section 2791(b) of the Public Health Service Act).
 +
                    ``(C) A health maintenance organization (as defined
 +
                in section 2791(b) of the Public Health Service Act).
 +
                    ``(D) Part A or part B of the Medicare program under
 +
                title XVIII.
 +
                    ``(E) The medicaid program under title XIX.
 +
                    ``(F) A Medicare supplemental policy (as defined in
 +
                section 1882(g)(1)).
 +
                    ``(G) A long-term care policy, including a nursing
 +
                home fixed indemnity policy (unless the Secretary
 +
                determines that such a policy does not provide
 +
                sufficiently comprehensive coverage of a benefit so that
 +
                the policy should be treated as a health plan).
 +
                    ``(H) An employee welfare benefit plan or any other
 +
                arrangement which is established or maintained for the
 +
                purpose of offering or providing health benefits to the
 +
                employees of 2 or more employers.
 +
                    ``(I) The health care program for active military
 +
                personnel under title 10, United States Code.
 +
                    ``(J) The veterans health care program under chapter
 +
                17 of title 38, United States Code.
 +
                    ``(K) The Civilian Health and Medical Program of the
 +
                Uniformed Services (CHAMPUS), as defined in section
 +
                1072(4) of title 10, United States Code.
 +
                    ``(L) The Indian health service program under the
 +
                Indian Health Care Improvement Act (25 U.S.C. 1601 et
 +
                seq.).
 +
                    ``(M) The Federal Employees Health Benefit Plan
 +
                under chapter 89 of title 5, United States Code.
 +
            ``(6) Individually identifiable health information.--The
 +
        term `individually identifiable health information' means any
 +
        information, including demographic information collected from an
 +
        individual, that--
 +
                    ``(A) is created or received by a health care
 +
                provider, health plan, employer, or health care
 +
                clearinghouse; and
 +
                    ``(B) relates to the past, present, or future
 +
                physical or mental health or condition of an individual,
 +
                the provision of health care to an individual, or the
 +
                past, present, or future payment for the provision of
 +
                health care to an individual, and--
 +
                          ``(i) identifies the individual; or
 +
                          ``(ii) with respect to which there is a
 +
                      reasonable basis to believe that the information
 +
                      can be used to identify the individual.
 +
            ``(7) Standard.--The term `standard', when used with
 +
        reference to a data element of health information or a
 +
        transaction referred to in section 1173(a)(1), means any such
 +
        data element or transaction that meets each of the standards and
 +
        implementation specifications adopted or established by the
 +
        Secretary with respect to the data element or transaction under
 +
        sections 1172 through 1174.
 +
            ``(8) Standard setting organization.--The term `standard
 +
        setting organization' means a standard setting organization
 +
        accredited by the American National Standards Institute,
 +
        including the National Council for Prescription Drug Programs,
 +
        that develops standards for information transactions, data
 +
        elements, or any other standard that is necessary to, or will
 +
        facilitate, the implementation of this part.
 +
 +
            ``general requirements for adoption of standards
 +
 +
    ``Sec. 1172. (a) Applicability.--Any <<NOTE: 42 USC 1320d-1.>> 
 +
standard adopted under this part shall apply, in whole or in part, to
 +
the following persons:
 +
            ``(1) A health plan.
 +
            ``(2) A health care clearinghouse.
 +
            ``(3) A health care provider who transmits any health
 +
        information in electronic form in connection with a transaction
 +
        referred to in section 1173(a)(1).
 +
 +
    ``(b) Reduction of Costs.--Any standard adopted under this part
 +
shall be consistent with the objective of reducing the administrative
 +
costs of providing and paying for health care.
 +
    ``(c) Role of Standard Setting Organizations.--
 +
            ``(1) In general.--Except as provided in paragraph (2), any
 +
        standard adopted under this part shall be a standard that has
 +
        been developed, adopted, or modified by a standard setting
 +
        organization.
 +
            ``(2) Special rules.--
 +
                    ``(A) Different standards.--The Secretary may adopt
 +
                a standard that is different from any standard
 +
                developed, adopted, or modified by a standard setting
 +
                organization, if--
 +
                          ``(i) the different standard will
 +
                      substantially reduce administrative costs to
 +
                      health care providers and health plans compared to
 +
                      the alternatives; and
 +
                          ``(ii) the standard is promulgated in
 +
                      accordance with the rulemaking procedures of
 +
                      subchapter III of chapter 5 of title 5, United
 +
                      States Code.
 +
                    ``(B) No standard by standard setting
 +
                organization.--If no standard setting organization has
 +
                developed, adopted, or modified any standard relating to
 +
                a standard that the Secretary is authorized or required
 +
                to adopt under this part--
 +
                          ``(i) paragraph (1) shall not apply; and
 +
                          ``(ii) subsection (f) shall apply.
 +
            ``(3) Consultation requirement.--
 +
                    ``(A) In general.--A standard may not be adopted
 +
                under this part unless--
 +
                          ``(i) in the case of a standard that has been
 +
                      developed, adopted, or modified by a standard
 +
                      setting organization, the organization consulted
 +
                      with each of the organizations described in
 +
                      subparagraph (B) in the course of such
 +
                      development, adoption, or modification; and
 +
                          ``(ii) in the case of any other standard, the
 +
                      Secretary, in complying with the requirements of
 +
                      subsection (f), consulted with each of the
 +
                      organizations described in subparagraph (B) before
 +
                      adopting the standard.
 +
                    ``(B) Organizations described.--The organizations
 +
                referred to in subparagraph (A) are the following:
 +
                          ``(i) The National Uniform Billing Committee.
 +
                          ``(ii) The National Uniform Claim Committee.
 +
                          ``(iii) The Workgroup for Electronic Data
 +
                      Interchange.
 +
                          ``(iv) The American Dental Association.
 +
 +
    ``(d) Implementation Specifications.--The Secretary shall establish
 +
specifications for implementing each of the standards adopted under this
 +
part.
 +
    ``(e) Protection of Trade Secrets.--Except as otherwise required by
 +
law, a standard adopted under this part shall not require disclosure of
 +
trade secrets or confidential commercial information by a person
 +
required to comply with this part.
 +
    ``(f) Assistance to the Secretary.--In complying with the
 +
requirements of this part, the Secretary shall rely on the
 +
recommendations of the National Committee on Vital and Health Statistics
 +
established under section 306(k) of the Public Health Service Act (42
 +
U.S.C. 242k(k)), and shall consult with appropriate Federal and State
 +
agencies <<NOTE: Federal Register, publication.>>  and private
 +
organizations. The Secretary shall publish in the Federal Register any
 +
recommendation of the National Committee on Vital and Health Statistics
 +
regarding the adoption of a standard under this part.
 +
 +
    ``(g) Application to Modifications of Standards.--This section shall
 +
apply to a modification to a standard (including an addition to a
 +
standard) adopted under section 1174(b) in the same manner as it applies
 +
to an initial standard adopted under section 1174(a).
 +
 +
      ``standards for information transactions and data elements
 +
 +
    ``Sec. 1173. (a) Standards <<NOTE: 42 USC 1320d-2.>>  To Enable
 +
Electronic Exchange.--
 +
            ``(1) In general.--The Secretary shall adopt standards for
 +
        transactions, and data elements for such transactions, to enable
 +
        health information to be exchanged electronically, that are
 +
        appropriate for--
 +
                    ``(A) the financial and administrative transactions
 +
                described in paragraph (2); and
 +
                    ``(B) other financial and administrative
 +
                transactions determined appropriate by the Secretary,
 +
                consistent with the goals of improving the operation of
 +
                the health care system and reducing administrative
 +
                costs.
 +
            ``(2) Transactions.--The transactions referred to in
 +
        paragraph (1)(A) are transactions with respect to the following:
 +
                    ``(A) Health claims or equivalent encounter
 +
                information.
 +
                    ``(B) Health claims attachments.
 +
                    ``(C) Enrollment and disenrollment in a health plan.
 +
                    ``(D) Eligibility for a health plan.
 +
                    ``(E) Health care payment and remittance advice.
 +
                    ``(F) Health plan premium payments.
 +
                    ``(G) First report of injury.
 +
                    ``(H) Health claim status.
 +
                    ``(I) Referral certification and authorization.
 +
            ``(3) Accommodation of specific providers.--The
 +
        standards adopted by the Secretary under paragraph (1) shall
 +
        accommodate the needs of different types of health care
 +
        providers.
 +
 +
    ``(b) Unique Health Identifiers.--
 +
            ``(1) In general.--The Secretary shall adopt standards
 +
        providing for a standard unique health identifier for each
 +
        individual, employer, health plan, and health care provider for
 +
        use in the health care system. In carrying out the preceding
 +
        sentence for each health plan and health care provider, the
 +
        Secretary shall take into account multiple uses for identifiers
 +
        and multiple locations and specialty classifications for health
 +
        care providers.
 +
            ``(2) Use of identifiers.--The standards adopted under
 +
        paragraph (1) shall specify the purposes for which a unique
 +
        health identifier may be used.
 +
 +
    ``(c) Code Sets.--
 +
            ``(1) In general.--The Secretary shall adopt standards
 +
        that--
 +
                    ``(A) select code sets for appropriate data elements
 +
                for the transactions referred to in subsection (a)(1)
 +
                from among the code sets that have been developed by
 +
                private and public entities; or
 +
                    ``(B) establish code sets for such data elements if
 +
                no code sets for the data elements have been developed.
 +
            ``(2) Distribution.--The Secretary shall establish efficient
 +
        and low-cost procedures for distribution (including electronic
 +
        distribution) of code sets and modifications made to such code
 +
        sets under section 1174(b).
 +
 +
    ``(d) Security Standards for Health Information.--
 +
            ``(1) Security standards.--The Secretary shall adopt
 +
        security standards that--
 +
                    ``(A) take into account--
 +
                          ``(i) the technical capabilities of record
 +
                      systems used to maintain health information;
 +
                          ``(ii) the costs of security measures;
 +
                          ``(iii) the need for training persons who have
 +
                      access to health information;
 +
                          ``(iv) the value of audit trails in
 +
                      computerized record systems; and
 +
                          ``(v) the needs and capabilities of small
 +
                      health care providers and rural health care
 +
                      providers (as such providers are defined by the
 +
                      Secretary); and
 +
                    ``(B) ensure that a health care clearinghouse, if it
 +
                is part of a larger organization, has policies and
 +
                security procedures which isolate the activities of the
 +
                health care clearinghouse with respect to processing
 +
                information in a manner that prevents unauthorized
 +
                access to such information by such larger organization.
 +
            ``(2) Safeguards.--Each person described in section 1172(a)
 +
        who maintains or transmits health information shall maintain
 +
        reasonable and appropriate administrative, technical, and
 +
        physical safeguards--
 +
                    ``(A) to ensure the integrity and confidentiality of
 +
                the information;
 +
                    ``(B) to protect against any reasonably
 +
                anticipated--
 +
                          ``(i) threats or hazards to the security or
 +
                      integrity of the information; and
 +
                          ``(ii) unauthorized uses or disclosures of the
 +
                      information; and
 +
                    ``(C) otherwise to ensure compliance with this part
 +
                by the officers and employees of such person.
 +
 +
    ``(e) Electronic Signature.--
 +
            ``(1) Standards.--The Secretary, in coordination with the
 +
        Secretary of Commerce, shall adopt standards specifying
 +
        procedures for the electronic transmission and authentication of
 +
        signatures with respect to the transactions referred to in
 +
        subsection (a)(1).
 +
            ``(2) Effect of compliance.--Compliance with the standards
 +
        adopted under paragraph (1) shall be deemed to satisfy Federal
 +
        and State statutory requirements for written signatures with
 +
        respect to the transactions referred to in subsection (a)(1).
 +
 +
    ``(f) Transfer of Information Among Health Plans.--The Secretary
 +
shall adopt standards for transferring among health plans appropriate
 +
standard data elements needed for the coordination of benefits, the
 +
sequential processing of claims, and other data elements for individuals
 +
who have more than one health plan.
 +
 +
                ``timetables for adoption of standards
 +
 +
    ``Sec. 1174. (a) Initial <<NOTE: 42 USC 1320d-3.>>  Standards.--The
 +
Secretary shall carry out section 1173 not later than 18 months after
 +
the date of the enactment of the Health Insurance Portability and
 +
Accountability Act of 1996, except that standards relating to claims
 +
attachments shall be adopted not later than 30 months after such date.
 +
 +
    ``(b) Additions and Modifications to Standards.--
 +
            ``(1) In general.--Except as provided in paragraph (2), the
 +
        Secretary shall review the standards adopted under section 1173,
 +
        and shall adopt modifications to the standards (including
 +
        additions to the standards), as determined appropriate, but not
 +
        more frequently than once every 12 months. Any addition or
 +
        modification to a standard shall be completed in a manner which
 +
        minimizes the disruption and cost of compliance.
 +
            ``(2) Special rules.--
 +
                    ``(A) First 12-month period.--Except with respect to
 +
                additions and modifications to code sets under
 +
                subparagraph (B), the Secretary may not adopt any
 +
                modification to a standard adopted under this part
 +
                during the 12-month period beginning on the date the
 +
                standard is initially adopted, unless the Secretary
 +
                determines that the modification is necessary in order
 +
                to permit compliance with the standard.
 +
                    ``(B) Additions and modifications to code sets.--
 +
                          ``(i) In general.--The Secretary shall ensure
 +
                      that procedures exist for the routine maintenance,
 +
                      testing, enhancement, and expansion of code sets.
 +
                          ``(ii) Additional rules.--If a code set is
 +
                      modified under this subsection, the modified code
 +
                      set shall include instructions on how data
 +
                      elements of health information that were encoded
 +
                      prior to the modification may be converted or
 +
                      translated so as to preserve the informational
 +
                      value of the data elements that existed before the
 +
                      modification. Any modification to a code set under
 +
                      this subsection shall be implemented in a manner
 +
                      that minimizes the disruption and cost of
 +
                      complying with such modification.
 +
 +
                            ``requirements
 +
 +
    ``Sec. 1175. (a) Conduct <<NOTE: 42 USC 1320d-4.>>  of Transactions
 +
by Plans.--
 +
            ``(1) In general.--If a person desires to conduct a
 +
        transaction referred to in section 1173(a)(1) with a health plan
 +
        as a standard transaction--
 +
                    ``(A) the health plan may not refuse to conduct such
 +
                transaction as a standard transaction;
 +
                    ``(B) the insurance plan may not delay such
 +
                transaction, or otherwise adversely affect, or attempt
 +
                to adversely affect, the person or the transaction on
 +
                the ground that the transaction is a standard
 +
                transaction; and
 +
                    ``(C) the information transmitted and received in
 +
                connection with the transaction shall be in the form of
 +
                standard data elements of health information.
 +
            ``(2) Satisfaction of requirements.--A health plan may
 +
        satisfy the requirements under paragraph (1) by--
 +
                    ``(A) directly transmitting and receiving standard
 +
                data elements of health information; or
 +
                    ``(B) submitting nonstandard data elements to a
 +
                health care clearinghouse for processing into standard
 +
                data elements and transmission by the health care
 +
                clearinghouse, and receiving standard data elements
 +
                through the health care clearinghouse.
 +
            ``(3) Timetable for compliance.--Paragraph (1) shall not be
 +
        construed to require a health plan to comply with any standard,
 +
        implementation specification, or modification to a standard or
 +
        specification adopted or established by the Secretary under
 +
        sections 1172 through 1174 at any time prior to the date on
 +
        which the plan is required to comply with the standard or
 +
        specification under subsection (b).
 +
 +
    ``(b) Compliance With Standards.--
 +
            ``(1) Initial compliance.--
 +
                    ``(A) In general.--Not later than 24 months after
 +
                the date on which an initial standard or implementation
 +
                specification is adopted or established under sections
 +
                1172 and 1173, each person to whom the standard or
 +
                implementation specification applies shall comply with
 +
                the standard or specification.
 +
                    ``(B) Special rule for small health plans.--In the
 +
                case of a small health plan, paragraph (1) shall be
 +
                applied by substituting `36 months' for `24 months'. For
 +
                purposes of this subsection, the Secretary shall
 +
                determine the plans that qualify as small health plans.
 +
            ``(2) Compliance with modified standards.--If the Secretary
 +
        adopts a modification to a standard or implementation
 +
        specification under this part, each person to whom the standard
 +
        or implementation specification applies shall comply with the
 +
        modified standard or implementation specification at such time
 +
        as the Secretary determines appropriate, taking into account the
 +
        time needed to comply due to the nature and extent of the
 +
        modification. The time determined appropriate under the
 +
        preceding sentence may not be earlier than the last day of the
 +
        180-day period beginning on the date such modification is
 +
        adopted. The Secretary may extend the time for compliance for
 +
        small health plans, if the Secretary determines that such
 +
        extension is appropriate.
 +
            ``(3) Construction.--Nothing in this subsection shall be
 +
        construed to prohibit any person from complying with a standard
 +
        or specification by--
 +
                    ``(A) submitting nonstandard data elements to a
 +
                health care clearinghouse for processing into standard
 +
                data elements and transmission by the health care
 +
                clearing-
 +
                house; or
 +
                    ``(B) receiving standard data elements through a
 +
                health care clearinghouse.
 +
 +
``general penalty for failure to comply with requirements and standards
 +
 +
    ``Sec. 1176. (a) General <<NOTE: 42 USC 1320d-5.>>  Penalty.--
 +
            ``(1) In general.--Except as provided in subsection (b), the
 +
        Secretary shall impose on any person who violates a provision of
 +
        this part a penalty of not more than $100 for each such
 +
        violation, except that the total amount imposed on the person
 +
        for all violations of an identical requirement or prohibition
 +
        during a calendar year may not exceed $25,000.
 +
            ``(2) Procedures.--The provisions of section 1128A (other
 +
        than subsections (a) and (b) and the second sentence of
 +
        subsection (f)) shall apply to the imposition of a civil money
 +
        penalty under this subsection in the same manner as such
 +
        provisions apply to the imposition of a penalty under such
 +
        section 1128A.
 +
 +
    ``(b) Limitations.--
 +
            ``(1) Offenses otherwise punishable.--A penalty may not be
 +
        imposed under subsection (a) with respect to an act if the act
 +
        constitutes an offense punishable under section 1177.
 +
            ``(2) Noncompliance not discovered.--A penalty may not be
 +
        imposed under subsection (a) with respect to a provision of this
 +
        part if it is established to the satisfaction of the Secretary
 +
        that the person liable for the penalty did not know, and by
 +
        exercising reasonable diligence would not have known, that such
 +
        person violated the provision.
 +
            ``(3) Failures due to reasonable cause.--
 +
                    ``(A) In general.--Except as provided in
 +
                subparagraph (B), a penalty may not be imposed under
 +
                subsection
 +
                (a) if--
 +
                          ``(i) the failure to comply was due to
 +
                      reasonable cause and not to willful neglect; and
 +
                          ``(ii) the failure to comply is corrected
 +
                      during the 30-day period beginning on the first
 +
                      date the person liable for the penalty knew, or by
 +
                      exercising reasonable diligence would have known,
 +
                      that the failure to comply occurred.
 +
                    ``(B) Extension of period.--
 +
                          ``(i) No penalty.--The period referred to in
 +
                      subparagraph (A)(ii) may be extended as determined
 +
                      appropriate by the Secretary based on the nature
 +
                      and extent of the failure to comply.
 +
                          ``(ii) Assistance.--If the Secretary
 +
                      determines that a person failed to comply because
 +
                      the person was unable to comply, the Secretary may
 +
                      provide technical assistance to the person during
 +
                      the period described in subparagraph (A)(ii). Such
 +
                      assistance shall be provided in any manner
 +
                      determined appropriate by the Secretary.
 +
            ``(4) Reduction.--In the case of a failure to comply which
 +
        is due to reasonable cause and not to willful neglect, any
 +
        penalty under subsection (a) that is not entirely waived under
 +
        paragraph (3) may be waived to the extent that the payment of
 +
        such penalty would be excessive relative to the compliance
 +
        failure involved.
 +
 +
  ``wrongful disclosure of individually identifiable health information
 +
 +
    ``Sec. 1177. (a) Offense.--A <<NOTE: 42 USC 1320d-6.>>  person who
 +
knowingly and in violation of this part--
 +
            ``(1) uses or causes to be used a unique health identifier;
 +
            ``(2) obtains individually identifiable health information
 +
        relating to an individual; or
 +
            ``(3) discloses individually identifiable health information
 +
        to another person,
 +
 +
shall be punished as provided in subsection (b).
 +
    ``(b) Penalties.--A person described in subsection (a) shall--
 +
            ``(1) be fined not more than $50,000, imprisoned not more
 +
        than 1 year, or both;
 +
            ``(2) if the offense is committed under false pretenses, be
 +
        fined not more than $100,000, imprisoned not more than 5 years,
 +
        or both; and
 +
            ``(3) if the offense is committed with intent to sell,
 +
        transfer, or use individually identifiable health information
 +
        for commercial advantage, personal gain, or malicious harm, be
 +
        fined not more than $250,000, imprisoned not more than 10 years,
 +
                                    or both.
 +
 +
    ``Sec. 1178. (a) General <<NOTE: 42 USC 1320d-7.>>  Effect.--
 +
            ``(1) General rule.--Except as provided in paragraph (2), a
 +
        provision or requirement under this part, or a standard or
 +
        implementation specification adopted or established under
 +
        sections 1172 through 1174, shall supersede any contrary
 +
        provision of State law, including a provision of State law that
 +
        requires medical or health plan records (including billing
 +
        information) to be maintained or transmitted in written rather
 +
        than electronic form.
 +
            ``(2) Exceptions.--A provision or requirement under this
 +
        part, or a standard or implementation specification adopted or
 +
        established under sections 1172 through 1174, shall not
 +
        supersede a contrary provision of State law, if the provision of
 +
        State law--
 +
                    ``(A) is a provision the Secretary determines--
 +
                          ``(i) is necessary--
 +
                                    ``(I) to prevent fraud and abuse;
 +
                                    ``(II) to ensure appropriate State
 +
                                regulation of insurance and health
 +
                                plans;
 +
                                    ``(III) for State reporting on
 +
                                health care delivery or costs; or
 +
                                    ``(IV) for other purposes; or
 +
                          ``(ii) addresses controlled substances; or
 +
                    ``(B) subject to section 264(c)(2) of the Health
 +
                Insurance Portability and Accountability Act of 1996,
 +
                relates to the privacy of individually identifiable
 +
                health information.
 +
 +
    ``(b) Public Health.--Nothing in this part shall be construed to
 +
invalidate or limit the authority, power, or procedures established
 +
under any law providing for the reporting of disease or injury, child
 +
abuse, birth, or death, public health surveillance, or public health
 +
investigation or intervention.
 +
    ``(c) State Regulatory Reporting.--Nothing in this part shall limit
 +
the ability of a State to require a health plan to report, or to provide
 +
access to, information for management audits, financial audits, program
 +
monitoring and evaluation, facility licensure or certification, or
 +
individual licensure or certification.
 +
 +
      ``processing payment transactions by financial institutions
 +
 +
    ``Sec. 1179. To <<NOTE: 42 USC 1320d-8.>>  the extent that an entity
 +
is engaged in activities of a financial institution (as defined in
 +
section 1101 of the Right to Financial Privacy Act of 1978), or is
 +
engaged in authorizing, processing, clearing, settling, billing,
 +
transferring, reconciling, or collecting payments, for a financial
 +
institution, this part, and any standard adopted under this part, shall
 +
not apply to the entity with respect to such activities, including the
 +
following:
 +
            ``(1) The use or disclosure of information by the entity for
 +
        authorizing, processing, clearing, settling, billing,
 +
        transferring, reconciling or collecting, a payment for, or
 +
        related to, health plan premiums or health care, where such
 +
        payment is made by any means, including a credit, debit, or
 +
        other payment card, an account, check, or electronic funds
 +
        transfer.
 +
            ``(2) The request for, or the use or disclosure of,
 +
        information by the entity with respect to a payment described in
 +
        para-
 +
        graph (1)--
 +
                    ``(A) for transferring receivables;
 +
                    ``(B) for auditing;
 +
                    ``(C) in connection with--
 +
                          ``(i) a customer dispute; or
 +
                          ``(ii) an inquiry from, or to, a customer;
 +
                    ``(D) in a communication to a customer of the entity
 +
                regarding the customer's transactions, payment card,
 +
                account, check, or electronic funds transfer;
 +
                    ``(E) for reporting to consumer reporting agencies;
 +
                or
 +
                    ``(F) for complying with--
 +
                          ``(i) a civil or criminal subpoena; or
 +
                          ``(ii) a Federal or State law regulating the
 +
                      entity.''.
 +
 +
    (b) Conforming Amendments.--
 +
            (1) Requirement for medicare providers.--Section 1866(a)(1)
 +
        (42 U.S.C. 1395cc(a)(1)) is amended--
 +
                    (A) by striking ``and'' at the end of subparagraph
 +
                (P);
 +
                    (B) by striking the period at the end of
 +
                subparagraph (Q) and inserting ``; and''; and
 +
                    (C) by inserting immediately after subparagraph (Q)
 +
                the following new subparagraph:
 +
            ``(R) to contract only with a health care clearinghouse (as
 +
        defined in section 1171) that meets each standard and
 +
        implementation specification adopted or established under part C
 +
        of title XI on or after the date on which the health care
 +
        clearinghouse is required to comply with the standard or
 +
        specification.''.
 +
            (2) Title heading.--Title XI (42 U.S.C. 1301 et seq.) is
 +
        amended by striking the title heading and inserting the
 +
        following:
 +
 +
    ``TITLE XI--GENERAL PROVISIONS, PEER REVIEW, AND ADMINISTRATIVE
 +
                            SIMPLIFICATION''.
 +
 +
SEC. 263. CHANGES IN MEMBERSHIP AND DUTIES OF NATIONAL COMMITTEE
 +
                        ON VITAL AND HEALTH STATISTICS.
 +
 +
    Section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k))
 +
is amended--
 +
            (1) in paragraph (1), by striking ``16'' and inserting
 +
        ``18'';
 +
            (2) by amending paragraph (2) to read as follows:
 +
 +
    ``(2) The members of the Committee shall be appointed from among
 +
persons who have distinguished themselves in the fields of health
 +
statistics, electronic interchange of health care information, privacy
 +
and security of electronic information, population-based public health,
 +
purchasing or financing health care services, integrated computerized
 +
health information systems, health services research, consumer interests
 +
in health information, health data standards, epidemiology, and the
 +
provision of health services. Members of the Committee shall be
 +
appointed for terms of 4 years.'';
 +
            (3) by redesignating paragraphs (3) through (5) as
 +
        paragraphs (4) through (6), respectively, and inserting after
 +
        paragraph (2) the following:
 +
 +
    ``(3) Of the members of the Committee--
 +
            ``(A) 1 shall be appointed, not later than 60 days after the
 +
        date of the enactment of the Health Insurance Portability and
 +
        Accountability Act of 1996, by the Speaker of the House of
 +
        Representatives after consultation with the Minority Leader of
 +
        the House of Representatives;
 +
            ``(B) 1 shall be appointed, not later than 60 days after the
 +
        date of the enactment of the Health Insurance Portability and
 +
        Accountability Act of 1996, by the President pro tempore of the
 +
        Senate after consultation with the Minority Leader of the
 +
        Senate; and
 +
            ``(C) 16 shall be appointed by the Secretary.'';
 +
            (4) by amending paragraph (5) (as so redesignated) to read
 +
        as follows:
 +
 +
    ``(5) The Committee--
 +
            ``(A) shall assist and advise the Secretary--
 +
                    ``(i) to delineate statistical problems bearing on
 +
                health and health services which are of national or
 +
                international interest;
 +
                    ``(ii) to stimulate studies of such problems by
 +
                other organizations and agencies whenever possible or to
 +
                make investigations of such problems through
 +
                subcommittees;
 +
                    ``(iii) to determine, approve, and revise the terms,
 +
                definitions, classifications, and guidelines for
 +
                assessing health status and health services, their
 +
                distribution and costs, for use (I) within the
 +
                Department of Health and Human Services, (II) by all
 +
                programs administered or funded by the Secretary,
 +
                including the Federal-State-local cooperative health
 +
                statistics system referred to in subsection (e), and
 +
                (III) to the extent possible as determined by the head
 +
                of the agency involved, by the Department of Veterans
 +
                Affairs, the Department of Defense, and other Federal
 +
                agencies concerned with health and health services;
 +
                    ``(iv) with respect to the design of and approval of
 +
                health statistical and health information systems
 +
                concerned with the collection, processing, and
 +
                tabulation of health statistics within the Department of
 +
                Health and Human Services, with respect to the
 +
                Cooperative Health Statistics System established under
 +
                subsection (e), and with respect to the standardized
 +
                means for the collection of health information and
 +
                statistics to be established by the Secretary under
 +
                subsection (j)(1);
 +
                    ``(v) to review and comment on findings and
 +
                proposals developed by other organizations and agencies
 +
                and to make recommendations for their adoption or
 +
                implementation by local, State, national, or
 +
                international agencies;
 +
                    ``(vi) to cooperate with national committees of
 +
                other countries and with the World Health Organization
 +
                and other national agencies in the studies of problems
 +
                of mutual interest;
 +
                    ``(vii) to issue <<NOTE: Reports.>>  an annual
 +
                report on the state of the Nation's health, its health
 +
                services, their costs and distributions, and to make
 +
                proposals for improvement of the Nation's health
 +
                statistics and health information systems; and
 +
                    ``(viii) in complying with the requirements imposed
 +
                on the Secretary under part C of title XI of the Social
 +
                Security Act;
 +
            ``(B) shall study the issues related to the adoption of
 +
        uniform data standards for patient medical record information
 +
        and the electronic exchange of such information;
 +
            ``(C) shall <<NOTE: Reports.>>  report to the Secretary not
 +
        later than 4 years after the date of the enactment of the Health
 +
        Insurance Portability and Accountability Act of 1996
 +
        recommendations and legislative proposals for such standards and
 +
        electronic exchange; and
 +
            ``(D) shall be responsible generally for advising the
 +
        Secretary and the Congress on the status of the implementation
 +
        of part C of title XI of the Social Security Act.''; and
 +
            (5) by adding at the end the following:
 +
 +
    ``(7) <<NOTE: Reports.>>  Not later than 1 year after the date of
 +
the enactment of the Health Insurance Portability and Accountability Act
 +
of 1996, and annually thereafter, the Committee shall submit to the
 +
Congress, and make public, a report regarding the implementation of part
 +
C of title XI of the Social Security Act. Such report shall address the
 +
following subjects, to the extent that the Committee determines
 +
appropriate:
 +
            ``(A) The extent to which persons required to comply with
 +
        part C of title XI of the Social Security Act are cooperating in
 +
        implementing the standards adopted under such part.
 +
            ``(B) The extent to which such entities are meeting the
 +
        security standards adopted under such part and the types of
 +
        penalties assessed for noncompliance with such standards.
 +
            ``(C) Whether the Federal and State Governments are
 +
        receiving information of sufficient quality to meet their
 +
        responsibilities under such part.
 +
            ``(D) Any problems that exist with respect to implementation
 +
        of such part.
 +
            ``(E) The extent to which timetables under such part are
 +
        being met.''.
 +
SEC. 264. RECOMMENDATIONS WITH <<NOTE: 42 USC 1320d-2 note.>> 
 +
                        RESPECT TO PRIVACY OF CERTAIN HEALTH
 +
                        INFORMATION.
 +
 +
    (a) In General.--Not later than the date that is 12 months after the
 +
date of the enactment of this Act, the Secretary of
 +
Health and Human Services shall submit to the Committee on Labor and
 +
Human Resources and the Committee on Finance of the Senate and the
 +
Committee on Commerce and the Committee on Ways and Means of the House
 +
of Representatives detailed
 +
recommendations on standards with respect to the privacy of individually
 +
identifiable health information.
 +
    (b) Subjects for Recommendations.--The recommendations under
 +
subsection (a) shall address at least the following:
 +
            (1) The rights that an individual who is a subject of
 +
        individually identifiable health information should have.
 +
            (2) The procedures that should be established for the
 +
        exercise of such rights.
 +
            (3) The uses and disclosures of such information that should
 +
        be authorized or required.
 +
 +
    (c) Regulations.--
 +
            (1) In <<NOTE: Regulations.>>  general.--If legislation
 +
        governing standards with respect to the privacy of individually
 +
        identifiable health information transmitted in connection with
 +
        the transactions described in section 1173(a) of the Social
 +
        Security Act (as added by section 262) is not enacted by the
 +
        date that is 36 months after the date of the enactment of this
 +
        Act, the Secretary of Health and Human Services shall promulgate
 +
        final regulations containing such standards not later than the
 +
        date that is 42 months after the date of the enactment of this
 +
        Act. Such regulations shall address at least the subjects
 +
        described in subsection (b).
 +
            (2) Preemption.--A regulation promulgated under paragraph
 +
        (1) shall not supercede a contrary provision of State law, if
 +
        the provision of State law imposes requirements, standards, or
 +
        implementation specifications that are more stringent than the
 +
        requirements, standards, or implementation specifications
 +
        imposed under the regulation.
 +
 +
    (d) Consultation.--In carrying out this section, the Secretary of
 +
Health and Human Services shall consult with--
 +
            (1) the National Committee on Vital and Health Statistics
 +
        established under section 306(k) of the Public Health Service
 +
        Act (42 U.S.C. 242k(k)); and
 +
            (2) the Attorney General.
 +
 +
  Subtitle G--Duplication and Coordination of Medicare-Related Plans
 +
 +
SEC. 271. DUPLICATION AND COORDINATION OF MEDICARE-RELATED PLANS.
 +
 +
    (a) Treatment of Certain Health Insurance Policies as
 +
Nonduplicative.--Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is
 +
amended--
 +
            (1) in clause (iii), by striking ``clause (i)'' and
 +
        inserting ``clause (i)(II)''; and
 +
            (2) by adding at the end the following:
 +
 +
    ``(iv) For purposes of this subparagraph, a health insurance policy
 +
(other than a Medicare supplemental policy) providing for benefits which
 +
are payable to or on behalf of an individual without regard to other
 +
health benefit coverage of such individual is not considered to
 +
`duplicate' any health benefits under this title, under title XIX, or
 +
under a health insurance policy, and subclauses (I) and (III) of clause
 +
(i) do not apply to such a policy.
 +
    ``(v) For purposes of this subparagraph, a health insurance policy
 +
(or a rider to an insurance contract which is not a health insurance
 +
policy) is not considered to `duplicate' health benefits under this
 +
title or under another health insurance policy if it--
 +
            ``(I) provides health care benefits only for long-term care,
 +
        nursing home care, home health care, or community-based care, or
 +
        any combination thereof,
 +
            ``(II) coordinates against or excludes items and services
 +
        available or paid for under this title or under another health
 +
        insurance policy, and
 +
            ``(III) for policies sold or issued on or after the end of
 +
        the 90-day period beginning on the date of enactment of the
 +
        Health Insurance Portability and Accountability Act of 1996
 +
        discloses such coordination or exclusion in the policy's outline
 +
        of coverage.
 +
 +
For purposes of this clause, the terms `coordinates' and `coordination'
 +
mean, with respect to a policy in relation to health benefits under this
 +
title or under another health insurance policy, that the policy under
 +
its terms is secondary to, or excludes from payment, items and services
 +
to the extent available or paid for under this title or under another
 +
health insurance policy.
 +
    ``(vi)(I) An individual entitled to benefits under part A or
 +
enrolled under part B of this title who is applying for a health
 +
insurance policy (other than a policy described in subclause (III))
 +
shall be furnished a disclosure statement described in clause (vii) for
 +
the type of policy being applied for. Such statement shall be furnished
 +
as a part of (or together with) the application for such policy.
 +
    ``(II) Whoever issues or sells a health insurance policy (other than
 +
a policy described in subclause (III)) to an individual described in
 +
subclause (I) and fails to furnish the appropriate disclosure statement
 +
as required under such subclause shall be fined under title 18, United
 +
States Code, or imprisoned not more than 5 years, or both, and, in
 +
addition to or in lieu of such a criminal penalty, is subject to a civil
 +
money penalty of not to exceed $25,000 (or $15,000 in the case of a
 +
person other than the issuer of the policy) for each such violation.
 +
    ``(III) A policy described in this subclause (to which subclauses
 +
(I) and (II) do not apply) is a Medicare supplemental policy or a health
 +
insurance policy identified under 60 Federal Register 30880 (June 12,
 +
1995) as a policy not required to have a disclosure statement.
 +
    ``(IV) Any reference in this section to the revised NAIC model
 +
regulation (referred to in subsection (m)(1)(A)) is deemed a reference
 +
to such regulation as revised by section 171(m)(2) of the Social
 +
Security Act Amendments of 1994 (Public Law 103-432) and as modified by
 +
substituting, for the disclosure required under section 16D(2),
 +
disclosure under subclause (I) of an appropriate disclosure statement
 +
under clause (vii).
 +
    ``(vii) The disclosure statement described in this clause for a type
 +
of policy is the statement specified under subparagraph (D) of this
 +
paragraph (as in effect before the date of the enactment of the Health
 +
Insurance Portability and Accountability Act of 1996) for that type of
 +
policy, as revised as follows:
 +
            ``(I) In each statement, amend the second line to read as
 +
        follows:
 +
 +
              `THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'.
 +
 +
            ``(II) In each statement, strike the third line and insert
 +
        the following: `Some health care services paid for by Medicare
 +
        may also trigger the payment of benefits under this policy.'.
 +
            ``(III) In each statement not described in subclause (V),
 +
        strike the boldface matter that begins `This insurance' and all
 +
        that follows up to the next paragraph that begins `Medicare'.
 +
            ``(IV) In each statement not described in subclause (V),
 +
        insert before the boxed matter (that states `Before You Buy This
 +
        Insurance') the following: `This policy must pay benefits
 +
        without regard to other health benefit coverage to which you may
 +
        be entitled under Medicare or other insurance.'.
 +
            ``(V) In a statement relating to policies providing both
 +
        nursing home and non-institutional coverage, to policies
 +
        providing nursing home benefits only, or policies providing home
 +
        care benefits only, amend the sentence that begins `Federal law'
 +
        to read as follows: `Federal law requires us to inform you that
 +
        in certain situations this insurance may pay for some care also
 +
        covered by Medicare.'.
 +
 +
    ``(viii)(I) Subject to subclause (II), nothing in this subparagraph
 +
shall restrict or preclude a State's ability to regulate health
 +
insurance policies, including any health insurance policy that is
 +
described in clause (iv), (v), or (vi)(III).
 +
    ``(II) A State may not declare or specify, in statute, regulation,
 +
or otherwise, that a health insurance policy (other than a Medicare
 +
supplemental policy) or rider to an insurance contract which is not a
 +
health insurance policy, that is described in clause (iv), (v), or
 +
(vi)(III) and that is sold, issued, or renewed to an individual entitled
 +
to benefits under part A or enrolled under part B `duplicates' health
 +
benefits under this title or under a Medicare supplemental policy.''.
 +
    (b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C.
 +
1395ss(d)(3)) is amended--
 +
            (1) in subparagraph (C)--
 +
                    (A) by striking ``with respect to (i)'' and
 +
                inserting ``with respect to'', and
 +
                    (B) by striking ``, (ii) the sale'' and all that
 +
                follows up to the period at the end; and
 +
            (2) by striking subparagraph (D).
 +
 +
    (c) Transitional <<NOTE: 42 USC 1395ss note.>>  Provision.--
 +
            (1) No penalties.--Subject to paragraph (3), no criminal or
 +
        civil money penalty may be imposed under section 1882(d)(3)(A)
 +
        of the Social Security Act for any act or omission that occurred
 +
        during the transition period (as defined in paragraph (4)) and
 +
        that relates to any health insurance policy that is described in
 +
        clause (iv) or (v) of such section (as amended by subsection
 +
        (a)).
 +
            (2) Limitation on legal action.--Subject to paragraph (3),
 +
        no legal action shall be brought or continued in any Federal or
 +
        State court insofar as such action--
 +
                    (A) includes a cause of action which arose, or which
 +
                is based on or evidenced by any act or omission which
 +
                occurred, during the transition period; and
 +
                    (B) relates to the application of section
 +
                1882(d)(3)(A) of the Social Security Act to any act or
 +
                omission with respect to the sale, issuance, or renewal
 +
                of any health insurance policy that is described in
 +
                clause (iv) or (v) of such section (as amended by
 +
                subsection (a)).
 +
            (3) Disclosure condition.--In the case of a policy described
 +
        in clause (iv) of section 1882(d)(3)(A) of the Social Security
 +
        Act that is sold or issued on or after the effective date of
 +
        statements under section 171(d)(3)(C) of the Social Security Act
 +
        Amendments of 1994 and before the end of the 30-day period
 +
        beginning on the date of the enactment of this Act, paragraphs
 +
        (1) and (2) shall only apply if disclosure was made in
 +
        accordance with section 1882(d)(3)(C)(ii) of the Social Security
 +
        Act (as in effect before the date of the enactment of this Act).
 +
            (4) Transition period.--In this subsection, the term
 +
        ``transition period'' means the period beginning on November 5,
 +
        1991, and ending on the date of the enactment of this Act.
 +
 +
    (d) Effective <<NOTE: 42 USC 1395ss note.>>  Date.--(1) Except as
 +
provided in this subsection, the amendment made by subsection (a) shall
 +
be effective as if included in the enactment of section 4354 of the
 +
Omnibus Budget Reconciliation Act of 1990.
 +
 +
    (2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security
 +
Act, as added by subsection (a), shall only apply to individuals
 +
applying for--
 +
            (i) a health insurance policy described in section
 +
        1882(d)(3)(A)(iv) of such Act (as added by subsection (a)),
 +
        after the date of the enactment of this Act, or
 +
            (ii) another health insurance policy after the end of the
 +
        30-day period beginning on the date of the enactment of this
 +
        Act.
 +
 +
    (B) A seller or issuer of a health insurance policy may substitute,
 +
for the disclosure statement described in clause (vii) of such section,
 +
the statement specified under section 1882(d)(3)(D) of the Social
 +
Security Act (as in effect before the date of the enactment of this
 +
Act), without the revision specified in such clause.
 +
 +
                TITLE III--TAX-RELATED HEALTH PROVISIONS
 +
 +
SEC. 300. AMENDMENT OF 1986 CODE.
 +
 +
    Except as otherwise expressly provided, whenever in this title an
 +
amendment or repeal is expressed in terms of an amendment to, or repeal
 +
of, a section or other provision, the reference shall be considered to
 +
be made to a section or other provision of the Internal Revenue Code of
 +
1986.
 +
 +
                  Subtitle A--Medical Savings Accounts
 +
 +
SEC. 301. MEDICAL SAVINGS ACCOUNTS.
 +
 +
    (a) In General.--Part VII of subchapter B of chapter 1 (relating to
 +
additional itemized deductions for individuals) is amended by
 +
redesignating section 220 as section 221 and by inserting after section
 +
219 the following new section:
 +
 +
``SEC. 220. MEDICAL SAVINGS ACCOUNTS.
 +
 +
    ``(a) Deduction Allowed.--In the case of an individual who is an
 +
eligible individual for any month during the taxable year, there shall
 +
be allowed as a deduction for the taxable year an amount equal to the
 +
aggregate amount paid in cash during such taxable year by such
 +
individual to a medical savings account of such individual.
 +
    ``(b) Limitations.--
 +
            ``(1) In general.--The amount allowable as a deduction under
 +
        subsection (a) to an individual for the taxable year shall not
 +
        exceed the sum of the monthly limitations for months during such
 +
        taxable year that the individual is an eligible individual.
 +
            ``(2) Monthly limitation.--The monthly limitation for any
 +
        month is the amount equal to \1/12\ of--
 +
                    ``(A) in the case of an individual who has self-only
 +
                coverage under the high deductible health plan as of the
 +
                first day of such month, 65 percent of the annual
 +
                deductible under such coverage, and
 +
                    ``(B) in the case of an individual who has family
 +
                coverage under the high deductible health plan as of the
 +
                first day of such month, 75 percent of the annual
 +
                deductible under such coverage.
 +
            ``(3) Special rule for married individuals.--In the case of
 +
        individuals who are married to each other, if either spouse has
 +
        family coverage--
 +
                    ``(A) both spouses shall be treated as having only
 +
                such family coverage (and if such spouses each have
 +
                family coverage under different plans, as having the
 +
                family coverage with the lowest annual deductible), and
 +
                    ``(B) the limitation under paragraph (1) (after the
 +
                application of subparagraph (A) of this paragraph) shall
 +
                be divided equally between them unless they agree on a
 +
                different division.
 +
            ``(4) Deduction not to exceed compensation.--
 +
                    ``(A) Employees.--The deduction allowed under
 +
                subsection (a) for contributions as an eligible
 +
                individual described in subclause (I) of subsection
 +
                (c)(1)(A)(iii) shall not exceed such individual's wages,
 +
                salaries, tips, and other employee compensation which
 +
                are attributable to such individual's employment by the
 +
                employer referred to in such subclause.
 +
                    ``(B) Self-employed individuals.--The deduction
 +
                allowed under subsection (a) for contributions as an
 +
                eligible individual described in subclause (II) of
 +
                subsection (c)(1)(A)(iii) shall not exceed such
 +
                individual's earned income (as defined in section
 +
                401(c)(1)) derived by the taxpayer from the trade or
 +
                business with respect to which the high deductible
 +
                health plan is established.
 +
                    ``(C) Community property laws not to apply.--The
 +
                limitations under this paragraph shall be determined
 +
                without regard to community property laws.
 +
            ``(5) Coordination with exclusion for employer
 +
        contributions.--No deduction shall be allowed under this section
 +
        for any amount paid for any taxable year to a medical savings
 +
        account of an individual if--
 +
                    ``(A) any amount is contributed to any medical
 +
                savings account of such individual for such year which
 +
                is excludable from gross income under section 106(b), or
 +
                    ``(B) if such individual's spouse is covered under
 +
                the high deductible health plan covering such
 +
                individual, any amount is contributed for such year to
 +
                any medical savings account of such spouse which is so
 +
                excludable.
 +
            ``(6) Denial of deduction to dependents.--No deduction shall
 +
        be allowed under this section to any individual with respect to
 +
        whom a deduction under section 151 is allowable to another
 +
        taxpayer for a taxable year beginning in the calendar year in
 +
        which such individual's taxable year begins.
 +
 +
    ``(c) Definitions.--For purposes of this section--
 +
            ``(1) Eligible individual.--
 +
                    ``(A) In general.--The term `eligible individual'
 +
                means, with respect to any month, any individual if--
 +
                          ``(i) such individual is covered under a high
 +
                      deductible health plan as of the 1st day of such
 +
                      month,
 +
                          ``(ii) such individual is not, while covered
 +
                      under a high deductible health plan, covered under
 +
                      any health plan--
 +
                                    ``(I) which is not a high deductible
 +
                                health plan, and
 +
                                    ``(II) which provides coverage for
 +
                                any benefit which is covered under the
 +
                                high deductible health plan, and
 +
                          ``(iii)(I) the high deductible health plan
 +
                      covering such individual is established and
 +
                      maintained by
 +
                      the employer of such individual or of the spouse
 +
                      of such individual and such employer is a small
 +
                      employer, or
 +
                          ``(II) such individual is an employee (within
 +
                      the meaning of section 401(c)(1)) or the spouse of
 +
                      such an employee and the high deductible health
 +
                      plan covering such individual is not established
 +
                      or maintained by any employer of such individual
 +
                      or spouse.
 +
                    ``(B) Certain coverage disregarded.--Subparagraph
 +
                (A)(ii) shall be applied without regard to--
 +
                          ``(i) coverage for any benefit provided by
 +
                      permitted insurance, and
 +
                          ``(ii) coverage (whether through insurance or
 +
                      otherwise) for accidents, disability, dental care,
 +
                      vision care, or long-term care.
 +
                    ``(C) Continued eligibility of employee and spouse
 +
                establishing medical savings accounts.--If, while an
 +
                employer is a small employer--
 +
                          ``(i) any amount is contributed to a medical
 +
                      savings account of an individual who is an
 +
                      employee of such employer or the spouse of such an
 +
                      employee, and
 +
                          ``(ii) such amount is excludable from gross
 +
                      income under section 106(b) or allowable as a
 +
                      deduction under this section,
 +
                such individual shall not cease to meet the requirement
 +
                of subparagraph (A)(iii)(I) by reason of such employer
 +
                ceasing to be a small employer so long as such employee
 +
                continues to be an employee of such employer.
 +
                    ``(D) Limitations on eligibility.--
 +
                ``For limitations on number of taxpayers who are
 +
                eligible to have medical savings accounts, see
 +
                subsection (i).
 +
 +
            ``(2) High deductible health plan.--
 +
                    ``(A) In general.--The term `high deductible health
 +
                plan' means a health plan--
 +
                          ``(i) in the case of self-only coverage, which
 +
                      has an annual deductible which is not less than
 +
                      $1,500 and not more than $2,250,
 +
                          ``(ii) in the case of family coverage, which
 +
                      has an annual deductible which is not less than
 +
                      $3,000 and not more than $4,500, and
 +
                          ``(iii) the annual out-of-pocket expenses
 +
                      required to be paid under the plan (other than for
 +
                      premiums) for covered benefits does not exceed--
 +
                                    ``(I) $3,000 for self-only coverage,
 +
                                and
 +
                                    ``(II) $5,500 for family coverage.
 +
                    ``(B) Special rules.--
 +
                          ``(i) Exclusion of certain plans.--Such term
 +
                      does not include a health plan if substantially
 +
                      all of its coverage is coverage described in
 +
                      paragraph (1)(B).
 +
                          ``(ii) Safe harbor for absence of preventive
 +
                      care deductible.--A plan shall not fail to be
 +
                      treated as a high deductible health plan by reason
 +
                      of failing to have a deductible for preventive
 +
                      care if the absence of a deductible for such care
 +
                      is required by State law.
 +
            ``(3) Permitted insurance.--The term `permitted insurance'
 +
        means--
 +
                    ``(A) Medicare supplemental insurance,
 +
                    ``(B) insurance if substantially all of the coverage
 +
                provided under such insurance relates to--
 +
                          ``(i) liabilities incurred under workers'
 +
                      compensation laws,
 +
                          ``(ii) tort liabilities,
 +
                          ``(iii) liabilities relating to ownership or
 +
                      use of property, or
 +
                          ``(iv) such other similar liabilities as the
 +
                      Secretary may specify by regulations,
 +
                    ``(C) insurance for a specified disease or illness,
 +
                and
 +
                    ``(D) insurance paying a fixed amount per day (or
 +
                other period) of hospitalization.
 +
            ``(4) Small employer.--
 +
                    ``(A) In general.--The term `small employer' means,
 +
                with respect to any calendar year, any employer if such
 +
                employer employed an average of 50 or fewer employees on
 +
                business days during either of the 2 preceding calendar
 +
                years. For purposes of the preceding sentence, a
 +
                preceding calendar year may be taken into account only
 +
                if the employer was in existence throughout such year.
 +
                    ``(B) Employers not in existence in preceding
 +
                year.--In the case of an employer which was not in
 +
                existence throughout the 1st preceding calendar year,
 +
                the determination under subparagraph (A) shall be based
 +
                on the average number of employees that it is reasonably
 +
                expected such employer will employ on business days in
 +
                the current calendar year.
 +
                    ``(C) Certain growing employers retain treatment as
 +
                small employer.--The term `small employer' includes,
 +
                with respect to any calendar year, any employer if--
 +
                          ``(i) such employer met the requirement of
 +
                      subparagraph (A) (determined without regard to
 +
                      subparagraph (B)) for any preceding calendar year
 +
                      after 1996,
 +
                          ``(ii) any amount was contributed to the
 +
                      medical savings account of any employee of such
 +
                      employer with respect to coverage of such employee
 +
                      under a high deductible health plan of such
 +
                      employer during such preceding calendar year and
 +
                      such amount was excludable from gross income under
 +
                      section 106(b) or allowable as a deduction under
 +
                      this section, and
 +
                          ``(iii) such employer employed an average of
 +
                      200 or fewer employees on business days during
 +
                      each preceding calendar year after 1996.
 +
                    ``(D) Special rules.--
 +
                          ``(i) Controlled groups.--For purposes of this
 +
                      paragraph, all persons treated as a single
 +
                      employer under subsection (b), (c), (m), or (o) of
 +
                      section 414 shall be treated as 1 employer.
 +
                          ``(ii) Predecessors.--Any reference in this
 +
                      paragraph to an employer shall include a reference
 +
                      to any predecessor of such employer.
 +
                    ``(5) Family coverage.--The term `family coverage'
 +
                means any coverage other than self-only coverage.
 +
 +
    ``(d) Medical Savings Account.--For purposes of this
 +
section--
 +
            ``(1) Medical savings account.--The term `medical savings
 +
        account' means a trust created or organized in the United States
 +
        exclusively for the purpose of paying the qualified medical
 +
        expenses of the account holder, but only if the written
 +
        governing instrument creating the trust meets the following
 +
        requirements:
 +
                    ``(A) Except in the case of a rollover contribution
 +
                described in subsection (f)(5), no contribution will be
 +
                accepted--
 +
                          ``(i) unless it is in cash, or
 +
                          ``(ii) to the extent such contribution, when
 +
                      added to previous contributions to the trust for
 +
                      the calendar year, exceeds 75 percent of the
 +
                      highest annual limit deductible permitted under
 +
                      subsection (c)(2)(A)(ii) for such calendar year.
 +
                    ``(B) The trustee is a bank (as defined in section
 +
                408(n)), an insurance company (as defined in section
 +
                816), or another person who demonstrates to the
 +
                satisfaction of the Secretary that the manner in which
 +
                such person will administer the trust will be consistent
 +
                with the requirements of this section.
 +
                    ``(C) No part of the trust assets will be invested
 +
                in life insurance contracts.
 +
                    ``(D) The assets of the trust will not be commingled
 +
                with other property except in a common trust fund or
 +
                common investment fund.
 +
                    ``(E) The interest of an individual in the balance
 +
                in his account is nonforfeitable.
 +
            ``(2) Qualified medical expenses.--
 +
                    ``(A) In general.--The term `qualified medical
 +
                expenses' means, with respect to an account holder,
 +
                amounts paid by such holder for medical care (as defined
 +
                in section 213(d)) for such individual, the spouse of
 +
                such individual, and any dependent (as defined in
 +
                section 152) of such individual, but only to the extent
 +
                such amounts are not compensated for by insurance or
 +
                otherwise.
 +
                    ``(B) Health insurance may not be purchased from
 +
                account.--
 +
                          ``(i) In general.--Subparagraph (A) shall not
 +
                      apply to any payment for insurance.
 +
                          ``(ii) Exceptions.--Clause (i) shall not apply
 +
                      to any expense for coverage under--
 +
                                    ``(I) a health plan during any
 +
                                period of continuation coverage required
 +
                                under any Federal law,
 +
                                    ``(II) a qualified long-term care
 +
                                insurance contract (as defined in
 +
                                section 7702B(b)), or
 +
                                    ``(III) a health plan during a
 +
                                period in which the individual is
 +
                                receiving unemployment compensation
 +
                                under any Federal or State law.
 +
                    ``(C) Medical expenses of individuals who are not
 +
                eligible individuals.--Subparagraph (A) shall apply to
 +
                an amount paid by an account holder for medical care of
 +
                an individual who is not an eligible individual for the
 +
                month in which the expense for such care is incurred
 +
                only if no amount is contributed (other than a rollover
 +
                contribution) to any medical savings account of such
 +
                account holder for the taxable year which includes such
 +
                month. This subparagraph shall not apply to any expense
 +
                for coverage described in subclause (I) or (III) of
 +
                subparagraph (B)(ii).
 +
            ``(3) Account holder.--The term `account holder' means the
 +
        individual on whose behalf the medical savings account was
 +
        established.
 +
            ``(4) Certain rules to apply.--Rules similar to the
 +
        following rules shall apply for purposes of this section:
 +
                    ``(A) Section 219(d)(2) (relating to no deduction
 +
                for rollovers).
 +
                    ``(B) Section 219(f)(3) (relating to time when
 +
                contributions deemed made).
 +
                    ``(C) Except as provided in section 106(b), section
 +
                219(f)(5) (relating to employer payments).
 +
                    ``(D) Section 408(g) (relating to community property
 +
                laws).
 +
                    ``(E) Section 408(h) (relating to custodial
 +
                accounts).
 +
 +
    ``(e) Tax Treatment of Accounts.--
 +
            ``(1) In general.--A medical savings account is exempt from
 +
        taxation under this subtitle unless such account has ceased to
 +
        be a medical savings account. Notwithstanding the preceding
 +
        sentence, any such account is subject to the taxes imposed by
 +
        section 511 (relating to imposition of tax on unrelated business
 +
        income of charitable, etc. organizations).
 +
            ``(2) Account terminations.--Rules similar to the rules of
 +
        paragraphs (2) and (4) of section 408(e) shall apply to medical
 +
        savings accounts, and any amount treated as distributed under
 +
        such rules shall be treated as not used to pay qualified medical
 +
        expenses.
 +
 +
    ``(f) Tax Treatment of Distributions.--
 +
            ``(1) Amounts used for qualified medical expenses.--Any
 +
        amount paid or distributed out of a medical savings account
 +
        which is used exclusively to pay qualified medical expenses of
 +
        any account holder shall not be includible in gross income.
 +
            ``(2) Inclusion of amounts not used for qualified medical
 +
        expenses.--Any amount paid or distributed out of a medical
 +
        savings account which is not used exclusively to pay the
 +
        qualified medical expenses of the account holder shall be
 +
        included in the gross income of such holder.
 +
            ``(3) Excess contributions returned before due date of
 +
        return.--
 +
                    ``(A) In general.--If any excess contribution is
 +
                contributed for a taxable year to any medical savings
 +
                account of an individual, paragraph (2) shall not apply
 +
                to distributions from the medical savings accounts of
 +
                such individual (to the extent such distributions do not
 +
                exceed the aggregate excess contributions to all such
 +
                accounts of such individual for such year) if--
 +
                          ``(i) such distribution is received by the
 +
                      individual on or before the last day prescribed by
 +
                      law (including extensions of time) for filing such
 +
                      individual's return for such taxable year, and
 +
                          ``(ii) such distribution is accompanied by the
 +
                      amount of net income attributable to such excess
 +
                      contribution.
 +
                Any net income described in clause (ii) shall be
 +
                included in the gross income of the individual for the
 +
                taxable year in which it is received.
 +
                    ``(B) Excess contribution.--For purposes of
 +
                subparagraph (A), the term `excess contribution' means
 +
                any contribution (other than a rollover contribution)
 +
                which is neither excludable from gross income under
 +
                section 106(b) nor deductible under this section.
 +
            ``(4) Additional tax on distributions not used for qualified
 +
        medical expenses.--
 +
                    ``(A) In general.--The tax imposed by this chapter
 +
                on the account holder for any taxable year in which
 +
                there is a payment or distribution from a medical
 +
                savings account of such holder which is includible in
 +
                gross income under paragraph (2) shall be increased by
 +
                15 percent of the amount which is so includible.
 +
                    ``(B) Exception for disability or death.--
 +
                Subparagraph (A) shall not apply if the payment or
 +
                distribution is made after the account holder becomes
 +
                disabled within the meaning of section 72(m)(7) or dies.
 +
                    ``(C) Exception for distributions after medicare
 +
                eligibility.--Subparagraph (A) shall not apply to any
 +
                payment or distribution after the date on which the
 +
                account holder attains the age specified in section 1811
 +
                of the Social Security Act.
 +
            ``(5) Rollover contribution.--An amount is described in this
 +
        paragraph as a rollover contribution if it meets the
 +
        requirements of subparagraphs (A) and (B).
 +
                    ``(A) In general.--Paragraph (2) shall not apply to
 +
                any amount paid or distributed from a medical savings
 +
                account to the account holder to the extent the amount
 +
                received is paid into a medical savings account for the
 +
                benefit of such holder not later than the 60th day after
 +
                the day on which the holder receives the payment or
 +
                distribution.
 +
                    ``(B) Limitation.--This paragraph shall not apply to
 +
                any amount described in subparagraph (A) received by an
 +
                individual from a medical savings account if, at any
 +
                time during the 1-year period ending on the day of such
 +
                receipt, such individual received any other amount
 +
                described in subparagraph (A) from a medical savings
 +
                account which was not includible in the individual's
 +
                gross income because of the application of this
 +
                paragraph.
 +
            ``(6) Coordination with medical expense deduction.--For
 +
        purposes of determining the amount of the deduction under
 +
        section 213, any payment or distribution out of a medical
 +
        savings account for qualified medical expenses shall not be
 +
        treated as an expense paid for medical care.
 +
            ``(7) Transfer of account incident to divorce.--The transfer
 +
        of an individual's interest in a medical savings account to an
 +
        individual's spouse or former spouse under a divorce or
 +
        separation instrument described in subparagraph (A) of section
 +
        71(b)(2) shall not be considered a taxable transfer made by such
 +
        individual notwithstanding any other provision of this subtitle,
 +
        and such interest shall, after such transfer, be treated as a
 +
        medical savings account with respect to which such spouse is the
 +
        account holder.
 +
            ``(8) Treatment after death of account holder.--
 +
                    ``(A) Treatment if designated beneficiary is
 +
                spouse.--If the account holder's surviving spouse
 +
                acquires such holder's interest in a medical savings
 +
                account by reason of being the designated beneficiary of
 +
                such account at the death of the account holder, such
 +
                medical savings account shall be treated as if the
 +
                spouse were the account holder.
 +
                    ``(B) Other cases.--
 +
                          ``(i) In general.--If, by reason of the death
 +
                      of the account holder, any person acquires the
 +
                      account holder's interest in a medical savings
 +
                      account in a case to which subparagraph (A) does
 +
                      not apply--
 +
                                    ``(I) such account shall cease to be
 +
                                a medical savings account as of the date
 +
                                of death, and
 +
                                    ``(II) an amount equal to the fair
 +
                                market value of the assets in such
 +
                                account on such date shall be includible
 +
                                if such person is not the estate of such
 +
                                holder, in such person's gross income
 +
                                for the taxable year which includes such
 +
                                date, or if such person is the estate of
 +
                                such holder, in such holder's gross
 +
                                income for the last taxable year of such
 +
                                holder.
 +
                          ``(ii) Special rules.--
 +
                                    ``(I) Reduction of inclusion for
 +
                                pre-death expenses.--The amount
 +
                                includible in gross income under clause
 +
                                (i) by any person (other than the
 +
                                estate) shall be reduced by the amount
 +
                                of qualified medical expenses which were
 +
                                incurred by the decedent before the date
 +
                                of the decedent's death and paid by such
 +
                                person within 1 year after such date.
 +
                                    ``(II) Deduction for estate taxes.--
 +
                                An appropriate deduction shall be
 +
                                allowed under section 691(c) to any
 +
                                person (other than the decedent or the
 +
                                decedent's spouse) with respect to
 +
                                amounts included in gross income under
 +
                                clause (i) by such person.
 +
 +
    ``(g) Cost-of-Living Adjustment.--In the case of any taxable year
 +
beginning in a calendar year after 1998, each dollar amount in
 +
subsection (c)(2) shall be increased by an amount equal to--
 +
            ``(1) such dollar amount, multiplied by
 +
            ``(2) the cost-of-living adjustment determined under section
 +
        1(f)(3) for the calendar year in which such taxable year begins
 +
        by substituting `calendar year 1997' for `calendar year 1992' in
 +
        subparagraph (B) thereof.
 +
 +
If any increase under the preceding sentence is not a multiple of $50,
 +
such increase shall be rounded to the nearest multiple of $50.
 +
    ``(h) Reports.--The Secretary may require the trustee of a medical
 +
savings account to make such reports regarding such account to the
 +
Secretary and to the account holder with respect to contributions,
 +
distributions, and such other matters as the Secretary determines
 +
appropriate. The reports required by this subsection shall be filed at
 +
such time and in such manner and furnished to such individuals at such
 +
time and in such manner as may be required by the Secretary.
 +
    ``(i) Limitation on Number of Taxpayers Having Medical Savings
 +
Accounts.--
 +
            ``(1) In general.--Except as provided in paragraph (5), no
 +
        individual shall be treated as an eligible individual for any
 +
        taxable year beginning after the cut-off year unless--
 +
                    ``(A) such individual was an active MSA participant
 +
                for any taxable year ending on or before the close of
 +
                the cut-off year, or
 +
                    ``(B) such individual first became an active MSA
 +
                participant for a taxable year ending after the cut-off
 +
                year by reason of coverage under a high deductible
 +
                health plan of an MSA-participating employer.
 +
            ``(2) Cut-off year.--For purposes of paragraph (1), the term
 +
        `cut-off year' means the earlier of--
 +
                    ``(A) calendar year 2000, or
 +
                    ``(B) the first calendar year before 2000 for which
 +
                the Secretary determines under subsection (j) that the
 +
                numerical limitation for such year has been exceeded.
 +
            ``(3) Active msa participant.--For purposes of this
 +
        subsection--
 +
                    ``(A) In general.--The term `active MSA participant'
 +
                means, with respect to any taxable year, any individual
 +
                who is the account holder of any medical savings account
 +
                into which any contribution was made which was
 +
                excludable from gross income under section 106(b), or
 +
                allowable as a deduction under this section, for such
 +
                taxable year.
 +
                    ``(B) Special rule for cut-off years before 2000.--
 +
                In the case of a cut-off year before 2000--
 +
                          ``(i) an individual shall not be treated as an
 +
                      eligible individual for any month of such year or
 +
                      an active MSA participant under paragraph (1)(A)
 +
                      unless such individual is, on or before the cut-
 +
                      off date, covered under a high deductible health
 +
                      plan, and
 +
                          ``(ii) an employer shall not be treated as an
 +
                      MSA-participating employer unless the employer, on
 +
                      or before the cut-off date, offered coverage under
 +
                      a high deductible health plan to any employee.
 +
                    ``(C) Cut-off date.--For purposes of subpara-
 +
                graph (B)--
 +
                          ``(i) In general.--Except as otherwise
 +
                      provided in this subparagraph, the cut-off date is
 +
                      October 1 of the cut-off year.
 +
                          ``(ii) Employees with enrollment periods after
 +
                      october 1.--In the case of an individual described
 +
                      in subclause (I) of subsection (c)(1)(A)(iii), if
 +
                      the regularly scheduled enrollment period for
 +
                      health plans of the individual's employer occurs
 +
                      during the last 3 months of the cut-off year, the
 +
                      cut-off date is December 31 of the cut-off year.
 +
                          ``(iii) Self-employed individuals.--In the
 +
                      case of an individual described in subclause (II)
 +
                      of subsection (c)(1)(A)(iii), the cut-off date is
 +
                      November 1 of the cut-off year.
 +
                          ``(iv) Special rules for 1997.--If 1997 is a
 +
                      cut-off year by reason of subsection (j)(1)(A)--
 +
                                    ``(I) each of the cut-off dates
 +
                                under clauses (i) and (iii) shall be 1
 +
                                month earlier than the date determined
 +
                                without regard to this clause, and
 +
                                    ``(II) clause (ii) shall be applied
 +
                                by substituting `4 months' for `3
 +
                                months'.
 +
            ``(4) MSA-participating employer.--For purposes of this
 +
        subsection, the term `MSA-participating employer' means any
 +
        small employer if--
 +
                    ``(A) such employer made any contribution to the
 +
                medical savings account of any employee during the cut-
 +
                off year or any preceding calendar year which was
 +
                excludable from gross income under section 106(b), or
 +
                    ``(B) at least 20 percent of the employees of such
 +
                employer who are eligible individuals for any month of
 +
                the cut-off year by reason of coverage under a high
 +
                deductible health plan of such employer each made a
 +
                contribution of at least $100 to their medical savings
 +
                accounts for any taxable year ending with or within the
 +
                cut-off year which was allowable as a deduction under
 +
                this section.
 +
            ``(5) Additional eligibility after cut-off year.--If the
 +
        Secretary determines under subsection (j)(2)(A) that the
 +
        numerical limit for the calendar year following a cut-off year
 +
        described in paragraph (2)(B) has not been exceeded--
 +
                    ``(A) this subsection shall not apply to any
 +
                otherwise eligible individual who is covered under a
 +
                high deductible health plan during the first 6 months of
 +
                the second calendar year following the cut-off year (and
 +
                such individual shall be treated as an active MSA
 +
                participant for purposes of this subsection if a
 +
                contribution is made to any medical savings account with
 +
                respect to such coverage), and
 +
                    ``(B) any employer who offers coverage under a high
 +
                deductible health plan to any employee during such 6-
 +
                month period shall be treated as an MSA-participating
 +
                employer for purposes of this subsection if the
 +
                requirements of paragraph (4) are met with respect to
 +
                such coverage.
 +
        For purposes of this paragraph, subsection (j)(2)(A) shall be
 +
        applied for 1998 by substituting `750,000' for `600,000'.
 +
 +
    ``(j) Determination of Whether Numerical Limits Are Exceeded.--
 +
            ``(1) Determination of whether limit exceeded for 1997.--The
 +
        numerical limitation for 1997 is exceeded if, based on the
 +
        reports required under paragraph (4), the number of medical
 +
        savings accounts established as of--
 +
                    ``(A) April 30, 1997, exceeds 375,000, or
 +
                    ``(B) June 30, 1997, exceeds 525,000.
 +
            ``(2) Determination of whether limit exceeded for 1998 or
 +
        1999.--
 +
                    ``(A) In general.--The numerical limitation for 1998
 +
                or 1999 is exceeded if the sum of--
 +
                          ``(i) the number of MSA returns filed on or
 +
                      before April 15 of such calendar year for taxable
 +
                      years ending with or within the preceding calendar
 +
                      year, plus
 +
                          ``(ii) the Secretary's estimate (determined on
 +
                      the basis of the returns described in clause (i))
 +
                      of the number of MSA returns for such taxable
 +
                      years which will be filed after such date,
 +
                exceeds 600,000 (750,000 in the case of 1999). For
 +
                purposes of the preceding sentence, the term `MSA
 +
                return' means any return on which any exclusion is
 +
                claimed under section 106(b) or any deduction is claimed
 +
                under this section.
 +
                    ``(B) Alternative computation of limitation.--The
 +
                numerical limitation for 1998 or 1999 is also exceeded
 +
                if the sum of--
 +
                          ``(i) 90 percent of the sum determined under
 +
                      subparagraph (A) for such calendar year, plus
 +
                          ``(ii) the product of 2.5 and the number of
 +
                      medical savings accounts established during the
 +
                      portion of such year preceding July 1 (based on
 +
                      the reports required under paragraph (4)) for
 +
                      taxable years beginning in such year,
 +
                exceeds 750,000.
 +
            ``(3) Previously uninsured individuals not included in
 +
        determination.--
 +
                    ``(A) In general.--The determination of whether any
 +
                calendar year is a cut-off year shall be made by not
 +
                counting the medical savings account of any previously
 +
                uninsured individual.
 +
                    ``(B) Previously uninsured individual.--For purposes
 +
                of this subsection, the term `previously uninsured
 +
                individual' means, with respect to any medical savings
 +
                account, any individual who had no health plan coverage
 +
                (other than coverage referred to in subsection
 +
                (c)(1)(B)) at any time during the 6-month period before
 +
                the date such individual's coverage under the high
 +
                deductible health plan commences.
 +
            ``(4) Reporting by msa trustees.--
 +
                    ``(A) In general.--Not later than August 1 of 1997,
 +
                1998, and 1999, each person who is the trustee of a
 +
                medical savings account established before July 1 of
 +
                such calendar year shall make a report to the Secretary
 +
                (in such form and manner as the Secretary shall specify)
 +
                which specifies--
 +
                          ``(i) the number of medical savings accounts
 +
                      established before such July 1 (for taxable years
 +
                      beginning in such calendar year) of which such
 +
                      person is the trustee,
 +
                          ``(ii) the name and TIN of the account holder
 +
                      of each such account, and
 +
                          ``(iii) the number of such accounts which are
 +
                      accounts of previously uninsured individuals.
 +
                    ``(B) Additional report for 1997.--Not later than
 +
                June 1, 1997, each person who is the trustee of a
 +
                medical savings account established before May 1, 1997,
 +
                shall make an additional report described in
 +
                subparagraph (A) but only with respect to accounts
 +
                established before May 1, 1997.
 +
                    ``(C) Penalty for failure to file report.--The
 +
                penalty provided in section 6693(a) shall apply to any
 +
                report required by this paragraph, except that--
 +
                          ``(i) such section shall be applied by
 +
                      substituting `$25' for `$50', and
 +
                          ``(ii) the maximum penalty imposed on any
 +
                      trustee shall not exceed $5,000.
 +
                    ``(D) Aggregation of accounts.--To the extent
 +
                practicable, in determining the number of medical
 +
                savings accounts on the basis of the reports under this
 +
                paragraph, all medical savings accounts of an individual
 +
                shall be
 +
                treated as 1 account and all accounts of individuals who
 +
                are married to each other shall be treated as 1 account.
 +
            ``(5) Date of making determinations.--Any determination
 +
        under this subsection that a calendar year is a cut-off year
 +
        shall be made by the Secretary and shall be published not later
 +
        than October 1 of such year.''.
 +
 +
    (b) Deduction Allowed Whether or Not Individual
 +
Itemizes Other Deductions.--Subsection (a) of section 62 is amended by
 +
inserting after paragraph (15) the following new paragraph:
 +
            ``(16) Medical savings accounts.--The deduction allowed by
 +
        section 220.''.
 +
 +
    (c) Exclusions for Employer Contributions to Medical Savings
 +
Accounts.--
 +
            (1) Exclusion from income tax.--The text of section 106
 +
        (relating to contributions by employer to accident and health
 +
        plans) is amended to read as follows:
 +
 +
    ``(a) General Rule.--Except as otherwise provided in this section,
 +
gross income of an employee does not include employer-provided coverage
 +
under an accident or health plan.
 +
    ``(b) Contributions to Medical Savings Accounts.--
 +
            ``(1) In general.--In the case of an employee who is an
 +
        eligible individual, amounts contributed by such employee's
 +
        employer to any medical savings account of such employee shall
 +
        be treated as employer-provided coverage for medical expenses
 +
        under an accident or health plan to the extent such amounts do
 +
        not exceed the limitation under section 220(b)(1) (determined
 +
        without regard to this subsection) which is applicable to such
 +
        employee for such taxable year.
 +
            ``(2) No constructive receipt.--No amount shall be included
 +
        in the gross income of any employee solely because the employee
 +
        may choose between the contributions referred to in paragraph
 +
        (1) and employer contributions to another health plan of the
 +
        employer.
 +
            ``(3) Special rule for deduction of employer
 +
        contributions.--Any employer contribution to a medical savings
 +
        account, if otherwise allowable as a deduction under this
 +
        chapter, shall be allowed only for the taxable year in which
 +
        paid.
 +
            ``(4) Employer msa contributions required to be shown on
 +
        return.--Every individual required to file a return under
 +
        section 6012 for the taxable year shall include on such return
 +
        the aggregate amount contributed by employers to the medical
 +
        savings accounts of such individual or such individual's spouse
 +
        for such taxable year.
 +
            ``(5) MSA contributions not part of cobra coverage.--
 +
        Paragraph (1) shall not apply for purposes of section 4980B.
 +
            ``(6) Definitions.--For purposes of this subsection, the
 +
        terms `eligible individual' and `medical savings account' have
 +
        the respective meanings given to such terms by section 220.
 +
            ``(7) Cross reference.--
 +
                  ``For penalty on failure by employer to make
 +
                comparable contributions to the medical savings accounts
 +
                of comparable employees, see section 4980E.''.
 +
 +
            (2) Exclusion from employment taxes.--
 +
                    (A) Railroad retirement tax.--Subsection (e) of
 +
                section 3231 is amended by adding at the end the
 +
                following new paragraph:
 +
            ``(10) Medical savings account contributions.--The term
 +
        `compensation' shall not include any payment made to or for the
 +
        benefit of an employee if at the time of such payment it is
 +
        reasonable to believe that the employee will be able to exclude
 +
        such payment from income under section 106(b).''.
 +
                    (B) Unemployment tax.--Subsection (b) of section
 +
                3306 is amended by striking ``or'' at the end of
 +
                paragraph (15), by striking the period at the end of
 +
                paragraph (16) and inserting ``; or'', and by inserting
 +
                after paragraph (16) the following new paragraph:
 +
            ``(17) any payment made to or for the benefit of an employee
 +
        if at the time of such payment it is reasonable to believe that
 +
        the employee will be able to exclude such payment from income
 +
        under section 106(b).''.
 +
                    (C) Withholding tax.--Subsection (a) of section 3401
 +
                is amended by striking ``or'' at the end of paragraph
 +
                (19), by striking the period at the end of paragraph
 +
                (20) and inserting ``; or'', and by inserting after
 +
                paragraph (20) the following new paragraph:
 +
            ``(21) any payment made to or for the benefit of an employee
 +
        if at the time of such payment it is reasonable to believe that
 +
        the employee will be able to exclude such payment from income
 +
        under section 106(b).''
 +
            (3) Employer contributions required to be shown on w-2.--
 +
        Subsection (a) of section 6051 is amended by striking ``and'' at
 +
        the end of paragraph (9), by striking the period at the end of
 +
        paragraph (10) and inserting ``, and'', and by inserting after
 +
        paragraph (10) the following new paragraph:
 +
            ``(11) the amount contributed to any medical savings account
 +
        (as defined in section 220(d)) of such employee or such
 +
        employee's spouse.''.
 +
            (4) Penalty for failure of employer to make comparable msa
 +
        contributions.--
 +
                    (A) In general.--Chapter 43 is amended by adding
 +
                after section 4980D the following new section:
 +
``SEC. 4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE
 +
                              MEDICAL SAVINGS ACCOUNT
 +
                              CONTRIBUTIONS.
 +
 +
    ``(a) General Rule.--In the case of an employer who makes a
 +
contribution to the medical savings account of any employee with respect
 +
to coverage under a high deductible health plan of the employer during a
 +
calendar year, there is hereby imposed a tax on the failure of such
 +
employer to meet the requirements of subsection (d) for such calendar
 +
year.
 +
    ``(b) Amount of Tax.--The amount of the tax imposed by subsection
 +
(a) on any failure for any calendar year is the amount equal to 35
 +
percent of the aggregate amount contributed by the employer to medical
 +
savings accounts of employees for taxable years of such employees ending
 +
with or within such calendar year.
 +
    ``(c) Waiver by Secretary.--In the case of a failure which is due to
 +
reasonable cause and not to willful neglect, the Secretary may waive
 +
part or all of the tax imposed by subsection (a) to the extent that the
 +
payment of such tax would be excessive relative to the failure involved.
 +
    ``(d) Employer Required To Make Comparable MSA Contributions for All
 +
Participating Employees.--
 +
            ``(1) In general.--An employer meets the requirements of
 +
        this subsection for any calendar year if the employer makes
 +
        available comparable contributions to the medical savings
 +
        accounts of all comparable participating employees for each
 +
        coverage period during such calendar year.
 +
            ``(2) Comparable contributions.--
 +
                    ``(A) In general.--For purposes of paragraph (1),
 +
                the term `comparable contributions' means
 +
                contributions--
 +
                          ``(i) which are the same amount, or
 +
                          ``(ii) which are the same percentage of the
 +
                      annual deductible limit under the high deductible
 +
                      health plan covering the employees.
 +
                    ``(B) Part-year employees.--In the case of an
 +
                employee who is employed by the employer for only a
 +
                portion of the calendar year, a contribution to the
 +
                medical savings account of such employee shall be
 +
                treated as comparable if it is an amount which bears the
 +
                same ratio to the comparable amount (determined without
 +
                regard to this subparagraph) as such portion bears to
 +
                the entire calendar year.
 +
            ``(3) Comparable participating employees.--For purposes of
 +
        paragraph (1), the term `comparable participating employees'
 +
        means all employees--
 +
                    ``(A) who are eligible individuals covered under any
 +
                high deductible health plan of the employer, and
 +
                    ``(B) who have the same category of coverage.
 +
        For purposes of subparagraph (B), the categories of coverage are
 +
        self-only and family coverage.
 +
            ``(4) Part-time employees.--
 +
                    ``(A) In general.--Paragraph (3) shall be applied
 +
                separately with respect to part-time employees and other
 +
                employees.
 +
                    ``(B) Part-time employee.--For purposes of
 +
                subparagraph (A), the term `part-time employee' means
 +
                any employee who is customarily employed for fewer than
 +
                30 hours per week.
 +
 +
    ``(e) Controlled Groups.--For purposes of this section, all persons
 +
treated as a single employer under subsection (b), (c), (m), or (o) of
 +
section 414 shall be treated as 1 employer.
 +
    ``(f) Definitions.--Terms used in this section which are also used
 +
in section 220 have the respective meanings given such terms in section
 +
220.''.
 +
                    (B) Clerical amendment.--The table of sections for
 +
                chapter 43 is amended by adding after the item relating
 +
                to section 4980D the following new item:
 +
``Sec. 4980E. Failure of employer to make comparable medical savings
 +
                          account contributions.''.
 +
 +
    (d) Medical Savings Account Contributions Not Available Under
 +
Cafeteria Plans.--Subsection (f) of section 125 of such Code is amended
 +
by inserting ``106(b),'' before ``117''.
 +
    (e) Tax on Excess Contributions.--Section 4973 (relating to tax on
 +
excess contributions to individual retirement accounts, certain section
 +
403(b) contracts, and certain individual retirement annuities) is
 +
amended--
 +
            (1) by inserting ``medical savings accounts,'' after
 +
        ``accounts,'' in the heading of such section,
 +
            (2) by striking ``or'' at the end of paragraph (1) of sub-
 +
        section (a),
 +
            (3) by redesignating paragraph (2) of subsection (a) as
 +
        paragraph (3) and by inserting after paragraph (1) the
 +
        following:
 +
            ``(2) a medical savings account (within the meaning of
 +
        section 220(d)), or'', and
 +
            (4) by adding at the end the following new subsection:
 +
 +
    ``(d) Excess Contributions to Medical Savings Accounts.--For
 +
purposes of this section, in the case of medical savings accounts
 +
(within the meaning of section 220(d)), the term `excess contributions'
 +
means the sum of--
 +
            ``(1) the aggregate amount contributed for the taxable year
 +
        to the accounts (other than rollover contributions described in
 +
        section 220(f)(5)) which is neither excludable from gross income
 +
        under section 106(b) nor allowable as a deduction under section
 +
        220 for such year, and
 +
            ``(2) the amount determined under this subsection for the
 +
        preceding taxable year, reduced by the sum of--
 +
                    ``(A) the distributions out of the accounts which
 +
                were included in gross income under section 220(f)(2),
 +
                and
 +
                    ``(B) the excess (if any) of--
 +
                          ``(i) the maximum amount allowable as a
 +
                      deduction under section 220(b)(1) (determined
 +
                      without regard to section 106(b)) for the taxable
 +
                      year, over
 +
                          ``(ii) the amount contributed to the accounts
 +
                      for the taxable year.
 +
 +
For purposes of this subsection, any contribution which is distributed
 +
out of the medical savings account in a distribution to which section
 +
220(f)(3) applies shall be treated as an amount not contributed.''.
 +
    (f) Tax on Prohibited Transactions.--
 +
            (1) Section 4975 (relating to tax on prohibited
 +
        transactions) is amended by adding at the end of subsection (c)
 +
        the following new paragraph:
 +
            ``(4) Special rule for medical savings accounts.--An
 +
        individual for whose benefit a medical savings account (within
 +
        the meaning of section 220(d)) is established shall be exempt
 +
        from the tax imposed by this section with respect to any
 +
        transaction concerning such account (which would otherwise be
 +
        taxable under this section) if, with respect to such
 +
        transaction, the account ceases to be a medical savings account
 +
        by reason of the application of section 220(e)(2) to such
 +
        account.''.
 +
            (2) Paragraph (1) of section 4975(e) is amended to read as
 +
        follows:
 +
            ``(1) Plan.--For purposes of this section, the term `plan'
 +
        means--
 +
                    ``(A) a trust described in section 401(a) which
 +
                forms a part of a plan, or a plan described in section
 +
                403(a), which trust or plan is exempt from tax under
 +
                section 501(a),
 +
                    ``(B) an individual retirement account described in
 +
                section 408(a),
 +
                    ``(C) an individual retirement annuity described in
 +
                section 408(b),
 +
                    ``(D) a medical savings account described in section
 +
                220(d), or
 +
                    ``(E) a trust, plan, account, or annuity which, at
 +
                any time, has been determined by the Secretary to be
 +
                described in any preceding subparagraph of this
 +
                paragraph.''.
 +
 +
    (g) Failure To Provide Reports on Medical Savings Accounts.--
 +
            (1) Subsection (a) of section 6693 (relating to failure to
 +
        provide reports on individual retirement accounts or annuities)
 +
        is amended to read as follows:
 +
 +
    ``(a) Reports.--
 +
            ``(1) In general.--If a person required to file a report
 +
        under a provision referred to in paragraph (2) fails to file
 +
        such report at the time and in the manner required by such
 +
        provision, such person shall pay a penalty of $50 for each
 +
        failure unless it is shown that such failure is due to
 +
        reasonable cause.
 +
            ``(2) Provisions.--The provisions referred to in this
 +
        paragraph are--
 +
                    ``(A) subsections (i) and (l) of section 408
 +
                (relating to individual retirement plans), and
 +
                    ``(B) section 220(h) (relating to medical savings
 +
                accounts).''.
 +
 +
    (h) Exception From Capitalization of Policy Acquisition Expenses.--
 +
Subparagraph (B) of section 848(e)(1) (defining specified insurance
 +
contract) is amended by striking ``and'' at the end of clause (ii), by
 +
striking the period at the end of clause (iii) and inserting ``, and'',
 +
and by adding at the end the following new clause:
 +
                          ``(iv) any contract which is a medical savings
 +
                      account (as defined in section 220(d)).''.
 +
 +
    (i) Clerical Amendment.--The table of sections for part VII of
 +
subchapter B of chapter 1 is amended by striking the last item and
 +
inserting the following:
 +
 +
``Sec. 220. Medical savings accounts.
 +
``Sec. 221. Cross reference.''.
 +
 +
    (j) Effective <<NOTE: 26 USC 62 note.>>  Date.--The amendments made
 +
by this section shall apply to taxable years beginning after December
 +
31, 1996.
 +
 +
    (k) Monitoring <<NOTE: 26 USC 220 note.>>  of Participation in
 +
Medical Savings Accounts.--The Secretary of the Treasury or his delegate
 +
shall--
 +
            (1) during 1997, 1998, 1999, and 2000, regularly evaluate
 +
        the number of individuals who are maintaining medical savings
 +
        accounts and the reduction in revenues to the United States by
 +
        reason of such accounts, and
 +
            (2) provide such reports of such evaluations to Congress as
 +
        such Secretary determines appropriate.
 +
 +
    (l) Study <<NOTE: 26 USC 220 note.>>  of Effects of Medical Savings
 +
Accounts on Small Group Market.--The Comptroller General of the United
 +
States shall enter into a contract with an organization with expertise
 +
in health economics, health insurance markets, and actuarial science to
 +
conduct a comprehensive study regarding the effects of medical savings
 +
accounts in the small group market on--
 +
            (1) selection, including adverse selection,
 +
            (2) health costs, including any impact on premiums of
 +
        individuals with comprehensive coverage,
 +
            (3) use of preventive care,
 +
            (4) consumer choice,
 +
            (5) the scope of coverage of high deductible plans purchased
 +
        in conjunction with such accounts, and
 +
            (6) other relevant items.
 +
 +
A report <<NOTE: Reports.>>  on the results of the study conducted under
 +
this subsection shall be submitted to the Congress no later than January
 +
1, 1999.
 +
 +
  Subtitle B--Increase in Deduction for Health Insurance Costs of Self-
 +
                          Employed Individuals
 +
 +
SEC. 311. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
 +
            EMPLOYED INDIVIDUALS.
 +
 +
    (a) In General.--Paragraph (1) of section 162(l) is amended to read
 +
as follows:
 +
            ``(1) Allowance of deduction.--
 +
                    ``(A) In general.--In the case of an individual who
 +
                is an employee within the meaning of section 401(c)(1),
 +
                there shall be allowed as a deduction under this section
 +
                an amount equal to the applicable percentage of the
 +
                amount paid during the taxable year for insurance which
 +
                constitutes medical care for the taxpayer, his spouse,
 +
                and dependents.
 +
                    ``(B) Applicable percentage.--For purposes of
 +
                subparagraph (A), the applicable percentage shall be
 +
                determined under the following table:
 +
 +
    ``For taxable years be        The applicable percentage is--
 +
          in calendar year--
 +
                            1997.............................40 percent
 +
                            1998 through 2002................45 percent
 +
                            2003.............................50 percent
 +
                            2004.............................60 percent
 +
                            2005.............................70 percent
 +
                            2006 or thereafter............80 percent.''.
 +
 +
    (b) Exclusion for Amounts Received Under Certain Self-Insured
 +
Plans.--Paragraph (3) of section 104(a) is amended by inserting ``(or
 +
through an arrangement having the effect of accident or health
 +
insurance)'' after ``health insurance''.
 +
    (c) Effective Date <<NOTE:  26 USC 104 note.>> .--The amendments
 +
made by this section shall apply to taxable years beginning after
 +
December 31, 1996.
 +
 +
            Subtitle C--Long-Term Care Services and Contracts
 +
 +
                      PART I--GENERAL PROVISIONS
 +
 +
SEC. 321. TREATMENT OF LONG-TERM CARE INSURANCE.
 +
 +
    (a) General Rule.--Chapter 79 (relating to definitions) is amended
 +
by inserting after section 7702A the following new section:
 +
 +
``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.
 +
 +
    ``(a) In General.--For purposes of this title--
 +
            ``(1) a qualified long-term care insurance contract shall be
 +
        treated as an accident and health insurance contract,
 +
            ``(2) amounts (other than policyholder dividends, as defined
 +
        in section 808, or premium refunds) received under a qualified
 +
        long-term care insurance contract shall be treated as amounts
 +
        received for personal injuries and sickness and shall be treated
 +
        as reimbursement for expenses actually incurred for medical care
 +
        (as defined in section 213(d)),
 +
            ``(3) any plan of an employer providing coverage under a
 +
        qualified long-term care insurance contract shall be treated as
 +
        an accident and health plan with respect to such coverage,
 +
            ``(4) except as provided in subsection (e)(3), amounts paid
 +
        for a qualified long-term care insurance contract providing the
 +
        benefits described in subsection (b)(2)(A) shall be treated as
 +
        payments made for insurance for purposes of section
 +
        213(d)(1)(D), and
 +
            ``(5) a qualified long-term care insurance contract shall be
 +
        treated as a guaranteed renewable contract subject to the rules
 +
        of section 816(e).
 +
 +
    ``(b) Qualified Long-Term Care Insurance Contract.--For purposes of
 +
this title--
 +
            ``(1) In general.--The term `qualified long-term care
 +
        insurance contract' means any insurance contract if--
 +
                    ``(A) the only insurance protection provided under
 +
                such contract is coverage of qualified long-term care
 +
                services,
 +
                    ``(B) such contract does not pay or reimburse
 +
                expenses incurred for services or items to the extent
 +
                that such expenses are reimbursable under title XVIII of
 +
                the Social Security Act or would be so reimbursable but
 +
                for the application of a deductible or coinsurance
 +
                amount,
 +
                    ``(C) such contract is guaranteed renewable,
 +
                    ``(D) such contract does not provide for a cash
 +
                surrender value or other money that can be--
 +
                          ``(i) paid, assigned, or pledged as collateral
 +
                      for a loan, or
 +
                          ``(ii) borrowed,
 +
                other than as provided in subparagraph (E) or paragraph
 +
                (2)(C),
 +
                    ``(E) all refunds of premiums, and all policyholder
 +
                dividends or similar amounts, under such contract are to
 +
                be applied as a reduction in future premiums or to
 +
                increase future benefits, and
 +
                    ``(F) such contract meets the requirements of
 +
                subsection (g).
 +
            ``(2) Special rules.--
 +
                    ``(A) Per diem, etc. payments permitted.--A contract
 +
                shall not fail to be described in subparagraph (A) or
 +
                (B) of paragraph (1) by reason of payments being made on
 +
                a per diem or other periodic basis without regard to the
 +
                expenses incurred during the period to which the
 +
                payments relate.
 +
                    ``(B) Special rules relating to medicare.--
 +
                          ``(i) Paragraph (1)(B) shall not apply to
 +
                      expenses which are reimbursable under title XVIII
 +
                      of the Social Security Act only as a secondary
 +
                      payor.
 +
                          ``(ii) No provision of law shall be construed
 +
                      or applied so as to prohibit the offering of a
 +
                      qualified long-term care insurance contract on the
 +
                      basis that the contract coordinates its benefits
 +
                      with those provided under such title.
 +
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall
 +
                not apply to any refund on the death of the insured, or
 +
                on a complete surrender or cancellation of the contract,
 +
                which cannot exceed the aggregate premiums paid under
 +
                the contract. Any refund on a complete surrender or
 +
                cancellation of the contract shall be includible in
 +
                gross income to the extent that any deduction or
 +
                exclusion was allowable with respect to the premiums.
 +
 +
    ``(c) Qualified Long-Term Care Services.--For purposes of this
 +
section--
 +
            ``(1) In general.--The term `qualified long-term care
 +
        services' means necessary diagnostic, preventive, therapeutic,
 +
        curing, treating, mitigating, and rehabilitative services, and
 +
        maintenance or personal care services, which--
 +
                    ``(A) are required by a chronically ill individual,
 +
                and
 +
                    ``(B) are provided pursuant to a plan of care
 +
                prescribed by a licensed health care practitioner.
 +
            ``(2) Chronically ill individual.--
 +
                    ``(A) In general.--The term `chronically ill
 +
                individual' means any individual who has been certified
 +
                by a licensed health care practitioner as--
 +
                          ``(i) being unable to perform (without
 +
                      substantial assistance from another individual) at
 +
                      least 2 activities of daily living for a period of
 +
                      at least 90 days due to a loss of functional
 +
                      capacity,
 +
                          ``(ii) having a level of disability similar
 +
                      (as determined under regulations prescribed by the
 +
                      Secretary in consultation with the Secretary of
 +
                      Health and Human Services) to the level of
 +
                      disability described in clause (i), or
 +
                          ``(iii) requiring substantial supervision to
 +
                      protect such individual from threats to health and
 +
                      safety due to severe cognitive impairment.
 +
                Such term shall not include any individual otherwise
 +
                meeting the requirements of the preceding sentence
 +
                unless within the preceding 12-month period a licensed
 +
                health care practitioner has certified that such
 +
                individual meets such requirements.
 +
                    ``(B) Activities of daily living.--For purposes of
 +
                subparagraph (A), each of the following is an activity
 +
                of daily living:
 +
                          ``(i) Eating.
 +
                          ``(ii) Toileting.
 +
                          ``(iii) Transferring.
 +
                          ``(iv) Bathing.
 +
                          ``(v) Dressing.
 +
                          ``(vi) Continence.
 +
                A contract shall not be treated as a qualified long-term
 +
                care insurance contract unless the determination of
 +
                whether an individual is a chronically ill individual
 +
                takes into account at least 5 of such activities.
 +
            ``(3) Maintenance or personal care services.--The term
 +
        `maintenance or personal care services' means any care the
 +
        primary purpose of which is the provision of needed assistance
 +
        with any of the disabilities as a result of which the individual
 +
        is a chronically ill individual (including the protection from
 +
        threats to health and safety due to severe cognitive
 +
        impairment).
 +
            ``(4) Licensed health care practitioner.--The term `licensed
 +
        health care practitioner' means any physician (as defined in
 +
        section 1861(r)(1) of the Social Security Act) and any
 +
        registered professional nurse, licensed social worker, or other
 +
        individual who meets such requirements as may be prescribed by
 +
        the Secretary.
 +
 +
    ``(d) Aggregate Payments in Excess of Limits.--
 +
            ``(1) In general.--If the aggregate of--
 +
                    ``(A) the periodic payments received for any period
 +
                under all qualified long-term care insurance contracts
 +
                which are treated as made for qualified long-term care
 +
                services for an insured, and
 +
                    ``(B) the periodic payments received for such period
 +
                which are treated under section 101(g) as paid by reason
 +
                of the death of such insured,
 +
        exceeds the per diem limitation for such period, such excess
 +
        shall be includible in gross income without regard to section
 +
        72. A payment shall not be taken into account under subparagraph
 +
        (B) if the insured is a terminally ill individual (as defined in
 +
        section 101(g)) at the time the payment is received.
 +
            ``(2) Per diem limitation.--For purposes of paragraph (1),
 +
        the per diem limitation for any period is an amount equal to the
 +
        excess (if any) of--
 +
                    ``(A) the greater of--
 +
                          ``(i) the dollar amount in effect for such
 +
                      period under paragraph (4), or
 +
                          ``(ii) the costs incurred for qualified long-
 +
                      term care services provided for the insured for
 +
                      such period, over
 +
                    ``(B) the aggregate payments received as
 +
                reimbursements (through insurance or otherwise) for
 +
                qualified long-term care services provided for the
 +
                insured during such period.
 +
            ``(3) Aggregation rules.--For purposes of this subsection--
 +
                    ``(A) all persons receiving periodic payments
 +
                described in paragraph (1) with respect to the same
 +
                insured shall be treated as 1 person, and
 +
                    ``(B) the per diem limitation determined under
 +
                paragraph (2) shall be allocated first to the insured
 +
                and any remaining limitation shall be allocated among
 +
                the other such persons in such manner as the Secretary
 +
                shall prescribe.
 +
            ``(4) Dollar amount.--The dollar amount in effect under this
 +
        subsection shall be $175 per day (or the equivalent amount in
 +
        the case of payments on another periodic basis).
 +
            ``(5) Inflation adjustment.--In the case of a calendar year
 +
        after 1997, the dollar amount contained in paragraph (4) shall
 +
        be increased at the same time and in the same manner as amounts
 +
        are increased pursuant to section 213(d)(10).
 +
            ``(6) Periodic payments.--For purposes of this subsection,
 +
        the term `periodic payment' means any payment (whether on a
 +
        periodic basis or otherwise) made without regard to the extent
 +
        of the costs incurred by the payee for qualified long-term care
 +
        services.
 +
 +
    ``(e) Treatment of Coverage Provided as Part of a Life Insurance
 +
Contract.--Except as otherwise provided in regulations prescribed by the
 +
Secretary, in the case of any long-term care insurance coverage (whether
 +
or not qualified) provided by a rider on or as part of a life insurance
 +
contract--
 +
            ``(1) In general.--This section shall apply as if the
 +
        portion of the contract providing such coverage is a separate
 +
        contract.
 +
            ``(2) Application of 7702.--Section 7702(c)(2) (relating to
 +
        the guideline premium limitation) shall be applied by increasing
 +
        the guideline premium limitation with respect to a life
 +
        insurance contract, as of any date--
 +
                    ``(A) by the sum of any charges (but not premium
 +
                payments) against the life insurance contract's cash
 +
                surrender value (within the meaning of section
 +
                7702(f)(2)(A)) for such coverage made to that date under
 +
                the contract, less
 +
                    ``(B) any such charges the imposition of which
 +
                reduces the premiums paid for the contract (within the
 +
                meaning of section 7702(f)(1)).
 +
            ``(3) Application of section 213.--No deduction shall be
 +
        allowed under section 213(a) for charges against the life
 +
        insurance contract's cash surrender value described in paragraph
 +
        (2), unless such charges are includible in income as a result of
 +
        the application of section 72(e)(10) and the rider is a
 +
        qualified long-term care insurance contract under subsection
 +
        (b).
 +
            ``(4) Portion defined.--For purposes of this subsection, the
 +
        term `portion' means only the terms and benefits under a life
 +
        insurance contract that are in addition to the terms and
 +
        benefits under the contract without regard to long-term care
 +
        insurance coverage.
 +
 +
    ``(f) Treatment of Certain State-Maintained Plans.--
 +
            ``(1) In general.--If--
 +
                    ``(A) an individual receives coverage for qualified
 +
                long-term care services under a State long-term care
 +
                plan, and
 +
                    ``(B) the terms of such plan would satisfy the
 +
                requirements of subsection (b) were such plan an
 +
                insurance contract,
 +
        such plan shall be treated as a qualified long-term care
 +
        insurance contract for purposes of this title.
 +
            ``(2) State long-term care plan.--For purposes of paragraph
 +
        (1), the term `State long-term care plan' means any plan--
 +
                    ``(A) which is established and maintained by a State
 +
                or an instrumentality of a State,
 +
                    ``(B) which provides coverage only for qualified
 +
                long-term care services, and
 +
                    ``(C) under which such coverage is provided only
 +
                to--
 +
                          ``(i) employees and former employees of a
 +
                      State (or any political subdivision or
 +
                      instrumentality of a State),
 +
                          ``(ii) the spouses of such employees, and
 +
                          ``(iii) individuals bearing a relationship to
 +
                      such employees or spouses which is described in
 +
                      any of paragraphs (1) through (8) of section
 +
                      152(a).''.
 +
 +
    (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is amended
 +
by inserting ``(other than a qualified long-term care insurance
 +
contract, as defined in section 7702B(b))'' after ``insurance
 +
contract''.
 +
    (c) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or
 +
Flexible Spending Arrangements.--
 +
            (1) Cafeteria plans.--Section 125(f) is amended by adding at
 +
        the end the following new sentence: ``Such term shall not
 +
        include any product which is advertised, marketed, or offered as
 +
        long-term care insurance.''.
 +
            (2) Flexible spending arrangements.--Section 106 (relating
 +
        to contributions by employer to accident and health plans), as
 +
        amended by section 301(c), is amended by adding at the end the
 +
        following new subsection:
 +
 +
    ``(c) Inclusion of Long-Term Care Benefits Provided Through Flexible
 +
Spending Arrangements.--
 +
            ``(1) In general.--Effective on and after January 1, 1997,
 +
        gross income of an employee shall include employer-provided
 +
        coverage for qualified long-term care services (as defined in
 +
        section 7702B(c)) to the extent that such coverage is provided
 +
        through a flexible spending or similar arrangement.
 +
            ``(2) Flexible spending arrangement.--For purposes of this
 +
        subsection, a flexible spending arrangement is a benefit program
 +
        which provides employees with coverage under which--
 +
                    ``(A) specified incurred expenses may be reimbursed
 +
                (subject to reimbursement maximums and other reasonable
 +
                conditions), and
 +
                    ``(B) the maximum amount of reimbursement which is
 +
                reasonably available to a participant for such coverage
 +
                is less than 500 percent of the value of such coverage.
 +
        In the case of an insured plan, the maximum amount reasonably
 +
        available shall be determined on the basis of the underlying
 +
        coverage.''
 +
 +
    (d) Continuation Coverage Rules Not To Apply.--
 +
            (1) Paragraph (2) of section 4980B(g) is amended by adding
 +
        at the end the following new sentence: ``Such term shall not
 +
        include any plan substantially all of the coverage under which
 +
        is for qualified long-term care services (as defined in section
 +
        7702B(c)).''
 +
            (2) Paragraph (1) of section 607 of the Employee Retirement
 +
        Income Security Act of 1974 <<NOTE: 29 USC 1167.>>  is amended
 +
        by adding at the end the following new sentence: ``Such term
 +
        shall not include any plan substantially all of the coverage
 +
        under which is for qualified long-term care services (as defined
 +
        in section 7702B(c) of such Code).''
 +
            (3) Paragraph (1) of section 2208 of the Public Health
 +
        Service Act <<NOTE: 42 USC 300bb-8.>>  is amended by adding at
 +
        the end the following new sentence: ``Such term shall not
 +
        include any plan substantially all of the coverage under which
 +
        is for qualified long-term care services (as defined in section
 +
        7702B(c) of such Code).''
 +
 +
    (e) Clerical Amendment.--The table of sections for chapter 79 is
 +
amended by inserting after the item relating to section 7702A the
 +
following new item:
 +
 +
``Sec. 7702B. Treatment of qualified long-term care insurance.''.
 +
 +
    (f) Effective <<NOTE: 26 USC 1702B note.>>  Dates.--
 +
            (1) General effective date.--
 +
                    (A) In general.--Except as provided in subparagraph
 +
                (B), the amendments made by this section shall apply to
 +
                contracts issued after December 31, 1996.
 +
                    (B) Reserve method.--The amendment made by
 +
                subsection (b) shall apply to contracts issued after
 +
                December 31, 1997.
 +
            (2) Continuation of existing policies.--In the case of any
 +
        contract issued before January 1, 1997, which met the long-term
 +
        care insurance requirements of the State in which the contract
 +
        was sitused at the time the contract was issued--
 +
                    (A) such contract shall be treated for purposes of
 +
                the Internal Revenue Code of 1986 as a qualified long-
 +
                term care insurance contract (as defined in section
 +
                7702B(b) of such Code), and
 +
                    (B) services provided under, or reimbursed by, such
 +
                contract shall be treated for such purposes as qualified
 +
                long-term care services (as defined in section 7702B(c)
 +
                of such Code).
 +
        In the case of an individual who is covered on December 31,
 +
        1996, under a State long-term care plan (as defined in section
 +
        7702B(f)(2) of such Code), the terms of such plan on such date
 +
        shall be treated for purposes of the preceding sentence as a
 +
        contract issued on such date which met the long-term care
 +
        insurance requirements of such State.
 +
            (3) Exchanges of existing policies.--If, after the date of
 +
        enactment of this Act and before January 1, 1998, a contract
 +
        providing for long-term care insurance coverage is exchanged
 +
        solely for a qualified long-term care insurance
 +
contract (as defined in section 7702B(b) of such Code), no gain or loss
 +
shall be recognized on the exchange. If, in addition to a qualified
 +
long-term care insurance contract, money or other property is received
 +
in the exchange, then any gain shall be recognized to the extent of the
 +
sum of the money and the fair market value of the other property
 +
received. For purposes of this paragraph, the cancellation of a contract
 +
providing for long-term care insurance coverage and reinvestment of the
 +
cancellation proceeds in a qualified long-term care insurance contract
 +
within 60 days thereafter shall be treated as an exchange.
 +
            (4) Issuance of certain riders permitted.--For purposes of
 +
        applying sections 101(f), 7702, and 7702A of the Internal
 +
        Revenue Code of 1986 to any contract--
 +
                    (A) the issuance of a rider which is treated as a
 +
                qualified long-term care insurance contract under
 +
                section 7702B, and
 +
                    (B) the addition of any provision required to
 +
                conform any other long-term care rider to be so treated,
 +
        shall not be treated as a modification or material change of
 +
        such contract.
 +
            (5) Application of per diem limitation to existing
 +
        contracts.--The amount of per diem payments made under a
 +
        contract issued on or before July 31, 1996, with respect to an
 +
        insured which are excludable from gross income by reason of
 +
        section 7702B of the Internal Revenue Code of 1986 (as added by
 +
        this section) shall not be reduced under subsection (d)(2)(B)
 +
        thereof by reason of reimbursements received under a contract
 +
        issued on or before such date. The preceding sentence shall
 +
        cease to apply as of the date (after July 31, 1996) such
 +
        contract is exchanged or there is any contract modification
 +
        which results in an increase in the amount of such per diem
 +
        payments or the amount of such reimbursements.
 +
 +
    (g) Long-Term <<NOTE: 26 USC 7702B note.>>  Care Study Request.--The
 +
Chairman of the Committee on Ways and Means of the House of
 +
Representatives and the Chairman of the Committee on Finance of the
 +
Senate shall jointly request the National Association of Insurance
 +
Commissioners, in consultation with representatives of the insurance
 +
industry and consumer organizations, to formulate, develop, and conduct
 +
a study to determine the marketing and other effects of per diem limits
 +
on certain types of long-term care policies. <<NOTE: Reports.>>  If the
 +
National Association of Insurance Commissioners agrees to the study
 +
request, the National Association of Insurance Commissioners shall
 +
report the results of its study to such committees not later than 2
 +
years after accepting the request.
 +
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL
 +
                          CARE.
 +
 +
    (a) General Rule.--Paragraph (1) of section 213(d) (defining medical
 +
care) is amended by striking ``or'' at the end of subparagraph (B), by
 +
redesignating subparagraph (C) as subparagraph (D), and by inserting
 +
after subparagraph (B) the following new subparagraph:
 +
                    ``(C) for qualified long-term care services (as
 +
                defined in section 7702B(c)), or''.
 +
 +
    (b) Technical Amendments.--
 +
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated
 +
        by subsection (a)) is amended by inserting before the period
 +
        ``or for any qualified long-term care insurance contract (as
 +
        defined in section 7702B(b))''.
 +
            (2)(A) Paragraph (1) of section 213(d) is amended by adding
 +
        at the end the following new flush sentence:
 +
        ``In the case of a qualified long-term care insurance contract
 +
        (as defined in section 7702B(b)), only eligible long-term care
 +
        premiums (as defined in paragraph (10)) shall be taken into
 +
        account under subparagraph (D).''
 +
            (B) Paragraph (2) of section 162(l) is amended by adding at
 +
        the end the following new subparagraph:
 +
                    ``(C) Long-term care premiums.--In the case of a
 +
                qualified long-term care insurance contract (as defined
 +
                in section 7702B(b)), only eligible long-term care
 +
                premiums (as defined in section 213(d)(10)) shall be
 +
                taken into account under paragraph (1).''
 +
            (C) Subsection (d) of section 213 is amended by adding at
 +
        the end the following new paragraphs:
 +
            ``(10) Eligible long-term care premiums.--
 +
                    ``(A) In general.--For purposes of this section, the
 +
                term `eligible long-term care premiums' means the amount
 +
                paid during a taxable year for any qualified long-term
 +
                care insurance contract (as defined in section 7702B(b))
 +
                covering an individual, to the extent such amount does
 +
                not exceed the limitation determined under the following
 +
                table:
 +
                    ``In the case of an individual                     
 +
                      with an attained age before the    The limitation
 +
                      close of the taxable year of:            is:     
 +
                            40 or less........................ $  200 
 +
                            More than 40 but not more than 50.    375 
 +
                            More than 50 but not more than 60.    750 
 +
                            More than 60 but not more than 70.  2,000 
 +
                            More than 70......................  2,500  .
 +
 +
                    ``(B) Indexing.--
 +
                          ``(i) In general.--In the case of any taxable
 +
                      year beginning in a calendar year after 1997, each
 +
                      dollar amount contained in subparagraph (A) shall
 +
                      be increased by the medical care cost adjustment
 +
                      of such amount for such calendar year. If any
 +
                      increase determined under the preceding sentence
 +
                      is not a multiple of $10, such increase shall be
 +
                      rounded to the nearest multiple of $10.
 +
                          ``(ii) Medical care cost adjust-
 +
                      ment.--For purposes of clause (i), the medical
 +
                      care cost adjustment for any calendar year is the
 +
                      percentage (if any) by which--
 +
                                    ``(I) the medical care component of
 +
                                the Consumer Price Index (as defined in
 +
                                section 1(f)(5)) for August of the
 +
                                preceding calendar year, exceeds
 +
                                    ``(II) such component for August of
 +
                                1996.
 +
                      The Secretary shall, in consultation with the
 +
                      Secre-
 +
                      tary of Health and Human Services, prescribe an
 +
                      adjustment which the Secretary determines is more
 +
                      appropriate for purposes of this paragraph than
 +
                      the adjustment described in the preceding
 +
                      sentence, and the adjustment so prescribed shall
 +
                      apply in lieu of the adjustment described in the
 +
                      preceding sentence.
 +
            ``(11) Certain payments to relatives treated as not paid for
 +
        medical care.--An amount paid for a qualified long-term care
 +
        service (as defined in section 7702B(c)) provided to an
 +
        individual shall be treated as not paid for medical care if such
 +
        service is provided--
 +
                    ``(A) by the spouse of the individual or by a
 +
                relative (directly or through a partnership,
 +
                corporation, or other entity) unless the service is
 +
                provided by a licensed professional with respect to such
 +
                service, or
 +
                    ``(B) by a corporation or partnership which is
 +
                related (within the meaning of section 267(b) or 707(b))
 +
                to the individual.
 +
        For purposes of this paragraph, the term `relative' means an
 +
        individual bearing a relationship to the individual which is
 +
        described in any of paragraphs (1) through (8) of section
 +
        152(a). This paragraph shall not apply for purposes of section
 +
        105(b) with respect to reimbursements through insurance.''.
 +
            (3) Paragraph (6) of section 213(d) is amended--
 +
                    (A) by striking ``subparagraphs (A) and (B)'' and
 +
                inserting ``subparagraphs (A), (B), and (C)'', and
 +
                    (B) by striking ``paragraph (1)(C)'' in subparagraph
 +
                (A) and inserting ``paragraph (1)(D)''.
 +
            (4) Paragraph (7) of section 213(d) is amended by striking
 +
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs (A),
 +
        (B), and (C)''.
 +
 +
    (c) Effective <<NOTE: 26 USC 162 note.>>  Date.--The amendments made
 +
by this section shall apply to taxable years beginning after December
 +
31, 1996.
 +
 +
SEC. 323. REPORTING REQUIREMENTS.
 +
 +
    (a) In General.--Subpart B of part III of subchapter A of chapter 61
 +
is amended by adding at the end the following new section:
 +
 +
``SEC. 6050Q. CERTAIN LONG-TERM CARE BENEFITS.
 +
 +
    ``(a) Requirement of Reporting.--Any person who pays long-term care
 +
benefits shall make a return, according to the forms or regulations
 +
prescribed by the Secretary, setting forth--
 +
            ``(1) the aggregate amount of such benefits paid by such
 +
        person to any individual during any calendar year,
 +
            ``(2) whether or not such benefits are paid in whole or in
 +
        part on a per diem or other periodic basis without regard to the
 +
        expenses incurred during the period to which the payments
 +
        relate,
 +
            ``(3) the name, address, and TIN of such individual, and
 +
            ``(4) the name, address, and TIN of the chronically ill or
 +
        terminally ill individual on account of whose condition such
 +
        benefits are paid.
 +
 +
    ``(b) Statements To Be Furnished to Persons With Respect to Whom
 +
Information Is Required.--Every person required to make a return under
 +
subsection (a) shall furnish to each individual whose name is required
 +
to be set forth in such return a written statement showing--
 +
            ``(1) the name of the person making the payments, and
 +
            ``(2) the aggregate amount of long-term care benefits paid
 +
        to the individual which are required to be shown on such return.
 +
 +
The written statement required under the preceding sentence shall be
 +
furnished to the individual on or before January 31 of the year
 +
following the calendar year for which the return under subsection (a)
 +
was required to be made.
 +
    ``(c) Long-Term Care Benefits.--For purposes of this section, the
 +
term `long-term care benefit' means--
 +
            ``(1) any payment under a product which is advertised,
 +
        marketed, or offered as long-term care insurance, and
 +
            ``(2) any payment which is excludable from gross income by
 +
        reason of section 101(g).''.
 +
 +
    (b) Penalties.--
 +
            (1) Subparagraph (B) of section 6724(d)(1) is amended by
 +
        redesignating clauses (ix) through (xiv) as clauses (x) through
 +
        (xv), respectively, and by inserting after clause (viii) the
 +
        following new clause:
 +
                          ``(ix) section 6050Q (relating to certain
 +
                      long-term care benefits),''.
 +
            (2) Paragraph (2) of section 6724(d) is amended by
 +
        redesignating subparagraphs (Q) through (T) as subparagraphs (R)
 +
        through (U), respectively, and by inserting after subparagraph
 +
        (P) the following new subparagraph:
 +
                    ``(Q) section 6050Q(b) (relating to certain long-
 +
                term care benefits),''.
 +
 +
    (c) Clerical Amendment.--The table of sections for subpart B of part
 +
III of subchapter A of chapter 61 is amended by adding at the end the
 +
following new item:
 +
 +
``Sec. 6050Q. Certain long-term care benefits.''.
 +
 +
    (d) Effective <<NOTE: 26 USC 6050Q note.>>  Date.--The amendments
 +
made by this section shall apply to benefits paid after December 31,
 +
1996.
 +
 +
                PART II--CONSUMER PROTECTION PROVISIONS
 +
 +
SEC. 325. POLICY REQUIREMENTS.
 +
 +
    Section 7702B (as added by section 321) is amended by adding at the
 +
end the following new subsection:
 +
    ``(g) Consumer Protection Provisions.--
 +
            ``(1) In general.--The requirements of this subsection are
 +
        met with respect to any contract if the contract meets--
 +
                    ``(A) the requirements of the model regulation and
 +
                model Act described in paragraph (2),
 +
                    ``(B) the disclosure requirement of paragraph (3),
 +
                and
 +
                    ``(C) the requirements relating to nonforfeitability
 +
                under paragraph (4).
 +
            ``(2) Requirements of model regulation and act.--
 +
                    ``(A) In general.--The requirements of this
 +
                paragraph are met with respect to any contract if such
 +
                contract meets--
 +
                          ``(i) Model regulation.--The following
 +
                      requirements of the model regulation:
 +
                                    ``(I) Section 7A (relating to
 +
                                guaranteed renewal or
 +
                                noncancellability), and the requirements
 +
                                of
 +
                                section 6B of the model Act relating to
 +
                                such section 7A.
 +
                                    ``(II) Section 7B (relating to
 +
                                prohibitions on limitations and
 +
                                exclusions).
 +
                                    ``(III) Section 7C (relating to
 +
                                extension of benefits).
 +
                                    ``(IV) Section 7D (relating to
 +
                                continuation or conversion of coverage).
 +
                                    ``(V) Section 7E (relating to
 +
                                discontinuance and replacement of
 +
                                policies).
 +
                                    ``(VI) Section 8 (relating to
 +
                                unintentional lapse).
 +
                                    ``(VII) Section 9 (relating to
 +
                                disclosure), other than section 9F
 +
                                thereof.
 +
                                    ``(VIII) Section 10 (relating to
 +
                                prohibitions against post-claims
 +
                                underwriting).
 +
                                    ``(IX) Section 11 (relating to
 +
                                minimum standards).
 +
                                    ``(X) Section 12 (relating to
 +
                                requirement to offer inflation
 +
                                protection), except that any requirement
 +
                                for a signature on a rejection of
 +
                                inflation protection shall permit the
 +
                                signature to be on an application or on
 +
                                a separate form.
 +
                                    ``(XI) Section 23 (relating to
 +
                                prohibition against preexisting
 +
                                conditions and probationary periods in
 +
                                replacement policies or certificates).
 +
                          ``(ii) Model act.--The following requirements
 +
                      of the model Act:
 +
                                    ``(I) Section 6C (relating to
 +
                                preexisting conditions).
 +
                                    ``(II) Section 6D (relating to prior
 +
                                hospitalization).
 +
                    ``(B) Definitions.--For purposes of this paragraph--
 +
                          ``(i) Model provisions.--The terms `model
 +
                      regulation' and `model Act' mean the long-term
 +
                      care insur-
 +
                      ance model regulation, and the long-term care
 +
                      insurance model Act, respectively, promulgated by
 +
                      the National Association of Insurance
 +
                      Commissioners (as adopted as of January 1993).
 +
                          ``(ii) Coordination.--Any provision of the
 +
                      model regulation or model Act listed under clause
 +
                      (i) or (ii) of subparagraph (A) shall be treated
 +
                      as including any other provision of such
 +
                      regulation or Act necessary to implement the
 +
                      provision.
 +
                          ``(iii) Determination.--For purposes of this
 +
                      section and section 4980C, the determination of
 +
                      whether any requirement of a model regulation or
 +
                      the model Act has been met shall be made by the
 +
                      Secretary.
 +
            ``(3) Disclosure requirement.--The requirement of this
 +
        paragraph is met with respect to any contract if such contract
 +
        meets the requirements of section 4980C(d).
 +
            ``(4) Nonforfeiture requirements.--
 +
                    ``(A) In general.--The requirements of this
 +
                paragraph are met with respect to any level premium
 +
                contract,
 +
                if the issuer of such contract offers to the
 +
                policyholder, including any group policyholder, a
 +
                nonforfeiture provision meeting the requirements of
 +
                subparagraph (B).
 +
                    ``(B) Requirements of provision.--The nonforfeiture
 +
                provision required under subparagraph (A) shall meet the
 +
                following requirements:
 +
                          ``(i) The nonforfeiture provision shall be
 +
                      appropriately captioned.
 +
                          ``(ii) The nonforfeiture provision shall
 +
                      provide for a benefit available in the event of a
 +
                      default in the payment of any premiums and the
 +
                      amount of the benefit may be adjusted subsequent
 +
                      to being initially granted only as necessary to
 +
                      reflect changes in claims, persistency, and
 +
                      interest as reflected in changes in rates for
 +
                      premium paying contracts approved by the Secretary
 +
                      for the same contract form.
 +
                          ``(iii) The nonforfeiture provision shall
 +
                      provide at least one of the following:
 +
                                    ``(I) Reduced paid-up insurance.
 +
                                    ``(II) Extended term insurance.
 +
                                    ``(III) Shortened benefit period.
 +
                                    ``(IV) Other similar offerings
 +
                                approved by the Secretary.
 +
            ``(5) Cross reference.--
 +
                  ``For coordination of the requirements of this
 +
                subsection with State requirements, see section
 +
                4980C(f).''.
 +
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
 +
                        INSURANCE CONTRACTS.
 +
 +
    (a) In General.--Chapter 43 is amended by adding at the end the
 +
following new section:
 +
``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE
 +
                      INSURANCE CONTRACTS.
 +
 +
    ``(a) General Rule.--There is hereby imposed on any person failing
 +
to meet the requirements of subsection (c) or (d) a tax in the amount
 +
determined under subsection (b).
 +
    ``(b) Amount.--
 +
            ``(1) In general.--The amount of the tax imposed by
 +
        subsection (a) shall be $100 per insured for each day any
 +
        requirement of subsection (c) or (d) is not met with respect to
 +
        each qualified long-term care insurance contract.
 +
            ``(2) Waiver.--In the case of a failure which is due to
 +
        reasonable cause and not to willful neglect, the Secretary may
 +
        waive part or all of the tax imposed by subsection (a) to the
 +
        extent that payment of the tax would be excessive relative to
 +
        the failure involved.
 +
 +
    ``(c) Responsibilities.--The requirements of this subsection are as
 +
follows:
 +
            ``(1) Requirements of model provisions.--
 +
                    ``(A) Model regulation.--The following requirements
 +
                of the model regulation must be met:
 +
                          ``(i) Section 13 (relating to application
 +
                      forms and replacement coverage).
 +
                          ``(ii) Section 14 (relating to reporting
 +
                      requirements), except that the issuer shall also
 +
                      report at least annually the number of claims
 +
                      denied during the reporting period for each class
 +
                      of business (expressed as a percentage of claims
 +
                      denied), other than claims denied for failure to
 +
                      meet the waiting period or because of any
 +
                      applicable preexisting condition.
 +
                          ``(iii) Section 20 (relating to filing
 +
                      requirements for marketing).
 +
                          ``(iv) Section 21 (relating to standards for
 +
                      marketing), including inaccurate completion of
 +
                      medical histories, other than sections 21C(1) and
 +
                      21C(6) thereof, except that--
 +
                                    ``(I) in addition to such
 +
                                requirements, no person shall, in
 +
                                selling or offering to sell a qualified
 +
                                long-term care insurance contract,
 +
                                misrepresent a material fact; and
 +
                                    ``(II) no such requirements shall
 +
                                include a requirement to inquire or
 +
                                identify whether a prospective applicant
 +
                                or enrollee for long-term care insurance
 +
                                has accident and sickness insurance.
 +
                          ``(v) Section 22 (relating to appropriateness
 +
                      of
 +
                      recommended purchase).
 +
                          ``(vi) Section 24 (relating to standard format
 +
                      outline of coverage).
 +
                          ``(vii) Section 25 (relating to requirement to
 +
                      deliver shopper's guide).
 +
                    ``(B) Model act.--The following requirements of the
 +
                model Act must be met:
 +
                          ``(i) Section 6F (relating to right to
 +
                      return), except that such section shall also apply
 +
                      to denials of applications and any refund shall be
 +
                      made within 30 days of the return or denial.
 +
                          ``(ii) Section 6G (relating to outline of
 +
                      coverage).
 +
                          ``(iii) Section 6H (relating to requirements
 +
                      for certificates under group plans).
 +
                          ``(iv) Section 6I (relating to policy
 +
                      summary).
 +
                          ``(v) Section 6J (relating to monthly reports
 +
                      on accelerated death benefits).
 +
                          ``(vi) Section 7 (relating to incontestability
 +
                      period).
 +
                    ``(C) Definitions.--For purposes of this paragraph,
 +
                the terms `model regulation' and `model Act' have the
 +
                meanings given such terms by section 7702B(g)(2)(B).
 +
            ``(2) Delivery of policy.--If an application for a qualified
 +
        long-term care insurance contract (or for a certificate under
 +
        such a contract for a group) is approved, the issuer shall
 +
        deliver to the applicant (or policyholder or certificateholder)
 +
        the contract (or certificate) of insurance not later than 30
 +
        days after the date of the approval.
 +
            ``(3) Information on denials of claims.--If a claim under a
 +
        qualified long-term care insurance contract is denied, the
 +
        issuer shall, within 60 days of the date of a written request by
 +
        the policyholder or certificateholder (or representative)--
 +
                    ``(A) provide a written explanation of the reasons
 +
                for the denial, and
 +
                    ``(B) make available all information directly
 +
                relating to such denial.
 +
 +
    ``(d) Disclosure.--The requirements of this subsection are met if
 +
the issuer of a long-term care insurance policy discloses in such policy
 +
and in the outline of coverage required under subsection (c)(1)(B)(ii)
 +
that the policy is intended to be a qualified long-term care insurance
 +
contract under section 7702B(b).
 +
    ``(e) Qualified Long-Term Care Insurance Contract Defined.--For
 +
purposes of this section, the term `qualified long-term care insurance
 +
contract' has the meaning given such term by section 7702B.
 +
    ``(f) Coordination With State Requirements.--If a State imposes any
 +
requirement which is more stringent than the analogous requirement
 +
imposed by this section or section 7702B(g), the requirement imposed by
 +
this section or section 7702B(g) shall be treated as met if the more
 +
stringent State requirement is met.''.
 +
    (b) Conforming Amendment.--The table of sections for chapter 43 is
 +
amended by adding at the end the following new item:
 +
 +
``Sec. 4980C. Requirements for issuers of qualified long-term care
 +
          insurance contracts.''.
 +
 +
SEC. 327. EFFECTIVE <<NOTE: 26 USC 4980C note.>>  DATES.
 +
 +
    (a) In General.--The provisions of, and amendments made by, this
 +
part shall apply to contracts issued after December 31, 1996. The
 +
provisions of section 321(f) (relating to transition rule) shall apply
 +
to such contracts.
 +
    (b) Issuers.--The amendments made by section 326 shall apply to
 +
actions taken after December 31, 1996.
 +
 +
          Subtitle D--Treatment of Accelerated Death Benefits
 +
 +
SEC. 331. TREATMENT OF ACCELERATED DEATH BENEFITS BY
 +
                        RECIPIENT.
 +
 +
    (a) In General.--Section 101 (relating to certain death benefits) is
 +
amended by adding at the end the following new subsection:
 +
    ``(g) Treatment of Certain Accelerated Death Benefits.--
 +
            ``(1) In general.--For purposes of this section, the
 +
        following amounts shall be treated as an amount paid by reason
 +
        of the death of an insured:
 +
                    ``(A) Any amount received under a life insurance
 +
                contract on the life of an insured who is a terminally
 +
                ill individual.
 +
                    ``(B) Any amount received under a life insurance
 +
                contract on the life of an insured who is a chronically
 +
                ill individual.
 +
            ``(2) Treatment of viatical settlements.--
 +
                    ``(A) In general.--If any portion of the death
 +
                benefit under a life insurance contract on the life of
 +
                an insured described in paragraph (1) is sold or
 +
                assigned to a viatical settlement provider, the amount
 +
                paid for the sale or assignment of such portion shall be
 +
                treated as an amount paid under the life insurance
 +
                contract by reason of the death of such insured.
 +
                    ``(B) Viatical settlement provider.--
 +
                          ``(i) In general.--The term `viatical
 +
                      settlement provider' means any person regularly
 +
                      engaged in the trade or business of purchasing, or
 +
                      taking assignments of, life insurance contracts on
 +
                      the lives of insureds described in paragraph (1)
 +
                      if--
 +
                                    ``(I) such person is licensed for
 +
                                such purposes (with respect to insureds
 +
                                described in the same subparagraph of
 +
                                paragraph (1) as the insured) in the
 +
                                State in which the insured resides, or
 +
                                    ``(II) in the case of an insured who
 +
                                resides in a State not requiring the
 +
                                licensing of such persons for such
 +
                                purposes with respect to such insured,
 +
                                such person meets the requirements of
 +
                                clause (ii) or (iii), whichever applies
 +
                                to such insured.
 +
                          ``(ii) Terminally ill insureds.--A person
 +
                      meets the requirements of this clause with respect
 +
                      to an insured who is a terminally ill individual
 +
                      if such
 +
                      person--
 +
                                    ``(I) meets the requirements of
 +
                                sections 8 and 9 of the Viatical
 +
                                Settlements Model Act of the National
 +
                                Association of Insurance Commissioners,
 +
                                and
 +
                                    ``(II) meets the requirements of the
 +
                                Model Regulations of the National
 +
                                Association of Insurance Commissioners
 +
                                (relating to standards for evaluation of
 +
                                reasonable payments) in determining
 +
                                amounts paid by such person in
 +
                                connection with such purchases or
 +
                                assignments.
 +
                          ``(iii) Chronically ill insureds.--A person
 +
                      meets the requirements of this clause with respect
 +
                      to an insured who is a chronically ill individual
 +
                      if such
 +
                      person--
 +
                                    ``(I) meets requirements similar to
 +
                                the requirements referred to in clause
 +
                                (ii)(I), and
 +
                                    ``(II) meets the standards (if any)
 +
                                of the National Association of Insurance
 +
                                Commissioners for evaluating the
 +
                                reasonableness of amounts paid by such
 +
                                person in connection with such purchases
 +
                                or assignments with respect to
 +
                                chronically ill individuals.
 +
            ``(3) Special rules for chronically ill insureds.--In the
 +
        case of an insured who is a chronically ill individual--
 +
                    ``(A) In general.--Paragraphs (1) and (2) shall not
 +
                apply to any payment received for any period unless--
 +
                          ``(i) such payment is for costs incurred by
 +
                      the payee (not compensated for by insurance or
 +
                      otherwise) for qualified long-term care services
 +
                      provided for the insured for such period, and
 +
                          ``(ii) the terms of the contract giving rise
 +
                      to such payment satisfy--
 +
                                    ``(I) the requirements of section
 +
                                7702B(b)(1)(B), and
 +
                                    ``(II) the requirements (if any)
 +
                                applicable under subparagraph (B).
 +
                For purposes of the preceding sentence, the rule of
 +
                section 7702B(b)(2)(B) shall apply.
 +
                    ``(B) Other requirements.--The requirements
 +
                applicable under this subparagraph are--
 +
                          ``(i) those requirements of section 7702B(g)
 +
                      and section 4980C which the Secretary specifies as
 +
                      applying to such a purchase, assignment, or other
 +
                      arrangement,
 +
                          ``(ii) standards adopted by the National
 +
                      Association of Insurance Commissioners which
 +
                      specifically apply to chronically ill individuals
 +
                      (and, if such standards are adopted, the analogous
 +
                      requirements specified under clause (i) shall
 +
                      cease to apply), and
 +
                          ``(iii) standards adopted by the State in
 +
                      which the policyholder resides (and if such
 +
                      standards are adopted, the analogous requirements
 +
                      specified under clause (i) and (subject to section
 +
                      4980C(f)) standards under clause (ii), shall cease
 +
                      to apply).
 +
                    ``(C) Per diem payments.--A payment shall not fail
 +
                to be described in subparagraph (A) by reason of being
 +
                made on a per diem or other periodic basis without
 +
                regard to the expenses incurred during the period to
 +
                which the payment relates.
 +
                    ``(D) Limitation on exclusion for periodic
 +
                payments.--
 +
                  ``For limitation on amount of periodic payments which
 +
                are
 +
                treated as described in paragraph (1), see section
 +
                7702B(d).''.
 +
 +
            ``(4) Definitions.--For purposes of this subsection--
 +
                    ``(A) Terminally ill individual.--The term
 +
                `terminally ill individual' means an individual who has
 +
                been certified by a physician as having an illness or
 +
                physical condition which can reasonably be expected to
 +
                result in death in 24 months or less after the date of
 +
                the certification.
 +
                    ``(B) Chronically ill individual.--The term
 +
                `chronically ill individual' has the meaning given such
 +
                term by section 7702B(c)(2); except that such term shall
 +
                not include a terminally ill individual.
 +
                    ``(C) Qualified long-term care services.--The term
 +
                `qualified long-term care services' has the meaning
 +
                given such term by section 7702B(c).
 +
                    ``(D) Physician.--The term `physician' has the
 +
                meaning given to such term by section 1861(r)(1) of the
 +
                Social Security Act (42 U.S.C. 1395x(r)(1)).
 +
            ``(5) Exception for business-related policies.--This
 +
        subsection shall not apply in the case of any amount paid to any
 +
        taxpayer other than the insured if such taxpayer has an
 +
        insurable interest with respect to the life of the insured by
 +
        reason of the insured being a director, officer, or employee of
 +
        the taxpayer or by reason of the insured being financially
 +
        interested in any trade or business carried on by the
 +
        taxpayer.''.
 +
 +
    (b) Effective <<NOTE: 26 USC 101 note.>>  Date.--The amendment made
 +
by subsection (a) shall apply to amounts received after December 31,
 +
1996.
 +
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED
 +
                        DEATH BENEFIT RIDERS.
 +
 +
    (a) Qualified Accelerated Death Benefit Riders Treated as Life
 +
Insurance.--Section 818 (relating to other definitions and special
 +
rules) is amended by adding at the end the following new subsection:
 +
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life
 +
Insurance.--For purposes of this part--
 +
            ``(1) In general.--Any reference to a life insurance
 +
        contract shall be treated as including a reference to a
 +
        qualified accelerated death benefit rider on such contract.
 +
            ``(2) Qualified accelerated death benefit riders.--For
 +
        purposes of this subsection, the term `qualified accelerated
 +
        death benefit rider' means any rider on a life insurance
 +
        contract if the only payments under the rider are payments
 +
        meeting the requirements of section 101(g).
 +
            ``(3) Exception for long-term care riders.--Paragraph (1)
 +
        shall not apply to any rider which is treated as a long-term
 +
        care insurance contract under section 7702B.''.
 +
 +
    (b) Effective <<NOTE: 26 USC 818 note.>>  Date.--
 +
            (1) In general.--The amendment made by this section shall
 +
        take effect on January 1, 1997.
 +
            (2) Issuance of rider not treated as material change.--For
 +
        purposes of applying sections 101(f), 7702, and 7702A of the
 +
        Internal Revenue Code of 1986 to any contract--
 +
                    (A) the issuance of a qualified accelerated death
 +
                benefit rider (as defined in section 818(g) of such Code
 +
                (as added by this Act)), and
 +
                    (B) the addition of any provision required to
 +
                conform an accelerated death benefit rider to the
 +
                requirements of such section 818(g),
 +
        shall not be treated as a modification or material change of
 +
        such contract.
 +
 +
                    Subtitle E--State Insurance Pools
 +
 +
SEC. 341. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED
 +
                        ORGANIZATIONS PROVIDING HEALTH COVERAGE
 +
                        FOR HIGH-RISK INDIVIDUALS.
 +
 +
    (a) In General.--Subsection (c) of section 501 (relating to list of
 +
exempt organizations) is amended by adding at the end the following new
 +
paragraph:
 +
            ``(26) Any membership organization if--
 +
                    ``(A) such organization is established by a State
 +
                exclusively to provide coverage for medical care (as
 +
                defined in section 213(d)) on a not-for-profit basis to
 +
                individuals described in subparagraph (B) through--
 +
                          ``(i) insurance issued by the organization, or
 +
                          ``(ii) a health maintenance organization under
 +
                      an arrangement with the organization,
 +
                    ``(B) the only individuals receiving such coverage
 +
                through the organization are individuals--
 +
                          ``(i) who are residents of such State, and
 +
                          ``(ii) who, by reason of the existence or
 +
                      history of a medical condition--
 +
                                    ``(I) are unable to acquire medical
 +
                                care coverage for such condition through
 +
                                insurance or from a health maintenance
 +
                                organization, or
 +
                                    ``(II) are able to acquire such
 +
                                coverage only at a rate which is
 +
                                substantially in excess of the rate for
 +
                                such coverage through the membership
 +
                                organization,
 +
                    ``(C) the composition of the membership in such
 +
                organization is specified by such State, and
 +
                    ``(D) no part of the net earnings of the
 +
                organization inures to the benefit of any private
 +
                shareholder or indi-
 +
                vidual.''.
 +
 +
    (b) Effective <<NOTE: 26 USC 501 note.>>  Date.--The amendment made
 +
by this section shall apply to taxable years beginning after December
 +
31, 1996.
 +
SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED WORKMEN'S
 +
                        COMPENSATION REINSURANCE ORGANIZATIONS.
 +
 +
    (a) In General.--Subsection (c) of section 501 (relating to list of
 +
exempt organizations), as amended by section 341, is amended by adding
 +
at the end the following new paragraph:
 +
            ``(27) Any membership organization if--
 +
                    ``(A) such organization is established before June
 +
                1, 1996, by a State exclusively to reimburse its members
 +
                for losses arising under workmen's compensation acts,
 +
                    ``(B) such State requires that the membership of
 +
                such organization consist of--
 +
                          ``(i) all persons who issue insurance covering
 +
                      workmen's compensation losses in such State, and
 +
                          ``(ii) all persons and governmental entities
 +
                      who self-insure against such losses, and
 +
                    ``(C) such organization operates as a non-profit
 +
                organization by--
 +
                          ``(i) returning surplus income to its members
 +
                      or workmen's compensation policyholders on a
 +
                      periodic basis, and
 +
                          ``(ii) reducing initial premiums in
 +
                      anticipation of investment income.''.
 +
 +
    (b) Effective <<NOTE: 26 USC 501 note.>>  Date.--The amendment made
 +
by this section shall apply to taxable years ending after the date of
 +
the enactment of this Act.
 +
 +
            Subtitle F--Organizations Subject to Section 833
 +
 +
SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.
 +
 +
    (a) In General.--Section 833(c) (relating to organization to which
 +
section applies) is amended by adding at the end the following new
 +
paragraph:
 +
            ``(4) Treatment as existing blue cross or blue shield
 +
        organization.--
 +
                    ``(A) In general.--Paragraph (2) shall be applied to
 +
                an organization described in subparagraph (B) as if it
 +
                were a Blue Cross or Blue Shield organization.
 +
                    ``(B) Applicable organization.--An organization is
 +
                described in this subparagraph if it--
 +
                          ``(i) is organized under, and governed by,
 +
                      State laws which are specifically and exclusively
 +
                      applicable to not-for-profit health insurance or
 +
                      health service type organizations, and
 +
                          ``(ii) is not a Blue Cross or Blue Shield
 +
                      organization or health maintenance
 +
                      organization.''.
 +
 +
    (b) Effective <<NOTE: 26 USC 833 note.>>  Date.--The amendment made
 +
by this section shall apply to taxable years ending after December 31,
 +
1996.
 +
 +
            Subtitle G--IRA Distributions to the Unemployed
 +
 +
SEC. 361. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT
 +
                        ADDITIONAL TAX TO PAY FINANCIALLY
 +
                        DEVASTATING MEDICAL EXPENSES.
 +
 +
    (a) In General.--Section 72(t)(3)(A) is amended by striking
 +
``(B),''.
 +
    (b) Distributions for Payment of Health Insurance Premiums of
 +
Certain Unemployed Individuals.--Paragraph (2) of section 72(t) is
 +
amended by adding at the end the following new subparagraph:
 +
                    ``(D) Distributions to unemployed individuals for
 +
                health insurance premiums.--
 +
                          ``(i) In general.--Distributions from an
 +
                      individual retirement plan to an individual after
 +
                      separation from employment--
 +
                                    ``(I) if such individual has
 +
                                received unemployment compensation for
 +
                                12 consecutive weeks under any Federal
 +
                                or State unemployment compensation law
 +
                                by reason of such separation,
 +
                                    ``(II) if such distributions are
 +
                                made during any taxable year during
 +
                                which such unemployment compensation is
 +
                                paid or the succeeding taxable year, and
 +
                                    ``(III) to the extent such
 +
                                distributions do not exceed the amount
 +
                                paid during the taxable year for
 +
                                insurance described in section
 +
                                213(d)(1)(D) with respect to the
 +
                                individual and the individual's spouse
 +
                                and dependents (as defined in section
 +
                                152).
 +
                          ``(ii) Distributions after reemployment.--
 +
                      Clause (i) shall not apply to any distribution
 +
                      made after the individual has been employed for at
 +
                      least 60 days after the separation from employment
 +
                      to which clause (i) applies.
 +
                          ``(iii) Self-employed individuals.--To the
 +
                      extent provided in regulations, a self-employed
 +
                      individual shall be treated as meeting the
 +
                      requirements of clause (i)(I) if, under Federal or
 +
                      State law, the individual would have received
 +
                      unemployment compensation but for the fact the
 +
                      individual was self-employed.''.
 +
 +
    (c) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) is
 +
amended by striking ``or (C)'' and inserting ``, (C), or (D)''.
 +
    (d) Effective <<NOTE: 26 USC 72 note.>>  Date.--The amendments made
 +
by this section shall apply to distributions after December 31, 1996.
 +
 +
                Subtitle H--Organ and Tissue Donation
 +
          Information Included With Income Tax Refund Payments
 +
 +
SEC. 371. ORGAN AND <<NOTE: 26 USC 6042 note.>>  TISSUE DONATION
 +
            INFORMATION INCLUDED WITH INCOME TAXREFUND PAYMENTS.
 +
 +
    (a) In General.--The Secretary of the Treasury shall, to the extent
 +
practicable, include with the mailing of any payment of a refund of
 +
individual income tax made during the period beginning on February 1,
 +
1997, and ending on June 30, 1997, a copy of the document described in
 +
subsection (b).
 +
    (b) Text of Document.--The Secretary of the Treasury shall, after
 +
consultation with the Secretary of Health and Human Services and
 +
organizations promoting organ and tissue (including eye) donation,
 +
prepare a document suitable for inclusion with individual income tax
 +
refund payments which--
 +
            (1) encourages organ and tissue donation;
 +
            (2) includes a detachable organ and tissue donor
 +
        card; and
 +
            (3) urges recipients to--
 +
                    (A) sign the organ and tissue donor card;
 +
                    (B) discuss organ and tissue donation with family
 +
                members and tell family members about the recipient's
 +
                desire to be an organ and tissue donor if the occasion
 +
                arises; and
 +
                    (C) encourage family members to request or authorize
 +
                organ and tissue donation if the occasion arises.
 +
 +
      TITLE IV--APPLICATION AND ENFORCEMENT OF GROUP HEALTH PLAN
 +
                              REQUIREMENTS
 +
 +
      Subtitle A--Application and Enforcement of Group Health Plan
 +
                              Requirements
 +
 +
SEC. 401. GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
 +
                        REQUIREMENTS.
 +
 +
    (a) In General.--The Internal Revenue Code of 1986 is
 +
amended by adding at the end the following new subtitle:
 +
 +
``Subtitle K--Group Health Plan Portability, Access, and Renewability
 +
                              Requirements
 +
 +
``Chapter 100. Group health plan portability, access, and renewability
 +
                              requirements.
 +
 +
``CHAPTER 100--GROUP HEALTH PLAN PORTABILITY, ACCESS, AND RENEWABILITY
 +
                              REQUIREMENTS
 +
 +
``Sec. 9801. Increased portability through limitation on preexisting
 +
                        condition exclusions.
 +
``Sec. 9802. Prohibiting discrimination against individual participants
 +
                        and beneficiaries based on health status.
 +
``Sec. 9803. Guaranteed renewability in multiemployer plans and certain
 +
                        multiple employer welfare arrangements.
 +
``Sec. 9804. General exceptions.
 +
``Sec. 9805. Definitions.
 +
``Sec. 9806. Regulations.
 +
``SEC. 9801. INCREASED PORTABILITY THROUGH LIMITATION ON
 +
                            PREEXISTING CONDITION EXCLUSIONS.
 +
 +
    ``(a) Limitation on Preexisting Condition Exclusion Period;
 +
Crediting for Periods of Previous Coverage.--Subject to subsection (d),
 +
a group health plan may, with respect to a participant or beneficiary,
 +
impose a preexisting condition exclusion only if--
 +
            ``(1) such exclusion relates to a condition (whether
 +
        physical or mental), regardless of the cause of the condition,
 +
        for which medical advice, diagnosis, care, or treatment was
 +
        recommended or received within the 6-month period ending on the
 +
        enrollment date;
 +
            ``(2) such exclusion extends for a period of not more than
 +
        12 months (or 18 months in the case of a late enrollee) after
 +
        the enrollment date; and
 +
            ``(3) the period of any such preexisting condition exclusion
 +
        is reduced by the length of the aggregate of the periods of
 +
        creditable coverage (if any) applicable to the participant or
 +
        beneficiary as of the enrollment date.
 +
 +
    ``(b) Definitions.--For purposes of this section--
 +
            ``(1) Preexisting condition exclusion.--
 +
                    ``(A) In general.--The term `preexisting condition
 +
                exclusion' means, with respect to coverage, a limitation
 +
                or exclusion of benefits relating to a condition based
 +
                on the fact that the condition was present before the
 +
                date of enrollment for such coverage, whether or not any
 +
                medical advice, diagnosis, care, or treatment was
 +
                recommended or received before such date.
 +
                    ``(B) Treatment of genetic information.--For
 +
                purposes of this section, genetic information shall not
 +
                be
 +
                treated as a condition described in subsection (a)(1) in
 +
                the absence of a diagnosis of the condition related to
 +
                such information.
 +
            ``(2) Enrollment date.--The term `enrollment date' means,
 +
        with respect to an individual covered under a group health plan,
 +
        the date of enrollment of the individual in the plan or, if
 +
        earlier, the first day of the waiting period for such
 +
        enrollment.
 +
            ``(3) Late enrollee.--The term `late enrollee' means, with
 +
        respect to coverage under a group health plan, a participant or
 +
        beneficiary who enrolls under the plan other than during--
 +
                    ``(A) the first period in which the individual is
 +
                eligible to enroll under the plan, or
 +
                    ``(B) a special enrollment period under subsection
 +
                (f).
 +
            ``(4) Waiting period.--The term `waiting period' means, with
 +
        respect to a group health plan and an individual who is a
 +
        potential participant or beneficiary in the plan, the period
 +
        that must pass with respect to the individual before the
 +
        individual is eligible to be covered for benefits under the
 +
        terms of the plan.
 +
 +
    ``(c) Rules Relating to Crediting Previous Coverage.--
 +
            ``(1) Creditable coverage defined.--For purposes of this
 +
        part, the term `creditable coverage' means, with respect to an
 +
        individual, coverage of the individual under any of the
 +
        following:
 +
                    ``(A) A group health plan.
 +
                    ``(B) Health insurance coverage.
 +
                    ``(C) Part A or part B of title XVIII of the Social
 +
                Security Act.
 +
                    ``(D) Title XIX of the Social Security Act, other
 +
                than coverage consisting solely of benefits under
 +
                section 1928.
 +
                    ``(E) Chapter 55 of title 10, United States Code.
 +
                    ``(F) A medical care program of the Indian Health
 +
                Service or of a tribal organization.
 +
                    ``(G) A State health benefits risk pool.
 +
                    ``(H) A health plan offered under chapter 89 of
 +
                title 5, United States Code.
 +
                    ``(I) A public health plan (as defined in
 +
                regulations).
 +
                    ``(J) A health benefit plan under section 5(e) of
 +
                the Peace Corps Act (22 U.S.C. 2504(e)).
 +
        Such term does not include coverage consisting solely of
 +
        coverage of excepted benefits (as defined in section 9805(c)).
 +
            ``(2) Not counting periods before significant breaks in
 +
        coverage.--
 +
                    ``(A) In general.--A period of creditable coverage
 +
                shall not be counted, with respect to enrollment of an
 +
                individual under a group health plan, if, after such
 +
                period and before the enrollment date, there was a 63-
 +
                day period during all of which the individual was not
 +
                covered under any creditable coverage.
 +
                    ``(B) Waiting period not treated as a break in
 +
                coverage.--For purposes of subparagraph (A) and
 +
                subsection (d)(4), any period that an individual is in a
 +
                waiting period for any coverage under a group health
 +
                plan or is in an affiliation period shall not be taken
 +
                into account in determining the continuous period under
 +
                subpara-
 +
                graph (A).
 +
                    ``(C) Affiliation period.--
 +
                          ``(i) In general.--For purposes of this
 +
                      section, the term `affiliation period' means a
 +
                      period which, under the terms of the health
 +
                      insurance coverage offered by the health
 +
                      maintenance organization, must expire before the
 +
                      health insurance coverage becomes effective.
 +
                      During such an affiliation period, the
 +
                      organization is not required to provide health
 +
                      care services or benefits and no premium shall be
 +
                      charged to the participant or beneficiary.
 +
                          ``(ii) Beginning.--Such period shall begin on
 +
                      the enrollment date.
 +
                          ``(iii) Runs concurrently with waiting
 +
                      periods.--Any such affiliation period shall run
 +
                      concurrently with any waiting period under the
 +
                      plan.
 +
            ``(3) Method of crediting coverage.--
 +
                    ``(A) Standard method.--Except as otherwise provided
 +
                under subparagraph (B), for purposes of applying
 +
                subsection (a)(3), a group health plan shall count a
 +
                period of creditable coverage without regard to the
 +
                specific benefits for which coverage is offered during
 +
                the period.
 +
                    ``(B) Election of alternative method.--A group
 +
                health plan may elect to apply subsection (a)(3) based
 +
                on coverage of any benefits within each of several
 +
                classes or categories of benefits specified in
 +
                regulations rather than as provided under subparagraph
 +
                (A). Such election shall be made on a uniform basis for
 +
                all participants and beneficiaries. Under such election
 +
                a group health plan shall count a period of creditable
 +
                coverage with respect to any class or category of
 +
                benefits if any level of benefits is covered within such
 +
                class or category.
 +
                    ``(C) Plan notice.--In the case of an election with
 +
                respect to a group health plan under subparagraph (B),
 +
                the plan shall--
 +
                          ``(i) prominently state in any disclosure
 +
                      statements concerning the plan, and state to each
 +
                      enrollee at the time of enrollment under the plan,
 +
                      that the plan has made such election, and
 +
                          ``(ii) include in such statements a
 +
                      description of the effect of this election.
 +
            ``(4) Establishment of period.--Periods of creditable
 +
        coverage with respect to an individual shall be established
 +
        through presentation of certifications described in subsection
 +
        (e) or in such other manner as may be specified in regulations.
 +
 +
    ``(d) Exceptions.--
 +
            ``(1) Exclusion not applicable to certain newborns.--Subject
 +
        to paragraph (4), a group health plan may not impose any
 +
        preexisting condition exclusion in the case of an individual
 +
        who, as of the last day of the 30-day period beginning with the
 +
        date of birth, is covered under creditable coverage.
 +
            ``(2) Exclusion not applicable to certain adopted
 +
        children.--Subject to paragraph (4), a group health plan may not
 +
        impose any preexisting condition exclusion in the case of a
 +
        child who is adopted or placed for adoption before attaining 18
 +
        years of age and who, as of the last day of the 30-day period
 +
        beginning on the date of the adoption or placement for adoption,
 +
        is covered under creditable coverage. The previous sentence
 +
        shall not apply to coverage before the date of such adoption or
 +
        placement for adoption.
 +
            ``(3) Exclusion not applicable to pregnancy.--For purposes
 +
        of this section, a group health plan may not impose any
 +
        preexisting condition exclusion relating to pregnancy as a
 +
        preexisting condition.
 +
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2)
 +
        shall no longer apply to an individual after the end of the
 +
        first 63-day period during all of which the individual was not
 +
        covered under any creditable coverage.
 +
 +
    ``(e) Certifications and Disclosure of Coverage.--
 +
            ``(1) Requirement for certification of period of
 +
        creditable coverage.--
 +
                    ``(A) In general.--A group health plan shall provide
 +
                the certification described in subparagraph (B)--
 +
                          ``(i) at the time an individual ceases to be
 +
                      covered under the plan or otherwise becomes
 +
                      covered under a COBRA continuation provision,
 +
                          ``(ii) in the case of an individual becoming
 +
                      covered under such a provision, at the time the
 +
                      individual ceases to be covered under such
 +
                      provision, and
 +
                          ``(iii) on the request on behalf of an
 +
                      individual made not later than 24 months after the
 +
                      date of cessation of the coverage described in
 +
                      clause (i) or (ii), whichever is later.
 +
                The certification under clause (i) may be provided, to
 +
                the extent practicable, at a time consistent with
 +
                notices required under any applicable COBRA continuation
 +
 +
                provision.
 +
                    ``(B) Certification.--The certification described in
 +
                this subparagraph is a written certification of--
 +
                          ``(i) the period of creditable coverage of the
 +
                      individual under such plan and the coverage under
 +
                      such COBRA continuation provision, and
 +
                          ``(ii) the waiting period (if any) (and
 +
                      affiliation period, if applicable) imposed with
 +
                      respect to the individual for any coverage under
 +
                      such plan.
 +
                    ``(C) Issuer compliance.--To the extent that medical
 +
                care under a group health plan consists of health
 +
                insurance coverage offered in connection with the plan,
 +
                the plan is deemed to have satisfied the certification
 +
                requirement under this paragraph if the issuer provides
 +
                for such certification in accordance with this
 +
                paragraph.
 +
            ``(2) Disclosure of information on previous benefits.--
 +
                    ``(A) In general.--In the case of an election
 +
                described in subsection (c)(3)(B) by a group health
 +
                plan, if the plan enrolls an individual for coverage
 +
                under the plan and the individual provides a
 +
                certification of coverage of the individual under
 +
                paragraph (1)--
 +
                          ``(i) upon request of such plan, the entity
 +
                      which issued the certification provided by the
 +
                      individual shall promptly disclose to such
 +
                      requesting plan information on coverage of classes
 +
                      and categories of health benefits available under
 +
                      such entity's plan, and
 +
                          ``(ii) such entity may charge the requesting
 +
                      plan or issuer for the reasonable cost of
 +
                      disclosing such information.
 +
            ``(3) Regulations.--The Secretary shall establish rules to
 +
        prevent an entity's failure to provide information under
 +
        paragraph (1) or (2) with respect to previous coverage of an
 +
        individual from adversely affecting any subsequent coverage of
 +
        the individual under another group health plan or health
 +
        insurance coverage.
 +
 +
    ``(f) Special Enrollment Periods.--
 +
            ``(1) Individuals losing other coverage.--A group health
 +
        plan shall permit an employee who is eligible, but not enrolled,
 +
        for coverage under the terms of the plan (or a dependent of such
 +
        an employee if the dependent is eligible, but not enrolled, for
 +
        coverage under such terms) to enroll for coverage under the
 +
        terms of the plan if each of the following conditions is met:
 +
                    ``(A) The employee or dependent was covered under a
 +
                group health plan or had health insurance coverage at
 +
                the time coverage was previously offered to the employee
 +
                or individual.
 +
                    ``(B) The employee stated in writing at such time
 +
                that coverage under a group health plan or health
 +
                insurance coverage was the reason for declining
 +
                enrollment, but only if the plan sponsor (or the health
 +
                insurance issuer offering health insurance coverage in
 +
                connection with the plan) required such a statement at
 +
                such time and provided the employee with notice of such
 +
                requirement (and the consequences of such requirement)
 +
                at such time.
 +
                    ``(C) The employee's or dependent's coverage
 +
                described in subparagraph (A)--
 +
                          ``(i) was under a COBRA continuation provi-
 +
                      sion and the coverage under such provision was
 +
                      exhausted; or
 +
                          ``(ii) was not under such a provision and
 +
                      either the coverage was terminated as a result of
 +
                      loss of eligibility for the coverage (including as
 +
                      a result of legal separation, divorce, death,
 +
                      termination of employment, or reduction in the
 +
                      number of hours of employment) or employer
 +
                      contributions toward such coverage were
 +
                      terminated.
 +
                    ``(D) Under the terms of the plan, the employee
 +
                requests such enrollment not later than 30 days after
 +
                the date of exhaustion of coverage described in
 +
                subparagraph (C)(i) or termination of coverage or
 +
                employer contribution described in subparagraph (C)(ii).
 +
            ``(2) For dependent beneficiaries.--
 +
                    ``(A) In general.--If--
 +
                          ``(i) a group health plan makes coverage
 +
                      available with respect to a dependent of an
 +
                      individual,
 +
                          ``(ii) the individual is a participant under
 +
                      the plan (or has met any waiting period applicable
 +
                      to becoming a participant under the plan and is
 +
                      eligible to be enrolled under the plan but for a
 +
                      failure to enroll during a previous enrollment
 +
                      period), and
 +
                          ``(iii) a person becomes such a dependent of
 +
                      the individual through marriage, birth, or
 +
                      adoption or placement for adoption,
 +
                the group health plan shall provide for a dependent
 +
                special enrollment period described in subparagraph (B)
 +
                during which the person (or, if not otherwise enrolled,
 +
                the individual) may be enrolled under the plan as a
 +
                dependent of the individual, and in the case of the
 +
                birth or adoption of a child, the spouse of the
 +
                individual may be enrolled as a dependent of the
 +
                individual if such spouse is otherwise eligible for
 +
                coverage.
 +
                    ``(B) Dependent special enrollment period.--The
 +
                dependent special enrollment period under this
 +
                subparagraph shall be a period of not less than 30 days
 +
                and shall begin on the later of--
 +
                          ``(i) the date dependent coverage is made
 +
                      avail-
 +
                      able, or
 +
                          ``(ii) the date of the marriage, birth, or
 +
                      adoption or placement for adoption (as the case
 +
                      may be) described in subparagraph (A)(iii).
 +
                    ``(C) No waiting period.--If an individual seeks
 +
                coverage of a dependent during the first 30 days of such
 +
                a dependent special enrollment period, the coverage of
 +
                the dependent shall become effective--
 +
                          ``(i) in the case of marriage, not later than
 +
                      the first day of the first month beginning after
 +
                      the date the completed request for enrollment is
 +
                      received;
 +
                          ``(ii) in the case of a dependent's birth, as
 +
                      of the date of such birth; or
 +
                          ``(iii) in the case of a dependent's adoption
 +
                      or placement for adoption, the date of such
 +
                      adoption or
 +
                      placement for adoption.
 +
``SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL
 +
                            PARTICIPANTS AND BENEFICIARIES BASED
 +
                            ON HEALTH STATUS.
 +
 +
    ``(a) In Eligibility to Enroll.--
 +
            ``(1) In general.--Subject to paragraph (2), a group health
 +
        plan may not establish rules for eligibility (including
 +
        continued eligibility) of any individual to enroll under the
 +
        terms of the plan based on any of the following factors in
 +
        relation to the individual or a dependent of the individual:
 +
                    ``(A) Health status.
 +
                    ``(B) Medical condition (including both physical and
 +
                mental illnesses).
 +
                    ``(C) Claims experience.
 +
                    ``(D) Receipt of health care.
 +
                    ``(E) Medical history.
 +
                    ``(F) Genetic information.
 +
                    ``(G) Evidence of insurability (including conditions
 +
                arising out of acts of domestic violence).
 +
                    ``(H) Disability.
 +
            ``(2) No application to benefits or exclusions.--To the
 +
        extent consistent with section 9801, paragraph (1) shall not be
 +
        construed--
 +
                    ``(A) to require a group health plan to provide
 +
                particular benefits (or benefits with respect to a
 +
                specific procedure, treatment, or service) other than
 +
                those provided under the terms of such plan; or
 +
                    ``(B) to prevent such a plan from establishing
 +
                limitations or restrictions on the amount, level,
 +
                extent, or nature of the benefits or coverage for
 +
                similarly situated individuals enrolled in the plan or
 +
                coverage.
 +
            ``(3) Construction.--For purposes of paragraph (1), rules
 +
        for eligibility to enroll under a plan include rules defining
 +
        any applicable waiting periods for such enrollment.
 +
 +
    ``(b) In Premium Contributions.--
 +
            ``(1) In general.--A group health plan may not require any
 +
        individual (as a condition of enrollment or continued enrollment
 +
        under the plan) to pay a premium or contribution which is
 +
        greater than such premium or contribution for a similarly
 +
        situated individual enrolled in the plan on the basis of any
 +
        factor described in subsection (a)(1) in relation to the
 +
        individual or to an individual enrolled under the plan as a
 +
        dependent of the individual.
 +
            ``(2) Construction.--Nothing in paragraph (1) shall be
 +
        construed--
 +
                    ``(A) to restrict the amount that an employer may be
 +
                charged for coverage under a group health plan; or
 +
                    ``(B) to prevent a group health plan from
 +
                establishing premium discounts or rebates or modifying
 +
                otherwise applicable copayments or deductibles in return
 +
                for adherence to programs of health promotion and
 +
                disease prevention.
 +
``SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND
 +
                            CERTAIN MULTIPLE EMPLOYER WELFARE
 +
                            ARRANGEMENTS.
 +
 +
    ``(a) In General.--A group health plan which is a multiemployer plan
 +
(as defined in section 414(f)) or which is a multiple employer welfare
 +
arrangement may not deny an employer continued access to the same or
 +
different coverage under such plan, other than--
 +
            ``(1) for nonpayment of contributions;
 +
            ``(2) for fraud or other intentional misrepresentation of
 +
        material fact by the employer;
 +
            ``(3) for noncompliance with material plan provisions;
 +
            ``(4) because the plan is ceasing to offer any coverage in a
 +
        geographic area;
 +
            ``(5) in the case of a plan that offers benefits through a
 +
        network plan, because there is no longer any individual enrolled
 +
        through the employer who lives, resides, or works in the service
 +
        area of the network plan and the plan applies this paragraph
 +
        uniformly without regard to the claims experience of employers
 +
        or a factor described in section 9802(a)(1) in relation to such
 +
        individuals or their dependents; or
 +
            ``(6) for failure to meet the terms of an applicable
 +
        collective bargaining agreement, to renew a collective
 +
        bargaining or other agreement requiring or authorizing
 +
        contributions to the plan, or to employ employees covered by
 +
        such an agreement.
 +
 +
    ``(b) Multiple Employer Welfare Arrangement.--For purposes of
 +
subsection (a), the term `multiple employer welfare arrangement' has the
 +
meaning given such term by section 3(40) of the Employee Retirement
 +
Income Security Act of 1974, as in effect on the date of the enactment
 +
of this section.
 +
``SEC. 9804. GENERAL EXCEPTIONS.
 +
 +
    ``(a) Exception for Certain Plans.--The requirements of this chapter
 +
shall not apply to--
 +
            ``(1) any governmental plan, and
 +
            ``(2) any group health plan for any plan year if, on the
 +
        first day of such plan year, such plan has less than 2
 +
        participants who are current employees.
 +
 +
    ``(b) Exception for Certain Benefits.--The requirements of this
 +
chapter shall not apply to any group health plan in relation to its
 +
provision of excepted benefits described in section 9805(c)(1).
 +
    ``(c) Exception for Certain Benefits if Certain Conditions Met.--
 +
            ``(1) Limited, excepted benefits.--The requirements of this
 +
        chapter shall not apply to any group health plan in relation to
 +
        its provision of excepted benefits described in section
 +
        9805(c)(2) if the benefits--
 +
                    ``(A) are provided under a separate policy,
 +
                certificate, or contract of insurance; or
 +
                    ``(B) are otherwise not an integral part of the
 +
                plan.
 +
            ``(2) Noncoordinated, excepted benefits.--The requirements
 +
        of this chapter shall not apply to any group health plan in
 +
        relation to its provision of excepted benefits described in
 +
        section 9805(c)(3) if all of the following conditions are met:
 +
                    ``(A) The benefits are provided under a separate
 +
                policy, certificate, or contract of insurance.
 +
                    ``(B) There is no coordination between the provision
 +
                of such benefits and any exclusion of benefits under any
 +
                group health plan maintained by the same plan sponsor.
 +
                    ``(C) Such benefits are paid with respect to an
 +
                event without regard to whether benefits are provided
 +
                with respect to such an event under any group health
 +
                plan maintained by the same plan sponsor.
 +
            ``(3) Supplemental excepted benefits.--The requirements of
 +
        this chapter shall not apply to any group health plan in
 +
        relation to its provision of excepted benefits described in
 +
        section 9805(c)(4) if the benefits are provided under a separate
 +
        policy, certificate, or contract of insurance.
 +
``SEC. 9805. DEFINITIONS.
 +
 +
    ``(a) Group Health Plan.--For purposes of this chapter, the term
 +
`group health plan' has the meaning given to such term by section
 +
5000(b)(1).
 +
    ``(b) Definitions Relating to Health Insurance.--For purposes of
 +
this chapter--
 +
            ``(1) Health insurance coverage.--
 +
                    ``(A) In general.--Except as provided in
 +
                subparagraph (B), the term `health insurance coverage'
 +
                means benefits consisting of medical care (provided
 +
                directly, through insurance or reimbursement, or
 +
                otherwise) under any hospital or medical service policy
 +
                or certificate, hospital or medical service plan
 +
                contract, or health maintenance organization contract
 +
                offered by a health insurance issuer.
 +
                    ``(B) No application to certain excepted benefits.--
 +
                In applying subparagraph (A), excepted benefits
 +
                described in subsection (c)(1) shall not be treated as
 +
                benefits consisting of medical care.
 +
            ``(2) Health insurance issuer.--The term `health insurance
 +
        issuer' means an insurance company, insurance service, or
 +
        insurance organization (including a health maintenance
 +
        organization, as defined in paragraph (3)) which is licensed to
 +
        engage in the business of insurance in a State and which is
 +
        subject to State law which regulates insurance (within the
 +
        meaning of section 514(b)(2) of the Employee Retirement Income
 +
        Security Act of 1974, as in effect on the date of the enactment
 +
        of this section). Such term does not include a group health
 +
        plan.
 +
            ``(3) Health maintenance organization.--The term `health
 +
        maintenance organization' means--
 +
                    ``(A) a federally qualified health maintenance
 +
                organization (as defined in section 1301(a) of the
 +
                Public Health Service Act (42 U.S.C. 300e(a))),
 +
                    ``(B) an organization recognized under State law as
 +
                a health maintenance organization, or
 +
                    ``(C) a similar organization regulated under State
 +
                law for solvency in the same manner and to the same
 +
                extent as such a health maintenance organization.
 +
 +
    ``(c) Excepted Benefits.--For purposes of this chapter, the term
 +
`excepted benefits' means benefits under one or more (or any combination
 +
thereof) of the following:
 +
            ``(1) Benefits not subject to requirements.--
 +
                    ``(A) Coverage only for accident, or disability
 +
                income insurance, or any combination thereof.
 +
                    ``(B) Coverage issued as a supplement to liability
 +
                in-
 +
                surance.
 +
                    ``(C) Liability insurance, including general
 +
                liability insurance and automobile liability insurance.
 +
                    ``(D) Workers' compensation or similar insurance.
 +
                    ``(E) Automobile medical payment insurance.
 +
                    ``(F) Credit-only insurance.
 +
                    ``(G) Coverage for on-site medical clinics.
 +
                    ``(H) Other similar insurance coverage, specified in
 +
                regulations, under which benefits for medical care are
 +
                secondary or incidental to other insurance benefits.
 +
            ``(2) Benefits not subject to requirements if offered
 +
        separately.--
 +
                    ``(A) Limited scope dental or vision benefits.
 +
                    ``(B) Benefits for long-term care, nursing home
 +
                care, home health care, community-based care, or any
 +
                combination thereof.
 +
                    ``(C) Such other similar, limited benefits as are
 +
                specified in regulations.
 +
            ``(3) Benefits not subject to requirements if offered as
 +
        independent, noncoordinated benefits.--
 +
                    ``(A) Coverage only for a specified disease or
 +
                illness.
 +
                    ``(B) Hospital indemnity or other fixed indemnity
 +
                in-
 +
                surance.
 +
            ``(4) Benefits not subject to requirements if offered as
 +
        separate insurance policy.--Medicare supplemental health
 +
        insurance (as defined under section 1882(g)(1) of the Social
 +
        Security Act), coverage supplemental to the coverage provided
 +
        under chapter 55 of title 10, United States Code, and similar
 +
        supplemental coverage provided to coverage under a group health
 +
        plan.
 +
 +
    ``(d) Other Definitions.--For purposes of this chapter--
 +
            ``(1) COBRA continuation provision.--The term `COBRA
 +
        continuation provision' means any of the following:
 +
                    ``(A) Section 4980B, other than subsection (f)(1)
 +
                thereof insofar as it relates to pediatric vaccines.
 +
                    ``(B) Part 6 of subtitle B of title I of the
 +
                Employee Retirement Income Security Act of 1974 (29
 +
                U.S.C. 1161 et seq.), other than section 609 of such
 +
                Act.
 +
                    ``(C) Title XXII of the Public Health Service Act.
 +
            ``(2) Governmental plan.--The term `governmental plan' has
 +
        the meaning given such term by section 414(d).
 +
            ``(3) Medical care.--The term `medical care' has the meaning
 +
        given such term by section 213(d) determined without regard to--
 +
                    ``(A) paragraph (1)(C) thereof, and
 +
                    ``(B) so much of paragraph (1)(D) thereof as relates
 +
                to qualified long-term care insurance.
 +
            ``(4) Network plan.--The term `network plan' means health
 +
        insurance coverage of a health insurance issuer under which the
 +
        financing and delivery of medical care are provided, in whole or
 +
        in part, through a defined set of providers under contract with
 +
        the issuer.
 +
            ``(5) Placed for adoption defined.--The term `placement', or
 +
        being `placed', for adoption, in connection with any placement
 +
        for adoption of a child with any person, means the assumption
 +
        and retention by such person of a legal obligation for total or
 +
        partial support of such child in anticipation of adoption of
 +
        such child. The child's placement with such person terminates
 +
        upon the termination of such legal obligation.
 +
``SEC. 9806. REGULATIONS.
 +
 +
    ``The Secretary, consistent with section 104 of the Health Care
 +
Portability and Accountability Act of 1996, may promulgate such
 +
regulations as may be necessary or appropriate to carry out the
 +
provisions of this chapter. The Secretary may promulgate any interim
 +
final rules as the Secretary determines are appropriate to carry out
 +
this chapter.''.
 +
 +
    (b) Clerical Amendment.--The table of subtitles of such Code is
 +
amended by adding at the end the following new item:
 +
 +
``Subtitle K. Group health plan portability, access, and renewability
 +
          requirements.''.
 +
 +
    (c) Effective <<NOTE: 26 USC 9801 note.>>  Date.--
 +
            (1) In general.--The amendments made by this section shall
 +
        apply to plan years beginning after June 30, 1997.
 +
            (2) Determination of creditable coverage.--
 +
                    (A) Period of coverage.--
 +
                          (i) In general.--Subject to clause (ii), no
 +
                      period before July 1, 1996, shall be taken into
 +
                      account under chapter 100 of the Internal Revenue
 +
                      Code of 1986 (as added by this section) in
 +
                      determining creditable coverage.
 +
                          (ii) Special rule for certain periods.--The
 +
                      Secretary of the Treasury, consistent with section
 +
                      104, shall provide for a process whereby
 +
                      individuals who need to establish creditable
 +
                      coverage for periods before July 1, 1996, and who
 +
                      would have such coverage credited but for clause
 +
                      (i) may be given credit for creditable coverage
 +
                      for such periods through the presentation of
 +
                      documents or other means.
 +
                    (B) Certifications, etc.--
 +
                          (i) In general.--Subject to clauses (ii) and
 +
                      (iii), subsection (e) of section 9801 of the
 +
                      Internal Revenue Code of 1986 (as added by this
 +
                      section) shall apply to events occurring after
 +
                      June 30, 1996.
 +
                          (ii) No certification required to be provided
 +
                      before june 1, 1997.--In no case is a
 +
                      certification required to be provided under such
 +
                      subsection before June 1, 1997.
 +
                          (iii) Certification only on written request
 +
                      for events occurring before october 1, 1996.--In
 +
                      the case of an event occurring after June 30,
 +
                      1996, and before October 1, 1996, a certification
 +
                      is not required to be provided under such
 +
                      subsection unless an individual (with respect to
 +
                      whom the certification is otherwise required to be
 +
                      made) requests such certification in writing.
 +
                    (C) Transitional rule.--In the case of an individual
 +
                who seeks to establish creditable coverage for any
 +
                period for which certification is not required because
 +
                it relates to an event occurring before June 30, 1996--
 +
                          (i) the individual may present other credible
 +
                      evidence of such coverage in order to establish
 +
                      the period of creditable coverage; and
 +
                          (ii) a group health plan and a health
 +
                      insurance issuer shall not be subject to any
 +
                      penalty or enforcement action with respect to the
 +
                      plan's or issuer's crediting (or not crediting)
 +
                      such coverage if the plan or issuer has sought to
 +
                      comply in good faith with the applicable
 +
                      requirements under the amendments made by this
 +
                      section.
 +
            (3) Special rule for collective bargaining agreements.--
 +
        Except as provided in paragraph (2), in the case of a group
 +
        health plan maintained pursuant to 1 or more collective
 +
        bargaining agreements between employee representatives and one
 +
        or more employers ratified before the date of the enactment of
 +
        this Act, the amendments made by this section shall not apply to
 +
        plan years beginning before the later of--
 +
                    (A) the date on which the last of the collective
 +
                bargaining agreements relating to the plan terminates
 +
                (determined without regard to any extension thereof
 +
                agreed to after the date of the enactment of this Act),
 +
                or
 +
                    (B) July 1, 1997.
 +
        For purposes of subparagraph (A), any plan amendment made
 +
        pursuant to a collective bargaining agreement relating to the
 +
        plan which amends the plan solely to conform to any requirement
 +
        added by this section shall not be treated as a termination of
 +
        such collective bargaining agreement.
 +
            (4) Timely regulations.--The Secretary of the Treasury,
 +
        consistent with section 104, shall first issue by not later than
 +
        April 1, 1997, such regulations as may be necessary to carry out
 +
        the amendments made by this section.
 +
            (5) Limitation on actions.--No enforcement action shall be
 +
        taken, pursuant to the amendments made by this section, against
 +
        a group health plan or health insurance issuer with respect to a
 +
        violation of a requirement imposed by such amendments before
 +
        January 1, 1998, or, if later, the date of issuance of
 +
        regulations referred to in paragraph (4), if the plan or issuer
 +
        has sought to comply in good faith with such requirements.
 +
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
 +
                        REQUIREMENTS.
 +
 +
    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986
 +
(relating to qualified pension, etc., plans) is amended by adding after
 +
section 4980C the following new section:
 +
``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN
 +
                              REQUIREMENTS.
 +
 +
    ``(a) General Rule.--There is hereby imposed a tax on any failure of
 +
a group health plan to meet the requirements of chapter 100 (relating to
 +
group health plan portability, access, and renewability requirements).
 +
    ``(b) Amount of Tax.--
 +
            ``(1) In general.--The amount of the tax imposed by
 +
        subsection (a) on any failure shall be $100 for each day in the
 +
        noncompliance period with respect to each individual to whom
 +
        such failure relates.
 +
            ``(2) Noncompliance period.--For purposes of this section,
 +
        the term `noncompliance period' means, with respect to any
 +
        failure, the period--
 +
                    ``(A) beginning on the date such failure first
 +
                occurs, and
 +
                    ``(B) ending on the date such failure is corrected.
 +
            ``(3) Minimum tax for noncompliance period where
 +
        failure discovered after notice of examination.--Notwithstanding
 +
        paragraphs (1) and (2) of subsection (c)--
 +
                    ``(A) In general.--In the case of 1 or more failures
 +
                with respect to an individual--
 +
                          ``(i) which are not corrected before the date
 +
                      a notice of examination of income tax liability is
 +
                      sent to the employer, and
 +
                          ``(ii) which occurred or continued during the
 +
                      period under examination,
 +
                the amount of tax imposed by subsection (a) by reason of
 +
                such failures with respect to such individual shall not
 +
                be less than the lesser of $2,500 or the amount of tax
 +
                which would be imposed by subsection (a) without regard
 +
                to such paragraphs.
 +
                    ``(B) Higher minimum tax where violations are more
 +
                than de minimis.--To the extent violations for which any
 +
                person is liable under subsection (e) for any year are
 +
                more than de minimis, subparagraph (A) shall be applied
 +
                by substituting `$15,000' for `$2,500' with respect to
 +
                such person.
 +
                    ``(C) Exception for church plans.--This paragraph
 +
                shall not apply to any failure under a church plan (as
 +
                defined in section 414(e)).
 +
 +
    ``(c) Limitations on Amount of Tax.--
 +
            ``(1) Tax not to apply where failure not discovered
 +
        exercising reasonable diligence.--No tax shall be imposed by
 +
        subsection (a) on any failure during any period for which it is
 +
        established to the satisfaction of the Secretary that the person
 +
        otherwise liable for such tax did not know, and exercising
 +
        reasonable diligence would not have known, that such failure
 +
        existed.
 +
            ``(2) Tax not to apply to failures corrected within certain
 +
        periods.--No tax shall be imposed by subsection (a) on any
 +
        failure if--
 +
                    ``(A) such failure was due to reasonable cause and
 +
                not to willful neglect, and
 +
                    ``(B)(i) in the case of a plan other than a church
 +
                plan (as defined in section 414(e)), such failure is
 +
                corrected during the 30-day period beginning on the
 +
                first date the person otherwise liable for such tax
 +
                knew, or exercising reasonable diligence would have
 +
                known, that such failure existed, and
 +
                    ``(ii) in the case of a church plan (as so defined),
 +
                such failure is corrected before the close of the
 +
                correction period (determined under the rules of section
 +
                414(e)(4)(C)).
 +
            ``(3) Overall limitation for unintentional failures.--In the
 +
        case of failures which are due to reasonable cause and not to
 +
        willful neglect--
 +
                    ``(A) Single employer plans.--
 +
                          ``(i) In general.--In the case of failures
 +
                      with respect to plans other than specified
 +
                      multiple employer health plans, the tax imposed by
 +
                      subsection (a) for failures during the taxable
 +
                      year of the employer shall not exceed the amount
 +
                      equal to the lesser of--
 +
                                    ``(I) 10 percent of the aggregate
 +
                                amount paid or incurred by the employer
 +
                                (or predecessor employer) during the
 +
                                preceding taxable year for group health
 +
                                plans, or
 +
                                    ``(II) $500,000.
 +
                          ``(ii) Taxable years in the case of certain
 +
                      controlled groups.--For purposes of this
 +
                      subparagraph, if not all persons who are treated
 +
                      as a single employer for purposes of this section
 +
                      have the same taxable year, the taxable years
 +
                      taken into account shall be determined under
 +
                      principles similar to the principles of section
 +
                      1561.
 +
                    ``(B) Specified multiple employer health plans.--
 +
                          ``(i) In general.--In the case of failures
 +
                      with respect to a specified multiple employer
 +
                      health plan, the tax imposed by subsection (a) for
 +
                      failures during the taxable year of the trust
 +
                      forming part of such plan shall not exceed the
 +
                      amount equal to the
 +
                      lesser of--
 +
                                    ``(I) 10 percent of the amount paid
 +
                                or incurred by such trust during such
 +
                                taxable year to provide medical care (as
 +
                                defined in section 9805(d)(3)) directly
 +
                                or through insurance, reimbursement, or
 +
                                otherwise, or
 +
                                    ``(II) $500,000.
 +
                      For purposes of the preceding sentence, all plans
 +
                      of which the same trust forms a part shall be
 +
                      treated as one plan.
 +
                          ``(ii) Special rule for employers required to
 +
                      pay tax.--If an employer is assessed a tax imposed
 +
                      by subsection (a) by reason of a failure with
 +
                      respect to a specified multiple employer health
 +
                      plan, the limit shall be determined under
 +
                      subparagraph (A) (and not under this subparagraph)
 +
                      and as if such plan were not a specified multiple
 +
                      employer health plan.
 +
            ``(4) Waiver by secretary.--In the case of a failure which
 +
        is due to reasonable cause and not to willful neglect, the
 +
        Secretary may waive part or all of the tax imposed by subsection
 +
        (a) to the extent that the payment of such tax would be
 +
        excessive relative to the failure involved.
 +
 +
    ``(d) Tax Not To Apply to Certain Insured Small Employer Plans.--
 +
            ``(1) In general.--In the case of a group health plan of a
 +
        small employer which provides health insurance coverage solely
 +
        through a contract with a health insurance issuer, no tax shall
 +
        be imposed by this section on the employer on any failure which
 +
        is solely because of the health insurance coverage offered by
 +
        such issuer.
 +
            ``(2) Small employer.--
 +
                    ``(A) In general.--For purposes of paragraph (1),
 +
                the term `small employer' means, with respect to a
 +
                calendar year and a plan year, an employer who employed
 +
                an average of at least 2 but not more than 50 employees
 +
                on business days during the preceding calendar year and
 +
                who employs at least 2 employees on the first day of the
 +
                plan year. For purposes of the preceding sentence, all
 +
                persons treated as a single employer under subsection
 +
                (b), (c), (m), or (o) of section 414 shall be treated as
 +
                one employer.
 +
                    ``(B) Employers not in existence in preceding
 +
                year.--In the case of an employer which was not in
 +
                existence throughout the preceding calendar year, the
 +
                determination of whether such employer is a small
 +
                employer shall be based on the average number of
 +
                employees that it is reasonably expected such employer
 +
                will employ on business days in the current calendar
 +
                year.
 +
                    ``(C) Predecessors.--Any reference in this paragraph
 +
                to an employer shall include a reference to any
 +
                predecessor of such employer.
 +
            ``(3) Health insurance coverage; health insurance issuer.--
 +
        For purposes of paragraph (1), the terms `health insurance
 +
        coverage' and `health insurance issuer' have the respective
 +
        meanings given such terms by section 9805.
 +
 +
    ``(e) Liability for Tax.--The following shall be liable for the tax
 +
imposed by subsection (a) on a failure:
 +
            ``(1) Except as otherwise provided in this subsection, the
 +
        employer.
 +
            ``(2) In the case of a multiemployer plan, the plan.
 +
            ``(3) In the case of a failure under section 9803 (relating
 +
        to guaranteed renewability) with respect to a plan described in
 +
        subsection (f)(2)(B), the plan.
 +
 +
    ``(f) Definitions.--For purposes of this section--
 +
            ``(1) Group health plan.--The term `group health plan' has
 +
        the meaning given such term by section 9805(a).
 +
            ``(2) Specified multiple employer health plan.--The term
 +
        `specified multiple employer health plan' means a group health
 +
        plan which is--
 +
                    ``(A) any multiemployer plan, or
 +
                    ``(B) any multiple employer welfare arrangement (as
 +
                defined in section 3(40) of the Employee Retirement
 +
                Income Security Act of 1974, as in effect on the date of
 +
                the enactment of this section).
 +
            ``(3) Correction.--A failure of a group health plan shall be
 +
        treated as corrected if--
 +
                    ``(A) such failure is retroactively undone to the
 +
                extent possible, and
 +
                    ``(B) the person to whom the failure relates is
 +
                placed in a financial position which is as good as such
 +
                person would have been in had such failure not
 +
                occurred.''.
 +
 +
    (b) Clerical Amendment.--The table of sections for chapter 43 of
 +
such Code is amended by adding after the item relating to section 4980C
 +
the following new item:
 +
 +
``Sec. 4980D. Failure to meet certain group health plan requirements.''.
 +
 +
    (c) Effective <<NOTE: 26 USC 4980D note.>>  Date.--The amendments
 +
made by this section shall apply to failures under chapter 100 of the
 +
Internal Revenue Code of 1986 (as added by section 401 of this Act).
 +
 +
Subtitle B--Clarification of Certain Continuation Coverage Requirements
 +
 +
SEC. 421. COBRA CLARIFICATIONS.
 +
 +
    (a) Public Health Service Act.--
 +
            (1) Period of coverage.--Section 2202(2) of the Public
 +
        Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
 +
                    (A) in subparagraph (A)--
 +
                          (i) by transferring the sentence immediately
 +
                      preceding clause (iv) so as to appear immediately
 +
                      following such clause (iv); and
 +
                          (ii) in the last sentence (as so
 +
                      transferred)--
 +
                                    (I) by striking ``an individual''
 +
                                and inserting ``a qualified
 +
                                beneficiary'';
 +
                                    (II) by striking ``at the time of a
 +
                                qualifying event described in section
 +
                                2203(2)'' and inserting ``at any time
 +
                                during the first 60 days of continuation
 +
                                coverage under this title'';
 +
                                    (III) by striking ``with respect to
 +
                                such event,''; and
 +
                                    (IV) by inserting ``(with respect to
 +
                                all qualified beneficiaries)'' after
 +
                                ``29 months'';
 +
                    (B) in subparagraph (D)(i), by inserting before ``,
 +
                or'' the following: ``(other than such an exclusion or
 +
                limitation which does not apply to (or is satisfied by)
 +
                such beneficiary by reason of chapter 100 of the
 +
                Internal Revenue Code of 1986, part 7 of subtitle B of
 +
                title I of the Employee Retirement Income Security Act
 +
                of 1974, or title XXVII of this Act)''; and
 +
                    (C) in subparagraph (E), by striking ``at the time
 +
                of a qualifying event described in section 2203(2)'' and
 +
                inserting ``at any time during the first 60 days of
 +
                continuation coverage under this title''.
 +
            (2) Notices.--Section 2206(3) of the Public Health Service
 +
        Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the time
 +
        of a qualifying event described in section 2203(2)'' and
 +
        inserting ``at any time during the first 60 days of continuation
 +
        coverage under this title''.
 +
            (3) Birth or adoption of a child.--Section 2208(3)(A) of the
 +
        Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended
 +
        by adding at the end thereof the following new flush sentence:
 +
 +
        ``Such term shall also include a child who is born to or placed
 +
        for adoption with the covered employee during the period of
 +
        continuation coverage under this title.''.
 +
 +
    (b) Employee Retirement Income Security Act of 1974.--
 +
            (1) Period of coverage.--Section 602(2) of the Employee
 +
        Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is
 +
        amended--
 +
                    (A) in the last sentence of subparagraph (A)--
 +
                          (i) by striking ``an individual'' and
 +
                      inserting ``a qualified beneficiary'';
 +
                          (ii) by striking ``at the time of a qualifying
 +
                      event described in section 603(2)'' and inserting
 +
                      ``at any time during the first 60 days of
 +
                      continuation coverage under this part'';
 +
                          (iii) by striking ``with respect to such
 +
                      event''; and
 +
                          (iv) by inserting ``(with respect to all
 +
                      qualified beneficiaries)'' after ``29 months'';
 +
                    (B) in subparagraph (D)(i), by inserting before ``,
 +
                or'' the following: ``(other than such an exclusion or
 +
                limitation which does not apply to (or is satisfied by)
 +
                such beneficiary by reason of chapter 100 of the
 +
                Internal Revenue Code of 1986, part 7 of this subtitle,
 +
                or title XXVII of the Public Health Service Act)''; and
 +
                    (C) in subparagraph (E), by striking ``at the time
 +
                of a qualifying event described in section 603(2)'' and
 +
                inserting ``at any time during the first 60 days of
 +
                continuation coverage under this part''.
 +
            (2) Notices.--Section 606(a)(3) of the Employee Retirement
 +
        Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended by
 +
        striking ``at the time of a qualifying event described in
 +
        section 603(2)'' and inserting ``at any time during the first 60
 +
        days of continuation coverage under this part''.
 +
            (3) Birth or adoption of a child.--Section 607(3)(A) of the
 +
        Employee Retirement Income Security Act of 1974 (29 U.S.C.
 +
        1167(3)) is amended by adding at the end thereof the following
 +
        new flush sentence:
 +
 +
        ``Such term shall also include a child who is born to or placed
 +
        for adoption with the covered employee during the period of
 +
        continuation coverage under this part.''.
 +
 +
    (c) Internal Revenue Code of 1986.--
 +
            (1) Period of coverage.--Section 4980B(f)(2)(B) of the
 +
        Internal Revenue Code of 1986 is amended--
 +
                    (A) in the last sentence of clause (i)--
 +
                          (i) by striking ``at the time of a qualifying
 +
                      event described in paragraph (3)(B)'' and
 +
                      inserting ``at any time during the first 60 days
 +
                      of continuation coverage under this section'';
 +
                          (ii) by striking ``with respect to such
 +
                      event''; and
 +
                          (iii) by inserting ``(with respect to all
 +
                      qualified beneficiaries)'' after ``29 months'';
 +
                    (B) in clause (iv)(I), by inserting before ``, or''
 +
                the following: ``(other than such an exclusion or
 +
                limitation which does not apply to (or is satisfied by)
 +
                such beneficiary by reason of chapter 100 of this title,
 +
                part 7 of subtitle B of title I of the Employee
 +
                Retirement Income Security
 +
                Act of 1974, or title XXVII of the Public Health Service
 +
                Act)''; and
 +
                    (C) in clause (v), by striking ``at the time of a
 +
                qualifying event described in paragraph (3)(B)'' and
 +
                inserting ``at any time during the first 60 days of
 +
                continuation coverage under this section''.
 +
            (2) Notices.--Section 4980B(f)(6)(C) of the Internal
 +
        Revenue Code of 1986 is amended by striking ``at the time of a
 +
        qualifying event described in paragraph (3)(B)'' and inserting
 +
        ``at any time during the first 60 days of continuation coverage
 +
        under this section''.
 +
            (3) Birth or adoption of a child.--Section 4980B(g)(1)(A) of
 +
        the Internal Revenue Code of 1986 is amended by adding at the
 +
        end thereof the following new flush sentence:
 +
                      ``Such term shall also include a child who is born
 +
                      to or placed for adoption with the covered
 +
                      employee during the period of continuation
 +
                      coverage under this section.''.
 +
 +
    (d) Effective <<NOTE: 26 USC 4980B note.>>  Date.--The amendments
 +
made by this section shall become effective on January 1, 1997,
 +
regardless of whether the qualifying event occurred before, on, or after
 +
such date.
 +
 +
    (e) Notification <<NOTE: 26 USC 4980B note.>>  of Changes.--Not
 +
later than November 1, 1996, each group health plan (covered under title
 +
XXII of the Public Health Service Act, part 6 of subtitle B of title I
 +
of the Employee Retirement Income Security Act of 1974, and section
 +
4980B(f) of the Internal Revenue Code of 1986) shall notify each
 +
qualified beneficiary who has elected continuation coverage under such
 +
title, part or section of the amendments made by this section.
 +
 +
                        TITLE V--REVENUE OFFSETS
 +
 +
SEC. 500. AMENDMENT OF 1986 CODE.
 +
 +
    Except as otherwise expressly provided, whenever in this title an
 +
amendment or repeal is expressed in terms of an amendment to, or repeal
 +
of, a section or other provision, the reference shall be considered to
 +
be made to a section or other provision of the Internal Revenue Code of
 +
1986.
 +
 +
                Subtitle A--Company-Owned Life Insurance
 +
 +
SEC. 501. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT
 +
                        TO COMPANY-OWNED LIFE INSURANCE.
 +
 +
    (a) In General.--Paragraph (4) of section 264(a) is amended--
 +
            (1) by inserting ``, or any endowment or annuity contracts
 +
        owned by the taxpayer covering any individual,'' after ``the
 +
        life of any individual'', and
 +
            (2) by striking all that follows ``carried on by the
 +
        taxpayer'' and inserting a period.
 +
 +
    (b) Exception for Contracts Relating to Key Persons; Permissible
 +
Interest Rates.--Section 264 is amended--
 +
            (1) by striking ``Any'' in subsection (a)(4) and inserting
 +
        ``Except as provided in subsection (d), any'', and
 +
            (2) by adding at the end the following new subsection:
 +
 +
    ``(d) Special Rules For Application of Subsection (a)(4).--
 +
            ``(1) Exception for key persons.--Subsection (a)(4) shall
 +
        not apply to any interest paid or accrued on any indebtedness
 +
        with respect to policies or contracts covering an individual who
 +
        is a key person to the extent that the aggregate amount of such
 +
        indebtedness with respect to policies and contracts covering
 +
        such individual does not exceed $50,000.
 +
            ``(2) Interest rate cap on key persons and pre-1986
 +
        contracts.--
 +
                    ``(A) In general.--No deduction shall be allowed by
 +
                reason of paragraph (1) or the last sentence of
 +
                subsection (a) with respect to interest paid or accrued
 +
                for any month beginning after December 31, 1995, to the
 +
                extent the amount of such interest exceeds the amount
 +
                which would have been determined if the applicable rate
 +
                of interest were used for such month.
 +
                    ``(B) Applicable rate of interest.--For purposes of
 +
                subparagraph (A)--
 +
                          ``(i) In general.--The applicable rate of
 +
                      interest for any month is the rate of interest
 +
                      described as Moody's Corporate Bond Yield Average-
 +
                      Monthly Average Corporates as published by Moody's
 +
                      Investors
 +
                      Service, Inc., or any successor thereto, for such
 +
                      month.
 +
                          ``(ii) Pre-1986 contracts.--In the case of
 +
                      indebtedness on a contract purchased on or before
 +
                      June 20, 1986--
 +
                                    ``(I) which is a contract providing
 +
                                a fixed rate of interest, the applicable
 +
                                rate of interest for any month shall be
 +
                                the Moody's rate described in clause (i)
 +
                                for the month in which the contract was
 +
                                purchased, or
 +
                                    ``(II) which is a contract providing
 +
                                a variable rate of interest, the
 +
                                applicable rate of interest for any
 +
                                month in an applicable period shall be
 +
                                such Moody's rate for the third month
 +
                                preceding the first month in such
 +
                                period.
 +
                      For purposes of subclause (II), the taxpayer shall
 +
                      elect an applicable period for such contract on
 +
                      its return of tax imposed by this chapter for its
 +
                      first taxable year ending on or after October 13,
 +
                      1995. Such applicable period shall be for any
 +
                      number of months (not greater than 12) specified
 +
                      in the election and may not be changed by the
 +
                      taxpayer without the consent of the Secretary.
 +
            ``(3) Key person.--For purposes of paragraph (1), the term
 +
        `key person' means an officer or 20-percent owner, except that
 +
        the number of individuals who may be treated as key persons with
 +
        respect to any taxpayer shall not exceed the greater of--
 +
                    ``(A) 5 individuals, or
 +
                    ``(B) the lesser of 5 percent of the total officers
 +
                and employees of the taxpayer or 20 individuals.
 +
            ``(4) 20-percent owner.--For purposes of this subsection,
 +
        the term `20-percent owner' means--
 +
                    ``(A) if the taxpayer is a corporation, any person
 +
                who owns directly 20 percent or more of the outstanding
 +
                stock of the corporation or stock possessing 20 percent
 +
                or more of the total combined voting power of all stock
 +
                of the corporation, or
 +
                    ``(B) if the taxpayer is not a corporation, any
 +
                person who owns 20 percent or more of the capital or
 +
                profits interest in the employer.
 +
            ``(5) Aggregation rules.--
 +
                    ``(A) In general.--For purposes of paragraph (4)(A)
 +
                and applying the $50,000 limitation in paragraph (1)--
 +
                          ``(i) all members of a controlled group shall
 +
                      be treated as one taxpayer, and
 +
                          ``(ii) such limitation shall be allocated
 +
                      among the members of such group in such manner as
 +
                      the Secretary may prescribe.
 +
                    ``(B) Controlled group.--For purposes of this
 +
                paragraph, all persons treated as a single employer
 +
                under subsection (a) or (b) of section 52 or subsection
 +
                (m) or (o) of section 414 shall be treated as members of
 +
                a controlled group.''.
 +
 +
    (c) Effective <<NOTE: 26 USC 264 note.>>  Dates.--
 +
            (1) In general.--The amendments made by this section shall
 +
        apply to interest paid or accrued after October 13, 1995.
 +
            (2) Transition rule for existing indebtedness.--
 +
                    (A) In general.--In the case of--
 +
                          (i) indebtedness incurred before January 1,
 +
                      1996, or
 +
                          (ii) indebtedness incurred before January 1,
 +
                      1997 with respect to any contract or policy
 +
                      entered into in 1994 or 1995,
 +
                the amendments made by this section shall not apply to
 +
                qualified interest paid or accrued on such indebtedness
 +
                after October 13, 1995, and before January 1, 1999.
 +
                    (B) Qualified interest.--For purposes of
 +
                subparagraph (A), the qualified interest with respect to
 +
                any indebtedness for any month is the amount of interest
 +
                (otherwise deductible) which would be paid or accrued
 +
                for such month on such indebtedness if--
 +
                          (i) in the case of any interest paid or
 +
                      accrued after December 31, 1995, indebtedness with
 +
                      respect to no more than 20,000 insured individuals
 +
                      were taken into account, and
 +
                          (ii) the lesser of the following rates of
 +
                      interest were used for such month:
 +
                                    (I) The rate of interest specified
 +
                                under the terms of the indebtedness as
 +
                                in effect on October 13, 1995 (and
 +
                                without regard to modification of such
 +
                                terms after such date).
 +
                                    (II) The applicable percentage of
 +
                                the rate of interest described as
 +
                                Moody's Corporate Bond Yield Average-
 +
                                Monthly Average Corporates as published
 +
                                by Moody's Investors Service, Inc., or
 +
                                any successor thereto, for such month.
 +
                For purposes of clause (i), all persons treated as a
 +
                single employer under subsection (a) or (b) of section
 +
                52 of the Internal Revenue Code of 1986 or subsection
 +
                (m) or (o) of section 414 of such Code shall be treated
 +
                as 1 person. Subclause (II) of clause (ii) shall not
 +
                apply to any month before January 1, 1996.
 +
                    (C) Applicable percentage.--For purposes of sub-
 +
                paragraph (B), the applicable percentage is as follows:
 +
 +
        For calendar year:                            The percentage is:
 +
                1996........................................100 percent
 +
                1997.........................................90 percent
 +
                1998.........................................80 percent.
 +
 +
            (3) Special rule for grandfathered contracts.--This section
 +
        shall not apply to any contract purchased on or before June 20,
 +
        1986, except that section 264(d)(2) of the Internal Revenue Code
 +
        of 1986 shall apply to interest paid or accrued after October
 +
        13, 1995.
 +
 +
    (d) Spread of <<NOTE: 26 USC 264 note.>>  Income Inclusion on
 +
Surrender, Etc. of Contracts.--
 +
            (1) In general.--If any amount is received under any life
 +
        insurance policy or endowment or annuity contract described in
 +
        paragraph (4) of section 264(a) of the Internal Revenue Code of
 +
        1986--
 +
                    (A) on the complete surrender, redemption, or
 +
                maturity of such policy or contract during calendar year
 +
                1996, 1997, or 1998, or
 +
                    (B) in full discharge during any such calendar year
 +
                of the obligation under the policy or contract which is
 +
                in the nature of a refund of the consideration paid for
 +
                the policy or contract,
 +
        then (in lieu of any other inclusion in gross income) such
 +
        amount shall be includible in gross income ratably over the 4-
 +
        taxable year period beginning with the taxable year such amount
 +
        would (but for this paragraph) be includible. The preceding
 +
        sentence shall only apply to the extent the amount is includible
 +
        in gross income for the taxable year in which the event
 +
        described in subparagraph (A) or (B) occurs.
 +
            (2) Special rules for applying section 264.--A contract
 +
        shall not be treated as--
 +
                    (A) failing to meet the requirement of section
 +
                264(c)(1) of the Internal Revenue Code of 1986, or
 +
                    (B) a single premium contract under section
 +
                264(b)(1) of such Code,
 +
        solely by reason of an occurrence described in subparagraph (A)
 +
        or (B) of paragraph (1) of this subsection or solely by reason
 +
        of no additional premiums being received under the contract by
 +
        reason of a lapse occurring after October 13, 1995.
 +
            (3) Special rule for deferred acquisition costs.--In the
 +
        case of the occurrence of any event described in subparagraph
 +
        (A) or (B) of paragraph (1) of this subsection with respect to
 +
        any policy or contract--
 +
                    (A) section 848 of the Internal Revenue Code of 1986
 +
                shall not apply to the unamortized balance (if any) of
 +
                the specified policy acquisition expenses attributable
 +
                to such policy or contract immediately before the
 +
                insurance company's taxable year in which such event
 +
                occurs, and
 +
                    (B) there shall be allowed as a deduction to such
 +
                company for such taxable year under chapter 1 of such
 +
                Code an amount equal to such unamortized balance.
 +
 +
Subtitle B--Treatment of Individuals Who Lose United States Citizenship
 +
 +
SEC. 511. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON
 +
                        INDIVIDUALS WHO LOSE UNITED STATES
 +
                        CITIZENSHIP.
 +
 +
    (a) In General.--Subsection (a) of section 877 is amended to read as
 +
follows:
 +
    ``(a) Treatment of Expatriates.--
 +
            ``(1) In general.--Every nonresident alien individual who,
 +
        within the 10-year period immediately preceding the close of the
 +
        taxable year, lost United States citizenship, unless such loss
 +
        did not have for one of its principal purposes the avoidance of
 +
        taxes under this subtitle or subtitle B, shall be taxable for
 +
        such taxable year in the manner provided in subsection (b) if
 +
        the tax imposed pursuant to such subsection exceeds the tax
 +
        which, without regard to this section, is imposed pursuant to
 +
        section 871.
 +
            ``(2) Certain individuals treated as having tax avoidance
 +
        purpose.--For purposes of paragraph (1), an individual shall be
 +
        treated as having a principal purpose to avoid such taxes if--
 +
                    ``(A) the average annual net income tax (as defined
 +
                in section 38(c)(1)) of such individual for the period
 +
                of 5 taxable years ending before the date of the loss of
 +
                United States citizenship is greater than $100,000, or
 +
                    ``(B) the net worth of the individual as of such
 +
                date is $500,000 or more.
 +
        In the case of the loss of United States citizenship in any
 +
        calendar year after 1996, such $100,000 and $500,000 amounts
 +
        shall be increased by an amount equal to such dollar amount
 +
        multiplied by the cost-of-living adjustment determined under
 +
        section 1(f)(3) for such calendar year by substituting `1994'
 +
        for `1992' in subparagraph (B) thereof. Any increase under the
 +
        preceding sentence shall be rounded to the nearest multiple of
 +
        $1,000.''.
 +
 +
    (b) Exceptions.--
 +
            (1) In general.--Section 877 is amended by striking
 +
        subsection (d), by redesignating subsection (c) as subsection
 +
        (d), and by inserting after subsection (b) the following new
 +
        subsection:
 +
 +
    ``(c) Tax Avoidance Not Presumed in Certain Cases.--
 +
            ``(1) In general.--Subsection (a)(2) shall not apply to an
 +
        individual if--
 +
                    ``(A) such individual is described in a subparagraph
 +
                of paragraph (2) of this subsection, and
 +
                    ``(B) within the 1-year period beginning on the date
 +
                of the loss of United States citizenship, such
 +
                individual submits a ruling request for the Secretary's
 +
                determination as to whether such loss has for one of its
 +
                principal purposes the avoidance of taxes under this
 +
                subtitle or subtitle B.
 +
            ``(2) Individuals described.--
 +
                    ``(A) Dual citizenship, etc.--An individual is
 +
                described in this subparagraph if--
 +
                          ``(i) the individual became at birth a citizen
 +
 +
                      of the United States and a citizen of another
 +
                      country and continues to be a citizen of such
 +
                      other country, or
 +
                          ``(ii) the individual becomes (not later than
 +
                      the close of a reasonable period after loss of
 +
                      United States citizenship) a citizen of the
 +
                      country in which--
 +
                                    ``(I) such individual was born,
 +
                                    ``(II) if such individual is
 +
                                married, such indi-
 +
                                vidual's spouse was born, or
 +
                                    ``(III) either of such individual's
 +
                                parents were born.
 +
                    ``(B) Long-term foreign residents.--An individual is
 +
                described in this subparagraph if, for each year in the
 +
                10-year period ending on the date of loss of United
 +
                States citizenship, the individual was present in the
 +
                United States for 30 days or less. The rule of section
 +
                7701(b)(3)(D)(ii) shall apply for purposes of this
 +
                subparagraph.
 +
                    ``(C) Renunciation upon reaching age of majority.--
 +
                An individual is described in this subparagraph if the
 +
                individual's loss of United States citizenship occurs
 +
                before such individual attains age 18\1/2\.
 +
                    ``(D) Individuals specified in regulations.--An
 +
                individual is described in this subparagraph if the
 +
                indi-
 +
                vidual is described in a category of individuals
 +
                prescribed by regulation by the Secretary.''.
 +
            (2) Technical amendment.--Paragraph (1) of section 877(b) of
 +
        such Code is amended by striking ``subsection (c)'' and
 +
        inserting ``subsection (d)''.
 +
 +
    (c) Treatment of Property Disposed of in Nonrecognition
 +
Transactions; Treatment of Distributions From Certain Controlled Foreign
 +
Corporations.--Subsection (d) of section 877, as redesignated by
 +
subsection (b), is amended to read as follows:
 +
    ``(d) Special Rules for Source, Etc.--For purposes of subsection
 +
(b)--
 +
            ``(1) Source rules.--The following items of gross income
 +
        shall be treated as income from sources within the United
 +
        States:
 +
                    ``(A) Sale of property.--Gains on the sale or
 +
                exchange of property (other than stock or debt
 +
                obligations) located in the United States.
 +
                    ``(B) Stock or debt obligations.--Gains on the sale
 +
                or exchange of stock issued by a domestic corporation or
 +
                debt obligations of United States persons or of the
 +
                United States, a State or political subdivision thereof,
 +
                or the District of Columbia.
 +
                    ``(C) Income or gain derived from controlled
 +
                foreign corporation.--Any income or gain derived from
 +
                stock in a foreign corporation but only--
 +
                          ``(i) if the individual losing United States
 +
                      citizenship owned (within the meaning of section
 +
                      958(a)), or is considered as owning (by applying
 +
                      the ownership rules of section 958(b)), at any
 +
                      time during the 2-year period ending on the date
 +
                      of the loss of United States citizenship, more
 +
                      than 50 percent of--
 +
                                    ``(I) the total combined voting
 +
                                power of all classes of stock entitled
 +
                                to vote of such corpora-
 +
                                tion, or
 +
                                    ``(II) the total value of the stock
 +
                                of such corporation, and
 +
                          ``(ii) to the extent such income or gain does
 +
                      not exceed the earnings and profits attributable
 +
                      to such stock which were earned or accumulated
 +
                      before the loss of citizenship and during periods
 +
                      that the ownership requirements of clause (i) are
 +
                      met.
 +
            ``(2) Gain recognition on certain exchanges.--
 +
                    ``(A) In general.--In the case of any exchange of
 +
                property to which this paragraph applies,
 +
                notwithstanding any other provision of this title, such
 +
                property shall be treated as sold for its fair market
 +
                value on the date of such exchange, and any gain shall
 +
                be recognized for the taxable year which includes such
 +
                date.
 +
                    ``(B) Exchanges to which paragraph applies.--This
 +
                paragraph shall apply to any exchange during the 10-year
 +
                period described in subsection (a) if--
 +
                          ``(i) gain would not (but for this paragraph)
 +
                      be recognized on such exchange in whole or in part
 +
                      for purposes of this subtitle,
 +
                          ``(ii) income derived from such property was
 +
                      from sources within the United States (or, if no
 +
                      income was so derived, would have been from such
 +
                      sources), and
 +
                          ``(iii) income derived from the property
 +
                      acquired in the exchange would be from sources
 +
                      outside the United States.
 +
                    ``(C) Exception.--Subparagraph (A) shall not apply
 +
                if the individual enters into an agreement with the
 +
                Secretary which specifies that any income or gain
 +
                derived from the property acquired in the exchange (or
 +
                any other property which has a basis determined in whole
 +
                or part by reference to such property) during such 10-
 +
                year period shall be treated as from sources within the
 +
                United States. If the property transferred in the
 +
                exchange is disposed of by the person acquiring such
 +
                property, such agreement shall terminate and any gain
 +
                which was not recognized by reason of such agreement
 +
                shall be recognized as of the date of such disposition.
 +
                    ``(D) Secretary may extend period.--To the extent
 +
                provided in regulations prescribed by the Secretary,
 +
                subparagraph (B) shall be applied by substituting the
 +
                15-year period beginning 5 years before the loss of
 +
                United States citizenship for the 10-year period
 +
                referred to therein.
 +
                    ``(E) Secretary may require recognition of gain in
 +
                certain cases.--To the extent provided in regulations
 +
                prescribed by the Secretary--
 +
                          ``(i) the removal of appreciated tangible
 +
                      personal property from the United States, and
 +
                          ``(ii) any other occurrence which (without
 +
                      recognition of gain) results in a change in the
 +
                      source of the income or gain from property from
 +
                      sources within the United States to sources
 +
                      outside the United States,
 +
                shall be treated as an exchange to which this paragraph
 +
                applies.
 +
            ``(3) Substantial diminishing of risks of ownership.--For
 +
        purposes of determining whether this section applies to any gain
 +
        on the sale or exchange of any property, the running of the 10-
 +
        year period described in subsection (a) shall be
 +
        suspended for any period during which the individual's risk of
 +
        loss with respect to the property is substantially diminished
 +
        by--
 +
                    ``(A) the holding of a put with respect to such
 +
                property (or similar property),
 +
                    ``(B) the holding by another person of a right to
 +
                acquire the property, or
 +
                    ``(C) a short sale or any other transaction.
 +
            ``(4) Treatment of property contributed to controlled
 +
        foreign corporations.--
 +
                    ``(A) In general.--If--
 +
                          ``(i) an individual losing United States
 +
                      citizenship contributes property to any
 +
                      corporation which, at the time of the
 +
                      contribution, is described in subparagraph (B),
 +
                      and
 +
                          ``(ii) income derived from such property was
 +
                      from sources within the United States (or, if no
 +
                      income was so derived, would have been from such
 +
                      sources),
 +
                during the 10-year period referred to in subsection (a),
 +
                any income or gain on such property (or any other
 +
                property which has a basis determined in whole or part
 +
                by reference to such property) received or accrued by
 +
                the corporation shall be treated as received or accrued
 +
                directly by such individual and not by such corporation.
 +
                The preceding sentence shall not apply to the extent the
 +
                property has been treated under subparagraph (C) as
 +
                having been sold by such corporation.
 +
                    ``(B) Corporation described.--A corporation is
 +
                described in this subparagraph with respect to an
 +
                individual if, were such individual a United States
 +
                citizen--
 +
                          ``(i) such corporation would be a controlled
 +
                      foreign corporation (as defined in 957), and
 +
                          ``(ii) such individual would be a United
 +
                      States shareholder (as defined in section 951(b))
 +
                      with respect to such corporation.
 +
                    ``(C) Disposition of stock in corporation.--If stock
 +
                in the corporation referred to in subparagraph (A) (or
 +
                any other stock which has a basis determined in whole or
 +
                part by reference to such stock) is disposed of during
 +
                the 10-year period referred to in subsection (a) and
 +
                while the property referred to in subparagraph (A) is
 +
                held by such corporation, a pro rata share of such
 +
                property (determined on the basis of the value of such
 +
                stock) shall be treated as sold by the corporation
 +
                immediately before such disposition.
 +
                    ``(D) Anti-abuse rules.--The Secretary shall
 +
                prescribe such regulations as may be necessary to
 +
                prevent the avoidance of the purposes of this paragraph,
 +
                including where--
 +
                          ``(i) the property is sold to the corporation,
 +
                      and
 +
                          ``(ii) the property taken into account under
 +
                      subparagraph (A) is sold by the corporation.
 +
                    ``(E) Information reporting.--The Secretary shall
 +
                require such information reporting as is necessary to
 +
                carry out the purposes of this paragraph.''.
 +
 +
    (d) Credit for Foreign Taxes Imposed on United States Source
 +
Income.--
 +
            (1) Subsection (b) of section 877 is amended by adding at
 +
        the end the following new sentence: ``The tax imposed solely by
 +
        reason of this section shall be reduced (but not below zero) by
 +
        the amount of any income, war profits, and excess profits taxes
 +
        (within the meaning of section 903) paid to any foreign country
 +
        or possession of the United States on any income of the taxpayer
 +
        on which tax is imposed solely by reason of this section.''
 +
            (2) Subsection (a) of section 877, as amended by subsection
 +
        (a), is amended by inserting ``(after any reduction in such tax
 +
        under the last sentence of such subsection)'' after ``such
 +
        subsection''.
 +
 +
    (e) Comparable Estate and Gift Tax Treatment.--
 +
            (1) Estate tax.--
 +
                    (A) In general.--Subsection (a) of section 2107 is
 +
                amended to read as follows:
 +
 +
    ``(a) Treatment of Expatriates.--
 +
            ``(1) Rate of tax.--A tax computed in accordance with the
 +
        table contained in section 2001 is hereby imposed
 +
on the transfer of the taxable estate, determined as provided in section
 +
2106, of every decedent nonresident not a citizen of the United States
 +
if, within the 10-year period ending with the date of death, such
 +
decedent lost United States citizenship, unless such loss did not have
 +
for one of its principal purposes the avoidance of taxes under this
 +
subtitle or subtitle A.
 +
            ``(2) Certain individuals treated as having tax
 +
        avoidance purpose.--
 +
                    ``(A) In general.--For purposes of paragraph (1), an
 +
                individual shall be treated as having a principal
 +
                purpose to avoid such taxes if such individual is so
 +
                treated under section 877(a)(2).
 +
                    ``(B) Exception.--Subparagraph (A) shall not apply
 +
                to a decedent meeting the requirements of section
 +
                877(c)(1).''.
 +
                    (B) Credit for foreign death taxes.--Subsection (c)
 +
                of section 2107 is amended by redesignating paragraph
 +
                (2) as paragraph (3) and by inserting after paragraph
 +
                (1) the following new paragraph:
 +
            ``(2) Credit for foreign death taxes.--
 +
                    ``(A) In general.--The tax imposed by subsection (a)
 +
                shall be credited with the amount of any estate,
 +
                inheritance, legacy, or succession taxes actually paid
 +
                to any foreign country in respect of any property which
 +
                is included in the gross estate solely by reason of
 +
                subsection (b).
 +
                    ``(B) Limitation on credit.--The credit allowed by
 +
                subparagraph (A) for such taxes paid to a foreign
 +
                country shall not exceed the lesser of--
 +
                          ``(i) the amount which bears the same ratio to
 +
                      the amount of such taxes actually paid to such
 +
                      foreign country in respect of property included in
 +
                      the gross estate as the value of the property
 +
                      included in the gross estate solely by reason of
 +
                      subsection (b) bears to the value of all property
 +
                      subjected to such taxes by such foreign country,
 +
                      or
 +
                          ``(ii) such property's proportionate share of
 +
                      the excess of--
 +
                                    ``(I) the tax imposed by subsection
 +
                                (a), over
 +
                                    ``(II) the tax which would be
 +
                                imposed by section 2101 but for this
 +
                                section.
 +
                    ``(C) Proportionate share.--For purposes of
 +
                subparagraph (B), a property's proportionate share is
 +
                the percentage of the value of the property which is
 +
                included in the gross estate solely by reason of
 +
                subsection (b) bears to the total value of the gross
 +
                estate.''.
 +
                    (C) Expansion of inclusion in gross estate of stock
 +
                of foreign corporations.--Paragraph (2) of section
 +
                2107(b) is amended by striking ``more than 50 per-
 +
                cent of'' and all that follows and inserting ``more than
 +
                50 percent of--
 +
                    ``(A) the total combined voting power of all classes
 +
                of stock entitled to vote of such corporation, or
 +
                    ``(B) the total value of the stock of such
 +
                corporation,''.
 +
            (2) Gift tax.--
 +
                    (A) In general.--Paragraph (3) of section 2501(a) is
 +
                amended to read as follows:
 +
            ``(3) Exception.--
 +
                    ``(A) Certain individuals.--Paragraph (2) shall not
 +
                apply in the case of a donor who, within the 10-year
 +
                period ending with the date of transfer, lost United
 +
                States citizenship, unless such loss did not have for
 +
                one of its principal purposes the avoidance of taxes
 +
                under this subtitle or subtitle A.
 +
                    ``(B) Certain individuals treated as having tax
 +
                avoidance purpose.--For purposes of subparagraph (A), an
 +
                individual shall be treated as having a
 +
principal purpose to avoid such taxes if such individual is so treated
 +
under section 877(a)(2).
 +
                    ``(C) Exception for certain individuals.--
 +
                Subparagraph (B) shall not apply to a decedent meeting
 +
                the requirements of section 877(c)(1).
 +
                    ``(D) Credit for foreign gift taxes.--The tax
 +
                imposed by this section solely by reason of this
 +
                paragraph shall be credited with the amount of any gift
 +
                tax actually paid to any foreign country in respect of
 +
                any gift which is taxable under this section solely by
 +
                reason of this paragraph.''.
 +
 +
    (f) Comparable Treatment of Lawful Permanent Residents Who Cease To
 +
Be Taxed as Residents.--
 +
            (1) In general.--Section 877 is amended by redesignating
 +
        subsection (e) as subsection (f) and by inserting after
 +
        subsection (d) the following new subsection:
 +
 +
    ``(e) Comparable Treatment of Lawful Permanent Residents Who Cease
 +
To Be Taxed as Residents.--
 +
            ``(1) In general.--Any long-term resident of the United
 +
        States who--
 +
                    ``(A) ceases to be a lawful permanent resident of
 +
                the United States (within the meaning of section
 +
                7701(b)(6)), or
 +
                    ``(B) commences to be treated as a resident of a
 +
                foreign country under the provisions of a tax treaty
 +
                between the United States and the foreign country and
 +
                who does not waive the benefits of such treaty
 +
                applicable to residents of the foreign country,
 +
        shall be treated for purposes of this section and sections 2107,
 +
        2501, and 6039F in the same manner as if such resident were a
 +
        citizen of the United States who lost United States citizenship
 +
        on the date of such cessation or commencement.
 +
            ``(2) Long-term resident.--For purposes of this subsection,
 +
        the term `long-term resident' means any individual (other than a
 +
        citizen of the United States) who is a lawful permanent resident
 +
        of the United States in at least 8 taxable years during the
 +
        period of 15 taxable years ending with the taxable year during
 +
        which the event described in subparagraph (A) or (B) of
 +
        paragraph (1) occurs. For purposes of the preceding sentence, an
 +
        individual shall not be treated as a lawful permanent resident
 +
        for any taxable year if such individual is treated as a resident
 +
        of a foreign country for the taxable year under the provisions
 +
        of a tax treaty between the United States and the foreign
 +
        country and does not waive the benefits of such treaty
 +
        applicable to residents of the foreign country.
 +
            ``(3) Special rules.--
 +
                    ``(A) Exceptions not to apply.--Subsection (c) shall
 +
                not apply to an individual who is treated as provided in
 +
                paragraph (1).
 +
                    ``(B) Step-up in basis.--Solely for purposes of
 +
                determining any tax imposed by reason of this
 +
                subsection, property which was held by the long-term
 +
                resident on the date the individual first became a
 +
                resident of the United States shall be treated as having
 +
                a basis on such date of not less than the fair market
 +
                value of such property on such date. The preceding
 +
                sentence shall not apply if the individual elects not to
 +
                have such sentence apply. Such an election, once made,
 +
                shall be irrevocable.
 +
            ``(4) Authority to exempt individuals.--This subsection
 +
        shall not apply to an individual who is described in a category
 +
        of individuals prescribed by regulation by the Secretary.
 +
            ``(5) Regulations.--The Secretary shall prescribe such
 +
        regulations as may be appropriate to carry out this subsection,
 +
        including regulations providing for the application of this
 +
        subsection in cases where an alien individual becomes a resident
 +
        of the United States during the 10-year period after being
 +
        treated as provided in paragraph (1).''.
 +
            (2) Conforming amendments.--
 +
                    (A) Section 2107 is amended by striking subsection
 +
                (d), by redesignating subsection (e) as subsection (d),
 +
                and by inserting after subsection (d) (as so
 +
                redesignated) the following new subsection:
 +
 +
    ``(e) Cross Reference.--
 +
``For comparable treatment of long-term lawful permanent
 +
                    residents who ceased to be taxed as residents,
 +
                    see section 877(e).''.
 +
 +
                    (B) Paragraph (3) of section 2501(a) (as amended by
 +
                subsection (e)) is amended by adding at the end the
 +
                following new subparagraph:
 +
                    ``(E) Cross reference.--
 +
``For comparable treatment of long-term lawful permanent
 +
                    residents who ceased to be taxed as residents,
 +
                    see section 877(e).''.
 +
 +
    (g) Effective <<NOTE: 26 USC 877 note.>>  Date.--
 +
            (1) In general.--The amendments made by this section shall
 +
        apply to--
 +
                    (A) individuals losing United States citizenship
 +
                (within the meaning of section 877 of the Internal
 +
                Revenue Code of 1986) on or after February 6, 1995, and
 +
                    (B) long-term residents of the United States with
 +
                respect to whom an event described in subparagraph (A)
 +
                or (B) of section 877(e)(1) of such Code occurs on or
 +
                after February 6, 1995.
 +
            (2) Ruling requests.--In no event shall the 1-year period
 +
        referred to in section 877(c)(1)(B) of such Code, as amended by
 +
        this section, expire before the date which is 90 days after the
 +
        date of the enactment of this Act.
 +
            (3) Special rule.--
 +
                    (A) In general.--In the case of an individual who
 +
                performed an act of expatriation specified in paragraph
 +
                (1), (2), (3), or (4) of section 349(a) of the
 +
                Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-
 +
                (4)) before February 6, 1995, but who did not, on or
 +
                before such date, furnish to the United States
 +
                Department of State a signed statement of voluntary
 +
                relinquishment of United States nationality confirming
 +
                the performance of such act, the amendments made by this
 +
                section and section 512 shall apply to such individual
 +
                except that the 10-year period described in section
 +
                877(a) of such Code shall not expire before the end of
 +
                the 10-year period beginning on the date such statement
 +
                is so furnished.
 +
                    (B) Exception.--Subparagraph (A) shall not apply if
 +
                the individual establishes to the satisfaction of the
 +
                Secretary of the Treasury that such loss of United
 +
                States citizenship occurred before February 6, 1994.
 +
SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
 +
                        CITIZENSHIP.
 +
 +
    (a) In General.--Subpart A of part III of subchapter A of chapter 61
 +
is amended by inserting after section 6039E the following new section:
 +
``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES
 +
                              CITIZENSHIP.
 +
 +
    ``(a) In General.--Notwithstanding any other provision of law, any
 +
individual who loses United States citizenship (within
 +
the meaning of section 877(a)) shall provide a statement which includes
 +
the information described in subsection (b). Such statement shall be--
 +
            ``(1) provided not later than the earliest date of any act
 +
        referred to in subsection (c), and
 +
            ``(2) provided to the person or court referred to in
 +
        subsection (c) with respect to such act.
 +
 +
    ``(b) Information To Be Provided.--Information required under
 +
subsection (a) shall include--
 +
            ``(1) the taxpayer's TIN,
 +
            ``(2) the mailing address of such individual's principal
 +
        foreign residence,
 +
            ``(3) the foreign country in which such individual is
 +
        residing,
 +
            ``(4) the foreign country of which such individual is a
 +
        citizen,
 +
            ``(5) in the case of an individual having a net worth of at
 +
        least the dollar amount applicable under section 877(a)(2)(B),
 +
        information detailing the assets and liabilities of such
 +
        individual, and
 +
            ``(6) such other information as the Secretary may prescribe.
 +
 +
    ``(c) Acts Described.--For purposes of this section, the acts
 +
referred to in this subsection are--
 +
            ``(1) the individual's renunciation of his United States
 +
        nationality before a diplomatic or consular officer of the
 +
        United States pursuant to paragraph (5) of section 349(a) of the
 +
        Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
 +
            ``(2) the individual's furnishing to the United States
 +
        Department of State a signed statement of voluntary
 +
        relinquishment of United States nationality confirming the
 +
        performance of an act of expatriation specified in paragraph
 +
        (1), (2), (3), or (4) of section 349(a) of the Immigration and
 +
        Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
 +
            ``(3) the issuance by the United States Department of State
 +
        of a certificate of loss of nationality to the individual, or
 +
            ``(4) the cancellation by a court of the United States of a
 +
        naturalized citizen's certificate of naturalization.
 +
 +
    ``(d) Penalty.--Any individual failing to provide a statement
 +
required under subsection (a) shall be subject to a penalty for each
 +
year (of the 10-year period beginning on the date of loss of United
 +
States citizenship) during any portion of which such failure continues
 +
in an amount equal to the greater of--
 +
            ``(1) 5 percent of the tax required to be paid under section
 +
        877 for the taxable year ending during such year, or
 +
            ``(2) $1,000,
 +
 +
unless it is shown that such failure is due to reasonable cause and not
 +
to willful neglect.
 +
    ``(e) Information To Be Provided to Secretary.--Notwithstanding any
 +
other provision of law--
 +
            ``(1) any Federal agency or court which collects (or is
 +
        required to collect) the statement under subsection (a) shall
 +
        provide to the Secretary--
 +
                    ``(A) a copy of any such statement, and
 +
                    ``(B) the name (and any other identifying
 +
                information) of any individual refusing to comply with
 +
                the provisions of subsection (a),
 +
            ``(2) the Secretary of State shall provide to the Secretary
 +
        a copy of each certificate as to the loss of American
 +
        nationality under section 358 of the Immigration and Nationality
 +
        Act which is approved by the Secretary of State, and
 +
            ``(3) the Federal agency primarily responsible for
 +
        administering the immigration laws shall provide to the
 +
        Secretary the name of each lawful permanent resident of the
 +
        United States (within the meaning of section 7701(b)(6)) whose
 +
        status as such has been revoked or has been administratively or
 +
        judicially determined to have been abandoned.
 +
 +
Notwithstanding any other provision of law, not later than 30 days after
 +
the close of each calendar quarter, the Secretary shall publish in the
 +
Federal Register the name of each individual losing United States
 +
citizenship (within the meaning of section 877(a)) with respect to whom
 +
the Secretary receives information under the preceding sentence during
 +
such quarter.
 +
    ``(f) Reporting by Long-Term Lawful Permanent Residents Who Cease To
 +
Be Taxed as Residents.--In lieu of applying the last sentence of
 +
subsection (a), any individual who is required to provide a statement
 +
under this section by reason of section 877(e)(1) shall provide such
 +
statement with the return of tax imposed by chapter 1 for the taxable
 +
year during which the event described in such section occurs.
 +
    ``(g) Exemption.--The Secretary may by regulations exempt any class
 +
of individuals from the requirements of this section if he determines
 +
that applying this section to such individuals is not necessary to carry
 +
out the purposes of this section.''.
 +
    (b) Clerical Amendment.--The table of sections for such subpart A is
 +
amended by inserting after the item relating to section 6039E the
 +
following new item:
 +
 +
``Sec. 6039F. Information on individuals losing United States
 +
          citizenship.''.
 +
 +
    (c) Effective <<NOTE: 26 USC 6039F note.>>  Date.--The amendments
 +
made by this section shall apply to--
 +
            (1) individuals losing United States citizenship (within the
 +
        meaning of section 877 of the Internal Revenue Code of 1986) on
 +
        or after February 6, 1995, and
 +
            (2) long-term residents of the United States with respect to
 +
        whom an event described in subparagraph (A) or (B) of section
 +
        877(e)(1) of such Code occurs on or after such date.
 +
 +
In no event shall any statement required by such amendments be due
 +
before the 90th day after the date of the enactment of this Act.
 +
 +
SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND
 +
            RESIDENTS LIVING ABROAD.
 +
 +
    Not later than 90 days after the date of the enactment of this Act,
 +
the Secretary of the Treasury shall prepare and submit to the Committee
 +
on Ways and Means of the House of Representatives and the Committee on
 +
Finance of the Senate a report--
 +
            (1) describing the compliance with subtitle A of the
 +
        Internal Revenue Code of 1986 by citizens and lawful permanent
 +
        residents of the United States (within the meaning of section
 +
        7701(b)(6) of such Code) residing outside the United States, and
 +
            (2) recommending measures to improve such compliance
 +
        (including improved coordination between executive branch
 +
        agencies).
 +
 +
Subtitle C--Repeal of Financial Institution Transition Rule to Interest
 +
                            Allocation Rules
 +
 +
SEC. 521. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE TO
 +
                        INTEREST ALLOCATION RULES.
 +
 +
    (a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform
 +
Act of 1986 (Public Law 99-514, 100 Stat. 2548) <<NOTE: 26 USC 864
 +
note.>>  is hereby repealed.
 +
 +
    (b) Effective <<NOTE: 26 USC 864 note.>>  Date.--
 +
            (1) In general.--The amendment made by this section shall
 +
        apply to taxable years beginning after December 31, 1995.
 +
            (2) Special rule.--In the case of the first taxable year
 +
        beginning after December 31, 1995, the pre-effective date
 +
        portion of the interest expense of the corporation referred to
 +
        in such paragraph (5) of such section 1215(c) for such taxable
 +
        year shall be allocated and apportioned without regard to such
 +
        amendment. For purposes of the preceding sentence, the pre-
 +
        effective date portion is the amount which bears the same ratio
 +
        to the interest expense for such taxable year as the number of
 +
        days during such taxable year before the date of the enactment
 +
        of this Act bears to 366.
 +
 +
    Approved August 21, 1996.
 +
 +
LEGISLATIVE HISTORY--H.R. 3103 (S. 1028) (S. 1698):
 +
---------------------------------------------------------------------------
 +
 +
HOUSE REPORTS: Nos. 104-496, Pt. 1 (Comm. on Ways and Means) and 104-736
 +
(Comm. of Conference).
 +
SENATE REPORTS: No. 104-156 accompanying S. 1028 (Comm. on Labor and
 +
Human Resources).
 +
CONGRESSIONAL RECORD, Vol. 142 (1996):
 +
            Mar. 28, considered and passed House.
 +
            Apr. 18, 23, considered and passed Senate, amended, in lieu
 +
                of S. 1028.
 +
            Aug. 1, House agreed to conference report.
 +
            Aug. 2, Senate agreed to conference report.
 +
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
 +
            Aug. 21, Presidential remarks and statement.
 +
 +
                                  <all>
 +
</pre>
 
----
 
----
 
{{Category:Glossary}}
 
{{Category:Glossary}}
 
[[Category:Glossary]]
 
[[Category:Glossary]]

Latest revision as of 12:14, 21 May 2014

HIPAA

Online: http://www.gpo.gov/fdsys/pkg/PLAW-104publ191/html/PLAW-104publ191.htm

The text is: 

[104th Congress Public Law 191]
[From the U.S. Government Printing Office]


<DOC>
[DOCID: f:publ191.104]

       HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996
Public Law 104-191
104th Congress

                                 An Act


 
 To amend the Internal Revenue Code of 1986 to improve portability and 
  continuity of health insurance coverage in the group and individual 
   markets, to combat waste, fraud, and abuse in health insurance and 
health care delivery, to promote the use of medical savings accounts, to 
improve access to long-term care services and coverage, to simplify the 
administration of health insurance, and for other purposes. <<NOTE: Aug. 
                       21, 1996 -  [H.R. 3103]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in <<NOTE: Health Insurance Portability and 
Accountability Act of 1996.>>  Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF <<NOTE: 42 USC 201 note.>>  CONTENTS.

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

Sec. 1. Short title; table of contents.

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

                     Subtitle A--Group Market Rules

       Part 1--Portability, Access, and Renewability Requirements

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

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

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

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

                     ``Part A--Group Market Reforms

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

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

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

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

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

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

             ``Part C--Definitions; Miscellaneous Provisions

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

                   Subtitle B--Individual Market Rules

Sec. 111. Amendment to Public Health Service Act.

                    ``Part B--Individual Market Rules

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

            Subtitle C--General and Miscellaneous Provisions

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

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

Sec. 200. References in title.

               Subtitle A--Fraud and Abuse Control Program

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

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

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

                       Subtitle C--Data Collection

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

                  Subtitle D--Civil Monetary Penalties

Sec. 231. Social Security Act civil monetary penalties.
Sec. 232. Penalty for false certification for home health services.

                  Subtitle E--Revisions to Criminal Law

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

                Subtitle F--Administrative Simplification

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

                 ``Part C--Administrative Simplification

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

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

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

                TITLE III--TAX-RELATED HEALTH PROVISIONS

Sec. 300. Amendment of 1986 Code.

                  Subtitle A--Medical Savings Accounts

Sec. 301. Medical savings accounts.

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

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

            Subtitle C--Long-Term Care Services and Contracts

                       Part I--General Provisions

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

                 Part II--Consumer Protection Provisions

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

           Subtitle D--Treatment of Accelerated Death Benefits

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

                    Subtitle E--State Insurance Pools

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

            Subtitle F--Organizations Subject to Section 833

Sec. 351. Organizations subject to section 833.

             Subtitle G--IRA Distributions to the Unemployed

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

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

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

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

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

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

 Subtitle B--Clarification of Certain Continuation Coverage Requirements

Sec. 421. COBRA clarifications.

                        TITLE V--REVENUE OFFSETS

Sec. 500. Amendment of 1986 Code.

                Subtitle A--Company-Owned Life Insurance

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

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

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

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

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

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

                     Subtitle A--Group Market Rules

       Part 1--Portability, Access, and Renewability Requirements

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

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

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

``SEC. 701. INCREASED <<NOTE: 29 USC 1181.>>  PORTABILITY THROUGH 
            LIMITATION ON PREEXISTING CONDITION EXCLUSIONS.

    ``(a) Limitation on Preexisting Condition Exclusion Period; 
Crediting for Periods of Previous Coverage.--Subject to subsection (d), 
a group health plan, and a health insurance issuer offering group health 
insurance coverage, may, with respect to a participant or beneficiary, 
impose a preexisting condition exclusion only if--
            ``(1) such exclusion relates to a condition (whether 
        physical or mental), regardless of the cause of the condition, 
        for which medical advice, diagnosis, care, or treatment was 
        recommended or received within the 6-month period ending on the 
        enrollment date;
            ``(2) such exclusion extends for a period of not more than 
        12 months (or 18 months in the case of a late enrollee) after 
        the enrollment date; and
            ``(3) the period of any such preexisting condition exclusion 
        is reduced by the aggregate of the periods of creditable 
        coverage (if any, as defined in subsection (c)(1)) applicable to 
        the participant or beneficiary as of the enrollment date.

    ``(b) Definitions.--For purposes of this part--
            ``(1) Preexisting condition exclusion.--
                    ``(A) In general.--The term `preexisting condition 
                exclusion' means, with respect to coverage, a limitation 
                or exclusion of benefits relating to a condition based 
                on the fact that the condition was present before the 
                date of enrollment for such coverage, whether or not any 
                medical advice, diagnosis, care, or treatment was 
                recommended or received before such date.
                    ``(B) Treatment of genetic information.--Genetic 
                information shall not be treated as a condition 
                described in subsection (a)(1) in the absence of a 
                diagnosis of the condition related to such information.
            ``(2) Enrollment date.--The term `enrollment date' means, 
        with respect to an individual covered under a group health plan 
        or health insurance coverage, the date of enrollment of the 
        individual in the plan or coverage or, if earlier, the first day 
        of the waiting period for such enrollment.
            ``(3) Late enrollee.--The term `late enrollee' means, with 
        respect to coverage under a group health plan, a participant or 
        beneficiary who enrolls under the plan other than during--
                    ``(A) the first period in which the individual is 
                eligible to enroll under the plan, or
                    ``(B) a special enrollment period under subsection 
                (f).
            ``(4) Waiting period.--The term `waiting period' means, with 
        respect to a group health plan and an individual who is a 
        potential participant or beneficiary in the plan, the period 
        that must pass with respect to the individual before the 
        individual is eligible to be covered for benefits under the 
        terms of the plan.

    ``(c) Rules Relating to Crediting Previous Coverage.--
            ``(1) Creditable coverage defined.--For purposes of this 
        part, the term `creditable coverage' means, with respect to an 
        individual, coverage of the individual under any of the 
        following:
                    ``(A) A group health plan.
                    ``(B) Health insurance coverage.
                    ``(C) Part A or part B of title XVIII of the Social 
                Security Act.
                    ``(D) Title XIX of the Social Security Act, other 
                than coverage consisting solely of benefits under 
                section 1928.
                    ``(E) Chapter 55 of title 10, United States Code.
                    ``(F) A medical care program of the Indian Health 
                Service or of a tribal organization.
                    ``(G) A State health benefits risk pool.
                    ``(H) A health plan offered under chapter 89 of 
                title 5, United States Code.
                    ``(I) A public health plan (as defined in 
                regulations).
                    ``(J) A health benefit plan under section 5(e) of 
                the Peace Corps Act (22 U.S.C. 2504(e)).
        Such term does not include coverage consisting solely of 
        coverage of excepted benefits (as defined in section 706(c)).
            ``(2) Not counting periods before significant breaks in 
        coverage.--
                    ``(A) In general.--A period of creditable coverage 
                shall not be counted, with respect to enrollment of an 
                individual under a group health plan, if, after such 
                period and before the enrollment date, there was a 63-
                day period during all of which the individual was not 
                covered under any creditable coverage.
                    ``(B) Waiting period not treated as a break in 
                coverage.--For purposes of subparagraph (A) and 
                subsection (d)(4), any period that an individual is in a 
                waiting period for any coverage under a group health 
                plan (or for group health insurance coverage) or is in 
                an affiliation period (as defined in subsection (g)(2)) 
                shall not be taken into account in determining the 
                continuous period under subparagraph (A).
            ``(3) Method of crediting coverage.--
                    ``(A) Standard method.--Except as otherwise provided 
                under subparagraph (B), for purposes of applying 
                subsection (a)(3), a group health plan, and a health 
                insurance issuer offering group health insurance 
                coverage, shall count a period of creditable coverage 
                without regard to the specific benefits covered during 
                the period.
                    ``(B) Election of alternative method.--A group 
                health plan, or a health insurance issuer offering group 
                health insurance coverage, may elect to apply subsection 
                (a)(3) based on coverage of benefits within each of 
                several classes or categories of benefits specified in 
                regulations rather than as provided under subparagraph 
                (A). Such election shall be made on a uniform basis for 
                all participants and beneficiaries. Under such election 
                a group health plan or issuer shall count a period of 
                creditable coverage with respect to any class or 
                category of benefits if any level of benefits is covered 
                within such class or category.
                    ``(C) Plan notice.--In the case of an election with 
                respect to a group health plan under subparagraph (B) 
                (whether or not health insurance coverage is provided in 
                connection with such plan), the plan shall--
                          ``(i) prominently state in any disclosure 
                      statements concerning the plan, and state to each 
                      enrollee at the time of enrollment under the plan, 
                      that the plan has made such election, and
                          ``(ii) include in such statements a 
                      description of the effect of this election.
            ``(4) Establishment of period.--Periods of creditable 
        coverage with respect to an individual shall be established 
        through presentation of certifications described in subsection 
        (e) or in such other manner as may be specified in regulations.

    ``(d) Exceptions.--
            ``(1) Exclusion not applicable to certain newborns.--Subject 
        to paragraph (4), a group health plan, and a health insurance 
        issuer offering group health insurance coverage, may not impose 
        any preexisting condition exclusion in the case of an individual 
        who, as of the last day of the 30-day period beginning with the 
        date of birth, is covered under creditable coverage.
            ``(2) Exclusion not applicable to certain adopted 
        children.--Subject to paragraph (4), a group health plan, and a 
        health insurance issuer offering group health insurance 
        coverage, may not impose any preexisting condition exclusion in 
        the case of a child who is adopted or placed for adoption before 
        attaining 18 years of age and who, as of the last day of the 30-
        day period beginning on the date of the adoption or placement 
        for adoption, is covered under creditable coverage. The previous 
        sentence shall not apply to coverage before the date of such 
        adoption or placement for adoption.
            ``(3) Exclusion not applicable to pregnancy.--A group health 
        plan, and health insurance issuer offering group health 
        insurance coverage, may not impose any preexisting condition 
        exclusion relating to pregnancy as a preexisting condition.
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2) 
        shall no longer apply to an individual after the end of the 
        first 63-day period during all of which the individual was not 
        covered under any creditable coverage.

    ``(e) Certifications and Disclosure of Coverage.--
            ``(1) Requirement for certification of period of creditable 
        coverage.--
                    ``(A) In general.--A group health plan, and a health 
                insurance issuer offering group health insurance
coverage, shall provide the certification described in subparagraph 
(B)--
                          ``(i) at the time an individual ceases to be 
                      covered under the plan or otherwise becomes 
                      covered under a COBRA continuation provision,
                          ``(ii) in the case of an individual becoming 
                      covered under such a provision, at the time the 
                      individual ceases to be covered under such 
                      provision, and
                          ``(iii) on the request on behalf of an 
                      individual made not later than 24 months after the 
                      date of cessation of the coverage described in 
                      clause (i) or (ii), whichever is later.
                The certification under clause (i) may be provided, to 
                the extent practicable, at a time consistent with 
                notices required under any applicable COBRA continuation 
                provision.
                    ``(B) Certification.--The certification described in 
                this subparagraph is a written certification of--
                          ``(i) the period of creditable coverage of the 
                      individual under such plan and the coverage (if 
                      any) under such COBRA continuation provision, and
                          ``(ii) the waiting period (if any) (and 
                      affiliation period, if applicable) imposed with 
                      respect to the individual for any coverage under 
                      such plan.
                    ``(C) Issuer compliance.--To the extent that medical 
                care under a group health plan consists of group health 
                insurance coverage, the plan is deemed to have satisfied 
                the certification requirement under this paragraph if 
                the health insurance issuer offering the coverage 
                provides for such certification in accordance with this 
                paragraph.
            ``(2) Disclosure of information on previous benefits.--In 
        the case of an election described in subsection (c)(3)(B) by a 
        group health plan or health insurance issuer, if the plan or 
        issuer enrolls an individual for coverage under the plan and the 
        individual provides a certification of coverage of the 
        individual under paragraph (1)--
                    ``(A) upon request of such plan or issuer, the 
                entity which issued the certification provided by the 
                individual shall promptly disclose to such requesting 
                plan or issuer information on coverage of classes and 
                categories of health benefits available under such 
                entity's plan or coverage, and
                    ``(B) such entity may charge the requesting plan or 
                issuer for the reasonable cost of disclosing such 
                information.
            ``(3) Regulations.--The Secretary shall establish rules to 
        prevent an entity's failure to provide information under 
        paragraph (1) or (2) with respect to previous coverage of an 
        individual from adversely affecting any subsequent coverage of 
        the individual under another group health plan or health 
        insurance coverage.

    ``(f) Special Enrollment Periods.--
            ``(1) Individuals losing other coverage.--A group health 
        plan, and a health insurance issuer offering group health 
        insurance coverage in connection with a group health plan, shall 
        permit an employee who is eligible, but not enrolled, for 
        coverage under the terms of the plan (or a dependent of such an 
        employee if the dependent is eligible, but not enrolled, for 
        coverage under such terms) to enroll for coverage under the 
        terms of the plan if each of the following conditions is met:
                    ``(A) The employee or dependent was covered under a 
                group health plan or had health insurance coverage at 
                the time coverage was previously offered to the employee 
                or dependent.
                    ``(B) The employee stated in writing at such time 
                that coverage under a group health plan or health 
                insurance coverage was the reason for declining 
                enrollment, but only if the plan sponsor or issuer (if 
                applicable) required such a statement at such time and 
                provided the employee with notice of such requirement 
                (and the consequences of such requirement) at such time.
                    ``(C) The employee's or dependent's coverage 
                described in subparagraph (A)--
                          ``(i) was under a COBRA continuation provision 
                      and the coverage under such provision was 
                      exhausted; or
                          ``(ii) was not under such a provision and 
                      either the coverage was terminated as a result of 
                      loss of eligibility for the coverage (including as 
                      a result of legal separation, divorce, death, 
                      termination of employment, or reduction in the 
                      number of hours of employment) or employer 
                      contributions toward such coverage were 
                      terminated.
                    ``(D) Under the terms of the plan, the employee 
                requests such enrollment not later than 30 days after 
                the date of exhaustion of coverage described in 
                subparagraph (C)(i) or termination of coverage or 
                employer contribution described in subparagraph (C)(ii).
            ``(2) For dependent beneficiaries.--
                    ``(A) In general.--If--
                          ``(i) a group health plan makes coverage 
                      available with respect to a dependent of an 
                      individual,
                          ``(ii) the individual is a participant under 
                      the plan (or has met any waiting period applicable 
                      to becoming a participant under the plan and is 
                      eligible to be enrolled under the plan but for a 
                      failure to enroll during a previous enrollment 
                      period), and
                          ``(iii) a person becomes such a dependent of 
                      the individual through marriage, birth, or 
                      adoption or placement for adoption,
                the group health plan shall provide for a dependent 
                special enrollment period described in subparagraph (B) 
                during which the person (or, if not otherwise enrolled, 
                the individual) may be enrolled under the plan as a 
                dependent of the individual, and in the case of the 
                birth or adoption of a child, the spouse of the 
                individual may be enrolled as a dependent of the 
                individual if such spouse is otherwise eligible for 
                coverage.
                    ``(B) Dependent special enrollment period.--A 
                dependent special enrollment period under this 
                subparagraph shall be a period of not less than 30 days 
                and shall begin on the later of--
                          ``(i) the date dependent coverage is made 
                      available, or
                          ``(ii) the date of the marriage, birth, or 
                      adoption or placement for adoption (as the case 
                      may be) described in subparagraph (A)(iii).
                    ``(C) No waiting period.--If an individual seeks to 
                enroll a dependent during the first 30 days of such a 
                dependent special enrollment period, the coverage of the 
                dependent shall become effective--
                          ``(i) in the case of marriage, not later than 
                      the first day of the first month beginning after 
                      the date the completed request for enrollment is 
                      received;
                          ``(ii) in the case of a dependent's birth, as 
                      of the date of such birth; or
                          ``(iii) in the case of a dependent's adoption 
                      or placement for adoption, the date of such 
                      adoption or placement for adoption.

    ``(g) Use of Affiliation Period by HMOs as Alternative to 
Preexisting Condition Exclusion.--
            ``(1) In general.--In the case of a group health plan that 
        offers medical care through health insurance coverage offered by 
        a health maintenance organization, the plan may provide for an 
        affiliation period with respect to coverage through the 
        organization only if--
                    ``(A) no preexisting condition exclusion is imposed 
                with respect to coverage through the organization,
                    ``(B) the period is applied uniformly without regard 
                to any health status-related factors, and
                    ``(C) such period does not exceed 2 months (or 3 
                months in the case of a late enrollee).
            ``(2) Affiliation period.--
                    ``(A) Defined.--For purposes of this part, the term 
                `affiliation period' means a period which, under the 
                terms of the health insurance coverage offered by the 
                health maintenance organization, must expire before the 
                health insurance coverage becomes effective. The 
                organization is not required to provide health care 
                services or benefits during such period and no premium 
                shall be charged to the participant or beneficiary for 
                any coverage during the period.
                    ``(B) Beginning.--Such period shall begin on the 
                enrollment date.
                    ``(C) Runs concurrently with waiting periods.--An 
                affiliation period under a plan shall run concurrently 
                with any waiting period under the plan.
            ``(3) Alternative methods.--A health maintenance 
        organization described in paragraph (1) may use alternative 
        methods, from those described in such paragraph, to address 
        adverse selection as approved by the State insurance 
        commissioner or official or officials designated by the State to 
        enforce the requirements of part A of title XXVII of the Public 
        Health Service Act for the State involved with respect to such 
        issuer.
``SEC. 702. PROHIBITING <<NOTE: 29 USC 1182.>>  DISCRIMINATION 
                          AGAINST INDIVIDUAL PARTICIPANTS AND 
                          BENEFICIARIES BASED ON HEALTH STATUS.

    ``(a) In Eligibility To Enroll.--
            ``(1) In general.--Subject to paragraph (2), a group health 
        plan, and a health insurance issuer offering group health 
        insurance coverage in connection with a group health plan, may 
        not establish rules for eligibility (including continued 
        eligibility) of any individual to enroll under the terms of the 
        plan based on any of the following health status-related factors 
        in relation to the individual or a dependent of the individual:
                    ``(A) Health status.
                    ``(B) Medical condition (including both physical and 
                mental illnesses).
                    ``(C) Claims experience.
                    ``(D) Receipt of health care.
                    ``(E) Medical history.
                    ``(F) Genetic information.
                    ``(G) Evidence of insurability (including conditions 
                arising out of acts of domestic violence).
                    ``(H) Disability.
            ``(2) No application to benefits or exclusions.--To the 
        extent consistent with section 701, paragraph (1) shall not be 
        construed--
                    ``(A) to require a group health plan, or group 
                health insurance coverage, to provide particular 
                benefits other than those provided under the terms of 
                such plan or coverage, or
                    ``(B) to prevent such a plan or coverage from 
                establishing limitations or restrictions on the amount, 
                level, extent, or nature of the benefits or coverage for 
                similarly situated individuals enrolled in the plan or 
                coverage.
            ``(3) Construction.--For purposes of paragraph (1), rules 
        for eligibility to enroll under a plan include rules defining 
        any applicable waiting periods for such enrollment.

    ``(b) In Premium Contributions.--
            ``(1) In general.--A group health plan, and a health 
        insurance issuer offering health insurance coverage in 
        connection with a group health plan, may not require any 
        individual (as a condition of enrollment or continued enrollment 
        under the plan) to pay a premium or contribution which is 
        greater than such premium or contribution for a similarly 
        situated individual enrolled in the plan on the basis of any 
        health status-related factor in relation to the individual or to 
        an individual enrolled under the plan as a dependent of the 
        individual.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed--
                    ``(A) to restrict the amount that an employer may be 
                charged for coverage under a group health plan; or
                    ``(B) to prevent a group health plan, and a health 
                insurance issuer offering group health insurance 
                coverage, from establishing premium discounts or rebates 
                or modifying otherwise applicable copayments or 
                deductibles in return for adherence to programs of 
                health promotion and disease prevention.
``SEC. 703. GUARANTEED <<NOTE: 29 USC 1183.>>  RENEWABILITY IN 
                          MULTIEMPLOYER PLANS AND MULTIPLE 
                          EMPLOYER WELFARE ARRANGEMENTS.

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

``SEC. 704. <<NOTE: 29 USC 1184.>>  PREEMPTION; STATE FLEXIBILITY; 
            CONSTRUCTION.

    ``(a) Continued Applicability of State Law With Respect to Health 
Insurance Issuers.--
            ``(1) In General.--Subject to paragraph (2) and except as 
        provided in subsection (b), this part shall not be construed to 
        supersede any provision of State law which establishes, 
        implements, or continues in effect any standard or requirement 
        solely relating to health insurance issuers in connection with 
        group health insurance coverage except to the extent that such 
        standard or requirement prevents the application of a 
        requirement of this part.
            ``(2) Continued preemption with respect to group health 
        plans.--Nothing in this part shall be construed to affect or 
        modify the provisions of section 514 with respect to group 
        health plans.

    ``(b) Special Rules in Case of Portability Requirements.--
            ``(1) In general.--Subject to paragraph (2), the provisions 
        of this part relating to health insurance coverage offered by a 
        health insurance issuer supersede any provision of State law 
        which establishes, implements, or continues in effect a standard 
        or requirement applicable to imposition of a preexisting 
        condition exclusion specifically governed by section 701 which 
        differs from the standards or requirements specified in such 
        section.
            ``(2) Exceptions.--Only in relation to health insurance 
        coverage offered by a health insurance issuer, the provisions of 
        this part do not supersede any provision of State law to the 
        extent that such provision--
                    ``(A) substitutes for the reference to `6-month 
                period' in section 701(a)(1) a reference to any shorter 
                period of time;
                    ``(B) substitutes for the reference to `12 months' 
                and `18 months' in section 701(a)(2) a reference to any 
                shorter period of time;
                    ``(C) substitutes for the references to `63 days' in 
                sections 701 (c)(2)(A) and (d)(4)(A) a reference to any 
                greater number of days;
                    ``(D) substitutes for the reference to `30-day 
                period' in sections 701 (b)(2) and (d)(1) a reference to 
                any greater period;
                    ``(E) prohibits the imposition of any preexisting 
                condition exclusion in cases not described in section 
                701(d) or expands the exceptions described in such 
                section;
                    ``(F) requires special enrollment periods in 
                addition to those required under section 701(f); or
                    ``(G) reduces the maximum period permitted in an 
                affiliation period under section 701(g)(1)(B).

    ``(c) Rules of Construction.--Nothing in this part shall be 
construed as requiring a group health plan or health insurance coverage 
to provide specific benefits under the terms of such plan or coverage.
    ``(d) Definitions.--For purposes of this section--
            ``(1) State law.--The term `State law' includes all laws, 
        decisions, rules, regulations, or other State action having the 
        effect of law, of any State. A law of the United States 
        applicable only to the District of Columbia shall be treated as 
        a State law rather than a law of the United States.
            ``(2) State.--The term `State' includes a State, the 
        Northern Mariana Islands, any political subdivisions of a State 
        or such Islands, or any agency or instrumentality of either.

``SEC. 705. SPECIAL <<NOTE: 29 USC 1185.>>  RULES RELATING TO GROUP 
            HEALTH PLANS.

    ``(a) General Exception for Certain Small Group Health Plans.--The 
requirements of this part shall not apply to any group health plan (and 
group health insurance coverage offered in connection with a group 
health plan) for any plan year if, on the first day of such plan year, 
such plan has less than 2 participants who are current employees.
    ``(b) Exception for Certain Benefits.--The requirements of this part 
shall not apply to any group health plan (and group health insurance 
coverage) in relation to its provision of excepted benefits described in 
section 706(c)(1).
    ``(c) Exception for Certain Benefits if Certain Conditions Met.--
            ``(1) Limited, excepted benefits.--The requirements of this 
        part shall not apply to any group health plan (and group health 
        insurance coverage offered in connection with a group health 
        plan) in relation to its provision of excepted benefits 
        described in section 706(c)(2) if the benefits--
                    ``(A) are provided under a separate policy, 
                certificate, or contract of insurance; or
                    ``(B) are otherwise not an integral part of the 
                plan.
            ``(2) Noncoordinated, excepted benefits.--The requirements 
        of this part shall not apply to any group health plan (and group 
        health insurance coverage offered in connection with a group 
        health plan) in relation to its provision of excepted benefits 
        described in section 706(c)(3) if all of the following 
        conditions are met:
                    ``(A) The benefits are provided under a separate 
                policy, certificate, or contract of insurance.
                    ``(B) There is no coordination between the provision 
                of such benefits and any exclusion of benefits under any 
                group health plan maintained by the same plan sponsor.
                    ``(C) Such benefits are paid with respect to an 
                event without regard to whether benefits are provided 
                with respect to such an event under any group health 
                plan maintained by the same plan sponsor.
            ``(3) Supplemental excepted benefits.--The requirements of 
        this part shall not apply to any group health plan (and group 
        health insurance coverage) in relation to its provision of 
        excepted benefits described in section 706(c)(4) if the benefits 
        are provided under a separate policy, certificate, or contract 
        of insurance.

    ``(d) Treatment of Partnerships.--For purposes of this part--
            ``(1) Treatment as a group health plan.--Any plan, fund, or 
        program which would not be (but for this subsection) an employee 
        welfare benefit plan and which is established or maintained by a 
        partnership, to the extent that such plan, fund, or program 
        provides medical care (including items and services paid for as 
        medical care) to present or former partners in the partnership 
        or to their dependents (as defined under the terms of the plan, 
        fund, or program), directly or through insurance, reimbursement, 
        or otherwise, shall be treated (subject to paragraph (2)) as an 
        employee welfare benefit plan which is a group health plan.
            ``(2) Employer.--In the case of a group health plan, the 
        term `employer' also includes the partnership in relation to any 
        partner.
            ``(3) Participants of group health plans.--In the case of a 
        group health plan, the term `participant' also includes--
                    ``(A) in connection with a group health plan 
                maintained by a partnership, an individual who is a 
                partner in relation to the partnership, or
                    ``(B) in connection with a group health plan 
                maintained by a self-employed individual (under which 
                one or more employees are participants), the self-
                employed individual,
        if such individual is, or may become, eligible to receive a 
        benefit under the plan or such individual's beneficiaries may be 
        eligible to receive any such benefit.

``SEC. 706. <<NOTE: 29 USC 1186.>>  DEFINITIONS.

    ``(a) Group Health Plan.--For purposes of this part--
            ``(1) In general.--The term `group health plan' means an 
        employee welfare benefit plan to the extent that the plan 
        provides medical care (as defined in paragraph (2) and including 
        items and services paid for as medical care) to employees or 
        their dependents (as defined under the terms of the plan) 
        directly or through insurance, reimbursement, or otherwise.
            ``(2) Medical care.--The term `medical care' means amounts 
        paid for--
                    ``(A) the diagnosis, cure, mitigation, treatment, or 
                prevention of disease, or amounts paid for the purpose 
                of affecting any structure or function of the body,
                    ``(B) amounts paid for transportation primarily for 
                and essential to medical care referred to in 
                subparagraph (A), and
                    ``(C) amounts paid for insurance covering medical 
                care referred to in subparagraphs (A) and (B).

    ``(b) Definitions Relating to Health Insurance.--For purposes of 
this part--
            ``(1) Health insurance coverage.--The term `health insurance 
        coverage' means benefits consisting of medical care (provided 
        directly, through insurance or reimbursement, or otherwise and 
        including items and services paid for as medical care) under any 
        hospital or medical service policy or certificate, hospital or 
        medical service plan contract, or health maintenance 
        organization contract offered by a health insurance issuer.
            ``(2) Health insurance issuer.--The term `health insurance 
        issuer' means an insurance company, insurance service, or 
        insurance organization (including a health maintenance 
        organization, as defined in paragraph (3)) which is licensed to 
        engage in the business of insurance in a State and which is 
        subject to State law which regulates insurance (within the 
        meaning of section 514(b)(2)). Such term does not include a 
        group health plan.
            ``(3) Health maintenance organization.--The term `health 
        maintenance organization' means--
                    ``(A) a federally qualified health maintenance 
                organization (as defined in section 1301(a) of the 
                Public Health Service Act (42 U.S.C. 300e(a))),
                    ``(B) an organization recognized under State law as 
                a health maintenance organization, or
                    ``(C) a similar organization regulated under State 
                law for solvency in the same manner and to the same 
                extent as such a health maintenance organization.
            ``(4) Group health insurance coverage.--The term `group 
        health insurance coverage' means, in connection with a group 
        health plan, health insurance coverage offered in connection 
        with such plan.

    ``(c) Excepted Benefits.--For purposes of this part, the term 
`excepted benefits' means benefits under one or more (or any combination 
thereof) of the following:
            ``(1) Benefits not subject to requirements.--
                    ``(A) Coverage only for accident, or disability 
                income insurance, or any combination thereof.
                    ``(B) Coverage issued as a supplement to liability 
                insurance.
                    ``(C) Liability insurance, including general 
                liability insurance and automobile liability insurance.
                    ``(D) Workers' compensation or similar insurance.
                    ``(E) Automobile medical payment insurance.
                    ``(F) Credit-only insurance.
                    ``(G) Coverage for on-site medical clinics.
                    ``(H) Other similar insurance coverage, specified in 
                regulations, under which benefits for medical care are 
                secondary or incidental to other insurance benefits.
            ``(2) Benefits not subject to requirements if offered 
        separately.--
                    ``(A) Limited scope dental or vision benefits.
                    ``(B) Benefits for long-term care, nursing home 
                care, home health care, community-based care, or any 
                combination thereof.
                    ``(C) Such other similar, limited benefits as are 
                specified in regulations.
            ``(3) Benefits not subject to requirements if offered as 
        independent, noncoordinated benefits.--
                    ``(A) Coverage only for a specified disease or 
                illness.
                    ``(B) Hospital indemnity or other fixed indemnity 
                insurance.
            ``(4) Benefits not subject to requirements if offered as 
        separate insurance policy.--Medicare supplemental health 
        insurance (as defined under section 1882(g)(1) of the Social 
        Security Act), coverage supplemental to the coverage provided 
        under chapter 55 of title 10, United States Code, and similar 
        supplemental coverage provided to coverage under a group health 
        plan.

    ``(d) Other Definitions.--For purposes of this part--
            ``(1) COBRA continuation provision.--The term `COBRA 
        continuation provision' means any of the following:
                    ``(A) Part 6 of this subtitle.
                    ``(B) Section 4980B of the Internal Revenue Code of 
                1986, other than subsection (f)(1) of such section 
                insofar as it relates to pediatric vaccines.
                    ``(C) Title XXII of the Public Health Service Act.
            ``(2) Health status-related factor.--The term `health 
        status-related factor' means any of the factors described in 
        section 702(a)(1).
            ``(3) Network plan.--The term `network plan' means health 
        insurance coverage offered by a health insurance issuer under 
        which the financing and delivery of medical care (including 
        items and services paid for as medical care) are provided, in 
        whole or in part, through a defined set of providers under 
        contract with the issuer.
            ``(4) Placed for adoption.--The term `placement', or being 
        `placed', for adoption, has the meaning given such term in 
        section 609(c)(3)(B).

``SEC. 707. <<NOTE: 29 USC 1187.>>  REGULATIONS.

    ``The Secretary, consistent with section 104 of the Health Care 
Portability and Accountability Act of 1996, may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of this part. The Secretary may promulgate any interim final 
rules as the Secretary determines are appropriate to carry out this 
part.''.

    (b) Enforcement With Respect to Health Insurance Issuers.--Section 
502(b) of such Act (29 U.S.C. 1132(b)) is amended by adding at the end 
the following new paragraph:
    ``(3) The Secretary is not authorized to enforce under this part any 
requirement of part 7 against a health insurance issuer offering health 
insurance coverage in connection with a group health plan (as defined in 
section 706(a)(1)). Nothing in this paragraph shall affect the authority 
of the Secretary to issue regulations to carry out such part.''.
     (c) Disclosure of Information to Participants and Beneficiaries.--
            (1) In general.--Section 104(b)(1) of such Act (29 U.S.C. 
        1024(b)(1)) is amended in the matter following subpara-
        graph (B)--
                    (A) by striking ``102(a)(1),'' and inserting 
                ``102(a)(1) (other than a material reduction in covered 
                services or benefits provided in the case of a group 
                health plan (as defined in section 706(a)(1))),''; and
                    (B) by adding at the end the following new 
                sentences: ``If there is a modification or change 
                described in section 102(a)(1) that is a material 
                reduction in covered services or benefits provided under 
                a group health plan (as defined in section 706(a)(1)), a 
                summary description of such modification or change shall 
                be furnished to participants and beneficiaries not later 
                than 60 days after the date of the adoption of the 
                modification or change. In the alternative, the plan 
                sponsors may provide such description at regular 
                intervals of not more than 90 days. The Secretary shall 
                issue regulations within 180 days after the date of 
                enactment of the Health Insurance Portability and 
                Accountability Act of 1996, providing alternative 
                mechanisms to 
                delivery by mail through which group health plans (as so 
                defined) may notify participants and beneficiaries of 
                material reductions in covered services or benefits.''.
            (2) Plan description and summary.--Section 102(b) of such 
        Act (29 U.S.C. 1022(b)) is amended--
                    (A) by inserting ``in the case of a group health 
                plan (as defined in section 706(a)(1)), whether a health 
                insurance issuer (as defined in section 706(b)(2)) is 
                responsible for the financing or administration 
                (including payment of claims) of the plan and (if so) 
                the name and address of such issuer;'' after ``type of 
                administration of the plan;''; and
                    (B) by inserting ``including the office at the 
                Department of Labor through which participants and 
                beneficiaries may seek assistance or information 
                regarding their rights under this Act and the Health 
                Insurance Portability and Accountability Act of 1996 
                with respect to health benefits that are offered through 
                a group health plan (as defined in section 706(a)(1))'' 
                after ``benefits under the plan''.

    (d) Treatment of Health Insurance Issuers Offering Health Insurance 
Coverage to Noncovered Plans.--Section 4(b) of such Act (29 U.S.C. 
1003(b)) is amended by adding at the end (after and below paragraph (5)) 
the following:
``The provisions of part 7 of subtitle B shall not apply to a health 
insurance issuer (as defined in section 706(b)(2)) solely by reason of 
health insurance coverage (as defined in section 706(b)(1)) provided by 
such issuer in connection with a group health plan (as defined in 
section 706(a)(1)) if the provisions of this title do not apply to such 
group health plan.''.
    (e) Reporting and Enforcement With Respect to Certain 
Arrangements.--
            (1) In general.--Section 101 of such Act (29 U.S.C. 1021) is 
        amended--
                    (A) by redesignating subsection (g) as subsection 
                (h), and
                    (B) by inserting after subsection (f) the following 
                new subsection:

    ``(g) Reporting by Certain Arrangements.--The Secretary may, by 
regulation, require multiple employer welfare arrangements providing 
benefits consisting of medical care (within the meaning of section 
706(a)(2)) which are not group health plans to report, not more 
frequently than annually, in such form and such manner as the Secretary 
may require for the purpose of determining the extent to which the 
requirements of part 7 are being carried out in connection with such 
benefits.''.
            (2) Enforcement.--
                    (A) In general.--Section 502 of such Act (29 U.S.C. 
                1132) is amended--
                          (i) in subsection (a)(6), by striking ``under 
                      subsection (c)(2) or (i) or (l)'' and inserting 
                      ``under paragraph (2), (4), or (5) of subsection 
                      (c) or under 
                      subsection (i) or (l)''; and
                          (ii) in the last 2 sentences of subsection 
                      (c), by striking ``For purposes of this 
                      paragraph'' and all that follows through ``The 
                      Secretary and'' and inserting the following:

    ``(5) The Secretary may assess a civil penalty against any person of 
up to $1,000 a day from the date of the person's failure or refusal to 
file the information required to be filed by such person with the 
Secretary under regulations prescribed pursuant to section 101(g).
    ``(6) The Secretary and''.
                    (B) Technical and conforming amendment.--Section 
                502(c)(1) of such Act (29 U.S.C. 1132(c)(1)) is amended 
                by adding at the end the following sentence: ``For 
                purposes of this paragraph, each violation described in 
                subparagraph (A) with respect to any single participant, 
                and each violation described in subparagraph (B) with 
                respect to any single participant or beneficiary, shall 
                be treated as a separate violation.''.
            (3) Coordination.--Section 506 of such Act (29 U.S.C. 1136) 
        is amended by adding at the end the following new subsection:

    ``(c) Coordination of Enforcement With States With Respect to 
Certain Arrangements.--A State may enter into an agreement with the 
Secretary for delegation to the State of some or all of the Secretary's 
authority under sections 502 and 504 to enforce the requirements under 
part 7 in connection with multiple employer welfare arrangements, 
providing medical care (within the meaning of section 706(a)(2)), which 
are not group health plans.''.
    (f) Conforming Amendments.--
            (1) Section 514(b) of such Act (29 U.S.C. 1144(b)) is 
        amended by adding at the end the following new paragraph:

    ``(9) For additional provisions relating to group health plans, see 
section 704.''.
            (2)(A) Part 6 of subtitle B of title I of such Act (29 
        U.S.C. 1161 et seq.) is amended by striking the heading and 
        inserting the following:

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

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

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

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

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

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

    (g) Effective <<NOTE: 29 USC 1181 note.>>  Dates.--
            (1) In general.--Except as provided in this section, this 
        section (and the amendments made by this section) shall apply 
        with respect to group health plans for plan years beginning 
        after June 30, 1997.
            (2) Determination of creditable coverage.--
                    (A) Period of coverage.--
                          (i) In general.--Subject to clause (ii), no 
                      period before July 1, 1996, shall be taken into 
                      account under part 7 of subtitle B of title I of 
                      the Employee Retirement Income Security Act of 
                      1974 (as added by this section) in determining 
                      creditable coverage.
                          (ii) Special rule for certain periods.--The 
                      Secretary of Labor, consistent with section 104, 
                      shall provide for a process whereby individuals 
                      who need to establish creditable coverage for 
                      periods before July 1, 1996, and who would have 
                      such coverage credited but for clause (i) may be 
                      given credit for creditable coverage for such 
                      periods through the presentation of documents or 
                      other means.
                    (B) Certifications, etc.--
                          (i) In general.--Subject to clauses (ii) and 
                      (iii), subsection (e) of section 701 of the 
                      Employee Retirement Income Security Act of 1974 
                      (as added by this section) shall apply to events 
                      occurring after June 30, 1996.
                          (ii) No certification required to be provided 
                      before june 1, 1997.--In no case is a 
                      certification required to be provided under such 
                      subsection before June 1, 1997.
                          (iii) Certification only on written request 
                      for events occurring before october 1, 1996.--In 
                      the case of an event occurring after June 30, 
                      1996, and before October 1, 1996, a certification 
                      is not required to be provided under such 
                      subsection unless an individual (with respect to 
                      whom the certification is otherwise required to be 
                      made) requests such certification in writing.
                    (C) Transitional rule.--In the case of an individual 
                who seeks to establish creditable coverage for any 
                period for which certification is not required because 
                it relates to an event occurring before June 30, 1996--
                          (i) the individual may present other credible 
                      evidence of such coverage in order to establish 
                      the period of creditable coverage; and
                          (ii) a group health plan and a health 
                      insurance issuer shall not be subject to any 
                      penalty or enforcement action with respect to the 
                      plan's or issuer's crediting (or not crediting) 
                      such coverage if the plan or issuer has sought to 
                      comply in good faith with the applicable 
                      requirements under the amendments made by this 
                      section.
            (3) Special rule for collective bargaining agreements.--
        Except as provided in paragraph (2), in the case of a group 
        health plan maintained pursuant to one or more collective 
        bargaining agreements between employee representatives and one 
        or more employers ratified before the date of the enactment of 
        this Act, part 7 of subtitle B of title I of Employee Retirement 
        Income Security Act of 1974 (other than section 701(e) thereof) 
        shall not apply to plan years beginning before the later of--
                    (A) the date on which the last of the collective 
                bargaining agreements relating to the plan terminates 
                (determined without regard to any extension thereof 
                agreed to after the date of the enactment of this Act), 
                or
                    (B) July 1, 1997.
        For purposes of subparagraph (A), any plan amendment made 
        pursuant to a collective bargaining agreement relating to the 
        plan which amends the plan solely to conform to any requirement 
        of such part shall not be treated as a termination of such 
        collective bargaining agreement.
            (4) Timely regulations.--The Secretary of Labor, consistent 
        with section 104, shall first issue by not later than April 1, 
        1997, such regulations as may be necessary to carry out the 
        amendments made by this section.
            (5) Limitation on actions.--No enforcement action shall be 
        taken, pursuant to the amendments made by this section, against 
        a group health plan or health insurance issuer with respect to a 
        violation of a requirement imposed by such amendments before 
        January 1, 1998, or, if later, the date of issuance of 
        regulations referred to in paragraph (4), if the plan or issuer 
        has sought to comply in good faith with such requirements.

SEC. 102. THROUGH THE PUBLIC HEALTH SERVICE ACT.

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

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

                     ``Part A--Group Market Reforms

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

``SEC. 2701. INCREASED <<NOTE: 42 USC 300gg.>>  PORTABILITY 
                            THROUGH LIMITATION ON PREEXISTING 
                            CONDITION EXCLUSIONS.

    ``(a) Limitation on Preexisting Condition Exclusion Period; 
Crediting for Periods of Previous Coverage.--Subject to subsection (d), 
a group health plan, and a health insurance issuer offering group health 
insurance coverage, may, with respect to a participant or beneficiary, 
impose a preexisting condition exclusion only if--
            ``(1) such exclusion relates to a condition (whether 
        physical or mental), regardless of the cause of the condition, 
        for which medical advice, diagnosis, care, or treatment was 
        recommended or received within the 6-month period ending on the 
        enrollment date;
            ``(2) such exclusion extends for a period of not more than 
        12 months (or 18 months in the case of a late enrollee) after 
        the enrollment date; and
            ``(3) the period of any such preexisting condition exclusion 
        is reduced by the aggregate of the periods of creditable 
        coverage (if any, as defined in subsection (c)(1)) applicable to 
        the participant or beneficiary as of the enrollment date.

    ``(b) Definitions.--For purposes of this part--
            ``(1) Preexisting condition exclusion.--
                    ``(A) In general.--The term `preexisting condition 
                exclusion' means, with respect to coverage, a limitation 
                or exclusion of benefits relating to a condition based 
                on the fact that the condition was present before the 
                date of enrollment for such coverage, whether or not any 
                medical advice, diagnosis, care, or treatment was 
                recommended or received before such date.
                    ``(B) Treatment of genetic information.--Genetic 
                information shall not be treated as a condition 
                described in subsection (a)(1) in the absence of a 
                diagnosis of the condition related to such information.
            ``(2) Enrollment date.--The term `enrollment date' means, 
        with respect to an individual covered under a group health plan 
        or health insurance coverage, the date of enrollment of the 
        individual in the plan or coverage or, if earlier, the first day 
        of the waiting period for such enrollment.
            ``(3) Late enrollee.--The term `late enrollee' means, with 
        respect to coverage under a group health plan, a participant or 
        beneficiary who enrolls under the plan other than during--
                    ``(A) the first period in which the individual is 
                eligible to enroll under the plan, or
                    ``(B) a special enrollment period under subsection 
                (f).
            ``(4) Waiting period.--The term `waiting period' means, with 
        respect to a group health plan and an individual who is a 
        potential participant or beneficiary in the plan, the period 
        that must pass with respect to the individual before the 
        individual is eligible to be covered for benefits under the 
        terms of the plan.

    ``(c) Rules Relating to Crediting Previous Coverage.--
            ``(1) Creditable coverage defined.--For purposes of this 
        title, the term `creditable coverage' means, with respect to an 
        individual, coverage of the individual under any of the 
        following:
                    ``(A) A group health plan.
                    ``(B) Health insurance coverage.
                    ``(C) Part A or part B of title XVIII of the Social 
                Security Act.
                    ``(D) Title XIX of the Social Security Act, other 
                than coverage consisting solely of benefits under 
                section 1928.
                    ``(E) Chapter 55 of title 10, United States Code.
                    ``(F) A medical care program of the Indian Health 
                Service or of a tribal organization.
                    ``(G) A State health benefits risk pool.
                    ``(H) A health plan offered under chapter 89 of 
                title 5, United States Code.
                    ``(I) A public health plan (as defined in 
                regulations).
                    ``(J) A health benefit plan under section 5(e) of 
                the Peace Corps Act (22 U.S.C. 2504(e)).
        Such term does not include coverage consisting solely of 
        coverage of excepted benefits (as defined in section 2791(c)).
            ``(2) Not counting periods before significant breaks in 
        coverage.--
                    ``(A) In general.--A period of creditable coverage 
                shall not be counted, with respect to enrollment of an 
                individual under a group health plan, if, after such 
                period and before the enrollment date, there was a 63-
                day period during all of which the individual was not 
                covered under any creditable coverage.
                    ``(B) Waiting period not treated as a break in 
                coverage.--For purposes of subparagraph (A) and 
                subsection (d)(4), any period that an individual is in a 
                waiting period for any coverage under a group health 
                plan (or for group health insurance coverage) or is in 
                an affiliation period (as defined in subsection (g)(2)) 
                shall not be taken into account in determining the 
                continuous period under subparagraph (A).
            ``(3) Method of crediting coverage.--
                    ``(A) Standard method.--Except as otherwise provided 
                under subparagraph (B), for purposes of applying 
                subsection (a)(3), a group health plan, and a health 
                insurance issuer offering group health insurance 
                coverage, shall count a period of creditable coverage 
                without regard to the specific benefits covered during 
                the period.
                    ``(B) Election of alternative method.--A group 
                health plan, or a health insurance issuer offering group 
                health insurance, may elect to apply subsection (a)(3) 
                based on coverage of benefits within each of several 
                classes or categories of benefits specified in 
                regulations rather than as provided under subparagraph 
                (A). Such election shall be made on a uniform basis for 
                all participants and beneficiaries. Under such election 
                a group health plan or issuer shall count a period of 
                creditable coverage with respect to any class or 
                category of benefits if any level of benefits is covered 
                within such class or category.
                    ``(C) Plan notice.--In the case of an election with 
                respect to a group health plan under subparagraph (B) 
                (whether or not health insurance coverage is provided in 
                connection with such plan), the plan shall--
                          ``(i) prominently state in any disclosure 
                      statements concerning the plan, and state to each 
                      enrollee at the time of enrollment under the plan, 
                      that the plan has made such election, and
                          ``(ii) include in such statements a 
                      description of the effect of this election.
                    ``(D) Issuer notice.--In the case of an election 
                under subparagraph (B) with respect to health insurance 
                coverage offered by an issuer in the small or large 
                group market, the issuer--
                          ``(i) shall prominently state in any 
                      disclosure statements concerning the coverage, and 
                      to each employer at the time of the offer or sale 
                      of the coverage, that the issuer has made such 
                      election, and
                          ``(ii) shall include in such statements a 
                      description of the effect of such election.
            ``(4) Establishment of period.--Periods of creditable 
        coverage with respect to an individual shall be established 
        through presentation of certifications described in subsection 
        (e) or in such other manner as may be specified in regulations.

    ``(d) Exceptions.--
            ``(1) Exclusion not applicable to certain newborns.--Subject 
        to paragraph (4), a group health plan, and a health insurance 
        issuer offering group health insurance coverage, may not impose 
        any preexisting condition exclusion in the case of an individual 
        who, as of the last day of the 30-day period beginning with the 
        date of birth, is covered under creditable coverage.
            ``(2) Exclusion not applicable to certain adopted 
        children.--Subject to paragraph (4), a group health plan, and a 
        health insurance issuer offering group health insurance 
        coverage, may not impose any preexisting condition exclusion in 
        the case of a child who is adopted or placed for adoption before 
        attaining 18 years of age and who, as of the last day of the 30-
        day period beginning on the date of the adoption or placement 
        for adoption, is covered under creditable coverage. The previous 
        sentence shall not apply to coverage before the date of such 
        adoption or placement for adoption.
            ``(3) Exclusion not applicable to pregnancy.--A group health 
        plan, and health insurance issuer offering group health 
        insurance coverage, may not impose any preexisting condition 
        exclusion relating to pregnancy as a preexisting condition.
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2) 
        shall no longer apply to an individual after the end of the 
        first 63-day period during all of which the individual was not 
        covered under any creditable coverage.

    ``(e) Certifications and Disclosure of Coverage.--
            ``(1) Requirement for certification of period of creditable 
        coverage.--
                    ``(A) In general.--A group health plan, and a health 
                insurance issuer offering group health insurance 
                coverage, shall provide the certification described in 
                subparagraph (B)--
                          ``(i) at the time an individual ceases to be 
                      covered under the plan or otherwise becomes 
                      covered under a COBRA continuation provision,
                          ``(ii) in the case of an individual becoming 
                      covered under such a provision, at the time the 
                      individual ceases to be covered under such 
                      provision, and
                          ``(iii) on the request on behalf of an 
                      individual made not later than 24 months after the 
                      date of cessation of the coverage described in 
                      clause (i) or (ii), whichever is later.
                The certification under clause (i) may be provided, to 
                the extent practicable, at a time consistent with 
                notices required under any applicable COBRA continuation 
                provision.
                    ``(B) Certification.--The certification described in 
                this subparagraph is a written certification of--
                          ``(i) the period of creditable coverage of the 
                      individual under such plan and the coverage (if 
                      any) under such COBRA continuation provision, and
                          ``(ii) the waiting period (if any) (and 
                      affiliation period, if applicable) imposed with 
                      respect to the individual for any coverage under 
                      such plan.
                    ``(C) Issuer compliance.--To the extent that medical 
                care under a group health plan consists of group health 
                insurance coverage, the plan is deemed to have satisfied 
                the certification requirement under this paragraph if 
                the health insurance issuer offering the coverage 
                provides for such certification in accordance with this 
                paragraph.
            ``(2) Disclosure of information on previous benefits.--In 
        the case of an election described in subsection (c)(3)(B) by a 
        group health plan or health insurance issuer, if the plan or 
        issuer enrolls an individual for coverage under the plan and the 
        individual provides a certification of coverage of the 
        individual under paragraph (1)--
                    ``(A) upon request of such plan or issuer, the 
                entity which issued the certification provided by the 
                individual shall promptly disclose to such requesting 
                plan or issuer information on coverage of classes and 
                categories of health benefits available under such 
                entity's plan or coverage, and
                    ``(B) such entity may charge the requesting plan or 
                issuer for the reasonable cost of disclosing such 
                information.
            ``(3) Regulations.--The Secretary shall establish rules to 
        prevent an entity's failure to provide information under 
        paragraph (1) or (2) with respect to previous coverage of an 
        individual from adversely affecting any subsequent coverage of 
        the individual under another group health plan or health 
        insurance coverage.

    ``(f) Special Enrollment Periods.--
            ``(1) Individuals losing other coverage.--A group health 
        plan, and a health insurance issuer offering group health 
        insurance coverage in connection with a group health plan, shall 
        permit an employee who is eligible, but not enrolled, for 
        coverage under the terms of the plan (or a dependent of such an 
        employee if the dependent is eligible, but not enrolled, for 
        coverage under such terms) to enroll for coverage under the 
        terms of the plan if each of the following conditions is met:
                    ``(A) The employee or dependent was covered under a 
                group health plan or had health insurance coverage at 
                the time coverage was previously offered to the employee 
                or dependent.
                    ``(B) The employee stated in writing at such time 
                that coverage under a group health plan or health 
                insurance coverage was the reason for declining 
                enrollment, but only if the plan sponsor or issuer (if 
                applicable) required such a statement at such time and 
                provided the employee with notice of such requirement 
                (and the consequences of such requirement) at such time.
                    ``(C) The employee's or dependent's coverage 
                described in subparagraph (A)--
                          ``(i) was under a COBRA continuation provision 
                      and the coverage under such provision was 
                      exhausted; or
                          ``(ii) was not under such a provision and 
                      either the coverage was terminated as a result of 
                      loss of eligibility for the coverage (including as 
                      a result of legal separation, divorce, death, 
                      termination of employment, or reduction in the 
                      number of hours of employment) or employer 
                      contributions toward such coverage were 
                      terminated.
                    ``(D) Under the terms of the plan, the employee 
                requests such enrollment not later than 30 days after 
                the date of exhaustion of coverage described in 
                subparagraph (C)(i) or termination of coverage or 
                employer contribution described in subparagraph (C)(ii).
            ``(2) For dependent beneficiaries.--
                    ``(A) In general.--If--
                          ``(i) a group health plan makes coverage 
                      available with respect to a dependent of an 
                      individual,
                          ``(ii) the individual is a participant under 
                      the plan (or has met any waiting period applicable 
                      to becoming a participant under the plan and is 
                      eligible to be enrolled under the plan but for a 
                      failure to enroll during a previous enrollment 
                      period), and
                          ``(iii) a person becomes such a dependent of 
                      the individual through marriage, birth, or 
                      adoption or placement for adoption,
                the group health plan shall provide for a dependent 
                special enrollment period described in subparagraph (B) 
                during which the person (or, if not otherwise enrolled, 
                the individual) may be enrolled under the plan as a 
                dependent of the individual, and in the case of the 
                birth or adoption of a child, the spouse of the 
                individual may be enrolled as a dependent of the 
                individual if such spouse is otherwise eligible for 
                coverage.
                    ``(B) Dependent special enrollment period.--A 
                dependent special enrollment period under this 
                subparagraph shall be a period of not less than 30 days 
                and shall begin on the later of--
                          ``(i) the date dependent coverage is made 
                      available, or
                          ``(ii) the date of the marriage, birth, or 
                      adoption or placement for adoption (as the case 
                      may be) described in subparagraph (A)(iii).
                    ``(C) No waiting period.--If an individual seeks to 
                enroll a dependent during the first 30 days of such a 
                dependent special enrollment period, the coverage of the 
                dependent shall become effective--
                          ``(i) in the case of marriage, not later than 
                      the first day of the first month beginning after 
                      the date the completed request for enrollment is 
                      received;
                          ``(ii) in the case of a dependent's birth, as 
                      of the date of such birth; or
                          ``(iii) in the case of a dependent's adoption 
                      or placement for adoption, the date of such 
                      adoption or placement for adoption.

    ``(g) Use of Affiliation Period by HMOs as Alternative to 
Preexisting Condition Exclusion.--
            ``(1) In general.--A health maintenance organization which 
        offers health insurance coverage in connection with a group 
        health plan and which does not impose any preexisting condition 
        exclusion allowed under subsection (a) with respect to any 
        particular coverage option may impose an affiliation period for 
        such coverage option, but only if--
                    ``(A) such period is applied uniformly without 
                regard to any health status-related factors; and
                    ``(B) such period does not exceed 2 months (or 3 
                months in the case of a late enrollee).
            ``(2) Affiliation period.--
                    ``(A) Defined.--For purposes of this title, the term 
                `affiliation period' means a period which, under the 
                terms of the health insurance coverage offered by the 
                health maintenance organization, must expire before the 
                health insurance coverage becomes effective. The 
                organization is not required to provide health care 
                services or benefits during such period and no premium 
                shall be charged to the participant or beneficiary for 
                any coverage during the period.
                    ``(B) Beginning.--Such period shall begin on the 
                enrollment date.
                    ``(C) Runs concurrently with waiting periods.--An 
                affiliation period under a plan shall run concurrently 
                with any waiting period under the plan.
            ``(3) Alternative methods.--A health maintenance 
        organization described in paragraph (1) may use alternative 
        methods, from those described in such paragraph, to address 
        adverse selection as approved by the State insurance 
        commissioner or official or officials designated by the State to 
        enforce the requirements of this part for the State involved 
        with respect to such issuer.
``SEC. 2702. PROHIBITING <<NOTE: 42 USC 300gg-1.>>  DISCRIMINATION 
                            AGAINST INDIVIDUAL PARTICIPANTS AND 
                            BENEFICIARIES BASED ON HEALTH STATUS.

    ``(a) In Eligibility To Enroll.--
            ``(1) In general.--Subject to paragraph (2), a group health 
        plan, and a health insurance issuer offering group health 
        insurance coverage in connection with a group health plan, may 
        not establish rules for eligibility (including continued 
        eligibility) of any individual to enroll under the terms of the 
        plan based on any of the following health status-related factors 
        in relation to the individual or a dependent of the individual:
                    ``(A) Health status.
                    ``(B) Medical condition (including both physical and 
                mental illnesses).
                    ``(C) Claims experience.
                    ``(D) Receipt of health care.
                    ``(E) Medical history.
                    ``(F) Genetic information.
                    ``(G) Evidence of insurability (including conditions 
                arising out of acts of domestic violence).
                    ``(H) Disability.
            ``(2) No application to benefits or exclusions.--To the 
        extent consistent with section 701, paragraph (1) shall not be 
        construed--
                    ``(A) to require a group health plan, or group 
                health insurance coverage, to provide particular 
                benefits other than those provided under the terms of 
                such plan or coverage, or
                    ``(B) to prevent such a plan or coverage from 
                establishing limitations or restrictions on the amount, 
                level, extent, or nature of the benefits or coverage for 
                similarly situated individuals enrolled in the plan or 
                coverage.
            ``(3) Construction.--For purposes of paragraph (1), rules 
        for eligibility to enroll under a plan include rules defining 
        any applicable waiting periods for such enrollment.

    ``(b) In Premium Contributions.--
            ``(1) In general.--A group health plan, and a health 
        insurance issuer offering health insurance coverage in 
        connection with a group health plan, may not require any 
        individual (as a condition of enrollment or continued enrollment 
        under the plan) to pay a premium or contribution which is 
        greater than such premium or contribution for a similarly 
        situated individual enrolled in the plan on the basis of any 
        health status-related factor in relation to the individual or to 
        an individual enrolled under the plan as a dependent of the 
        individual.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed--
                    ``(A) to restrict the amount that an employer may be 
                charged for coverage under a group health plan; or
                    ``(B) to prevent a group health plan, and a health 
                insurance issuer offering group health insurance 
                coverage, from establishing premium discounts or rebates 
                or modifying otherwise applicable copayments or 
                deductibles in return for adherence to programs of 
                health promotion and disease prevention.

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

``SEC. 2711. GUARANTEED <<NOTE: 42 USC 300gg-11.>>  AVAILABILITY 
                            OF COVERAGE FOR 
                            EMPLOYERS IN THE GROUP MARKET.

    ``(a) Issuance of Coverage in the Small Group Market.--
            ``(1) In general.--Subject to subsections (c) through (f), 
        each health insurance issuer that offers health insurance 
        coverage in the small group market in a State--
                    ``(A) must accept every small employer (as defined 
                in section 2791(e)(4)) in the State that applies for 
                such coverage; and
                    ``(B) must accept for enrollment under such coverage 
                every eligible individual (as defined in paragraph (2)) 
                who applies for enrollment during the period in which 
                the individual first becomes eligible to enroll under 
                the terms of the group health plan and may not place any 
                restriction which is inconsistent with section 2702 on 
                an eligible individual being a participant or 
                beneficiary.
            ``(2) Eligible individual defined.--For purposes of this 
        section, the term `eligible individual' means, with respect to a 
        health insurance issuer that offers health insurance coverage to 
        a small employer in connection with a group health plan in the 
        small group market, such an individual in relation to the 
        employer as shall be determined--
                    ``(A) in accordance with the terms of such plan,
                    ``(B) as provided by the issuer under rules of the 
                issuer which are uniformly applicable in a State to 
                small employers in the small group market, and
                    ``(C) in accordance with all applicable State laws 
                governing such issuer and such market.

    ``(b) Assuring Access in the Large Group Market.--
            ``(1) Reports to hhs.--The Secretary shall request that the 
        chief executive officer of each State submit to the Secretary, 
        by not later December 31, 2000, and every 3 years thereafter a 
        report on--
                    ``(A) the access of large employers to health 
                insurance coverage in the State, and
                    ``(B) the circumstances for lack of access (if any) 
                of large employers (or one or more classes of such 
                employers) in the State to such coverage.
            ``(2) Triennial reports to congress.--The Secretary, based 
        on the reports submitted under paragraph (1) and such other 
        information as the Secretary may use, shall prepare and submit 
        to Congress, every 3 years, a report describing the extent to 
        which large employers (and classes of such employers) that seek 
        health insurance coverage in the different States are able to 
        obtain access to such coverage. Such report shall include such 
        recommendations as the Secretary determines to be appropriate.
            ``(3) GAO report on large employer access to health 
        insurance coverage.--The Comptroller General shall provide for a 
        study of the extent to which classes of large employers in the 
        different States are able to obtain access to health insurance 
        coverage and the circumstances for lack of access (if any) to 
        such coverage. The Comptroller General shall submit to Congress 
        a report on such study not later than 18 months after the date 
        of the enactment of this title.

    ``(c) Special Rules for Network Plans.--
            ``(1) In general.--In the case of a health insurance issuer 
        that offers health insurance coverage in the small group market 
        through a network plan, the issuer may--
                    ``(A) limit the employers that may apply for such 
                coverage to those with eligible individuals who live, 
                work, or reside in the service area for such network 
                plan; and
                    ``(B) within the service area of such plan, deny 
                such coverage to such employers if the issuer has 
                demonstrated, if required, to the applicable State 
                authority that--
                          ``(i) it will not have the capacity to deliver 
                      services adequately to enrollees of any additional 
                      groups because of its obligations to existing 
                      group contract holders and enrollees, and
                          ``(ii) it is applying this paragraph uniformly 
                      to all employers without regard to the claims 
                      experience of those employers and their employees 
                      (and their dependents) or any health status-
                      related factor relating to such employees and 
                      dependents.
            ``(2) 180-day suspension upon denial of coverage.--An 
        issuer, upon denying health insurance coverage in any service 
        area in accordance with paragraph (1)(B), may not offer coverage 
        in the small group market within such service area for a period 
        of 180 days after the date such coverage is denied.

    ``(d) Application of Financial Capacity Limits.--
            ``(1) In general.--A health insurance issuer may deny health 
        insurance coverage in the small group market if the issuer has 
        demonstrated, if required, to the applicable State authority 
        that--
                    ``(A) it does not have the financial reserves 
                necessary to underwrite additional coverage; and
                    ``(B) it is applying this paragraph uniformly to all 
                employers in the small group market in the State 
                consistent with applicable State law and without regard 
                to the claims experience of those employers and their 
                employees (and their dependents) or any health status-
                related factor relating to such employees and 
                dependents.
            ``(2) 180-day suspension upon denial of coverage.--A health 
        insurance issuer upon denying health insurance coverage in 
        connection with group health plans in accordance with paragraph 
        (1) in a State may not offer coverage in connection with group 
        health plans in the small group market in the State for a period 
        of 180 days after the date such coverage is denied or until the 
        issuer has demonstrated to the applicable State authority, if 
        required under applicable State law, that the issuer has 
        sufficient financial reserves to underwrite additional coverage, 
        whichever is later. An applicable State authority may provide 
        for the application of this subsection on a service-area-
        specific basis.

    ``(e) Exception to Requirement for Failure To Meet Certain Minimum 
Participation or Contribution Rules.--
            ``(1) In general.--Subsection (a) shall not be construed to 
        preclude a health insurance issuer from establishing employer 
        contribution rules or group participation rules for the offering 
        of health insurance coverage in connection
with a group health plan in the small group market, as allowed under 
applicable State law.
            ``(2) Rules defined.--For purposes of paragraph (1)--
                    ``(A) the term `employer contribution rule' means a 
                requirement relating to the minimum level or amount of 
                employer contribution toward the premium for enrollment 
                of participants and beneficiaries; and
                    ``(B) the term `group participation rule' means a 
                requirement relating to the minimum number of 
                participants or beneficiaries that must be enrolled in 
                relation to a specified percentage or number of eligible 
                individuals or employees of an employer.

    ``(f) Exception for Coverage Offered Only to Bona Fide Association 
Members.--Subsection (a) shall not apply to health insurance coverage 
offered by a health insurance issuer if such coverage is made available 
in the small group market only through one or more bona fide 
associations (as defined in section 2791(d)(3)).
``SEC. 2712. GUARANTEED <<NOTE: 42 USC 300gg-12.>>  RENEWABILITY 
                            OF COVERAGE FOR EMPLOYERS IN THE GROUP 
                            MARKET.

    ``(a) In General.--Except as provided in this section, if a health 
insurance issuer offers health insurance coverage in the small or large 
group market in connection with a group health plan, the issuer must 
renew or continue in force such coverage at the option of the plan 
sponsor of the plan.
    ``(b) General Exceptions.--A health insurance issuer may nonrenew or 
discontinue health insurance coverage offered in connection with a group 
health plan in the small or large group market based only on one or more 
of the following:
            ``(1) Nonpayment of premiums.--The plan sponsor has failed 
        to pay premiums or contributions in accordance with the terms of 
        the health insurance coverage or the issuer has not received 
        timely premium payments.
            ``(2) Fraud.--The plan sponsor has performed an act or 
        practice that constitutes fraud or made an intentional 
        misrepresentation of material fact under the terms of the 
        coverage.
            ``(3) Violation of participation or contribution rules.--The 
        plan sponsor has failed to comply with a material plan provision 
        relating to employer contribution or group participation rules, 
        as permitted under section 2711(e) in the case of the small 
        group market or pursuant to applicable State law in the case of 
        the large group market.
            ``(4) Termination of coverage.--The issuer is ceasing to 
        offer coverage in such market in accordance with subsection (c) 
        and applicable State law.
            ``(5) Movement outside service area.--In the case of a 
        health insurance issuer that offers health insurance coverage in 
        the market through a network plan, there is no longer any 
        enrollee in connection with such plan who lives, resides, or 
        works in the service area of the issuer (or in the area for 
        which the issuer is authorized to do business) and, in the case 
        of the small group market, the issuer would deny enrollment with 
        respect to such plan under section 2711(c)(1)(A).
            ``(6) Association membership ceases.--In the case of health 
        insurance coverage that is made available in the small or large 
        group market (as the case may be) only through one or more bona 
        fide associations, the membership of an employer in the 
        association (on the basis of which the coverage is provided) 
        ceases but only if such coverage is terminated under this 
        paragraph uniformly without regard to any health status-related 
        factor relating to any covered individual.

    ``(c) Requirements for Uniform Termination of Coverage.--
            ``(1) Particular type of coverage not offered.--In any case 
        in which an issuer decides to discontinue offering a particular 
        type of group health insurance coverage offered in the small or 
        large group market, coverage of such type may be discontinued by 
        the issuer in accordance with applicable State law in such 
        market only if--
                    ``(A) the issuer provides notice to each plan 
                sponsor provided coverage of this type in such market 
                (and participants and beneficiaries covered under such 
                coverage) of such discontinuation at least 90 days prior 
                to the date of the discontinuation of such coverage;
                    ``(B) the issuer offers to each plan sponsor 
                provided coverage of this type in such market, the 
                option to purchase all (or, in the case of the large 
                group market, any) other health insurance coverage 
                currently being offered by the issuer to a group health 
                plan in such market; and
                    ``(C) in exercising the option to discontinue 
                coverage of this type and in offering the option of 
                coverage under subparagraph (B), the issuer acts 
                uniformly without regard to the claims experience of 
                those sponsors or any health status-related factor 
                relating to any participants or beneficiaries covered or 
                new participants or beneficiaries who may become 
                eligible for such coverage.
            ``(2) Discontinuance of all coverage.--
                    ``(A) In general.--In any case in which a health 
                insurance issuer elects to discontinue offering all 
                health insurance coverage in the small group market or 
                the large group market, or both markets, in a State, 
                health insurance coverage may be discontinued by the 
                issuer only in accordance with applicable State law and 
                if--
                          ``(i) the issuer provides notice to the 
                      applicable State authority and to each plan 
                      sponsor (and participants and beneficiaries 
                      covered under such coverage) of such 
                      discontinuation at least 180 days prior to the 
                      date of the discontinuation of such coverage; and
                          ``(ii) all health insurance issued or 
                      delivered for issuance in the State in such market 
                      (or markets) are discontinued and coverage under 
                      such health insurance coverage in such market (or 
                      markets) is not renewed.
                    ``(B) Prohibition on market reentry.--In the case of 
                a discontinuation under subparagraph (A) in a market, 
                the issuer may not provide for the issuance of any 
                health insurance coverage in the market and State 
                involved during the 5-year period beginning on the date 
                of the discontinuation of the last health insurance 
                coverage not so renewed.

    ``(d) Exception for Uniform Modification of Coverage.--At the time 
of coverage renewal, a health insurance issuer may modify the health 
insurance coverage for a product offered to a group health plan--
            ``(1) in the large group market; or
            ``(2) in the small group market if, for coverage that is 
        available in such market other than only through one or more 
        bona fide associations, such modification is consistent with 
        State law and effective on a uniform basis among group health 
        plans with that product.

    ``(e) Application to Coverage Offered Only Through Associations.--In 
applying this section in the case of health insurance coverage that is 
made available by a health insurance issuer in the small or large group 
market to employers only through one or more associations, a reference 
to `plan sponsor' is deemed, with respect to coverage provided to an 
employer member of the association, to include a reference to such 
employer.

``SEC. 2713. <<NOTE: 42 USC 300gg-13.>>  DISCLOSURE OF INFORMATION.

    ``(a) Disclosure of Information by Health Plan Issuers.--In 
connection with the offering of any health insurance coverage to a small 
employer, a health insurance issuer--
            ``(1) shall make a reasonable disclosure to such employer, 
        as part of its solicitation and sales materials, of the 
        availability of information described in subsection (b), and
            ``(2) upon request of such a small employer, provide such 
        information.

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

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

``SEC. 2721. <<NOTE: 42 USC 300gg-21.>>  EXCLUSION OF CERTAIN PLANS.

    ``(a) Exception for Certain Small Group Health Plans.--The 
requirements of subparts 1 and 2 shall not apply to any group health 
plan (and health insurance coverage offered in connection with a group 
health plan) for any plan year if, on the first day of such plan year, 
such plan has less than 2 participants who are current employees.
    ``(b) Limitation on Application of Provisions Relating to Group 
Health Plans.--
            ``(1) In general.--The requirements of subparts 1 and 2 
        shall apply with respect to group health plans only--
                    ``(A) subject to paragraph (2), in the case of a 
                plan that is a nonfederal governmental plan, and
                    ``(B) with respect to health insurance coverage 
                offered in connection with a group health plan 
                (including such a plan that is a church plan or a 
                governmental plan).
            ``(2) Treatment of nonfederal governmental plans.--
                    ``(A) Election to be excluded.--If the plan sponsor 
                of a nonfederal governmental plan which is a group 
                health plan to which the provisions of subparts 1 and 2 
                otherwise apply makes an election under this 
                subparagraph (in such form and manner as the Secretary 
                may by regulations prescribe), then the requirements of 
                such subparts insofar as they apply directly to group 
                health plans (and not merely to group health insurance 
                coverage) shall not apply to such governmental plans for 
                such period except as provided in this paragraph.
                    ``(B) Period of election.--An election under 
                subparagraph (A) shall apply--
                          ``(i) for a single specified plan year, or
                          ``(ii) in the case of a plan provided pursuant 
                      to a collective bargaining agreement, for the term 
                      of such agreement.
                An election under clause (i) may be extended through 
                subsequent elections under this paragraph.
                    ``(C) Notice to enrollees.--Under such an election, 
                the plan shall provide for--
                          ``(i) notice to enrollees (on an annual basis 
                      and at the time of enrollment under the plan) of 
                      the fact and consequences of such election, and
                          ``(ii) certification and disclosure of 
                      creditable coverage under the plan with respect to 
                      enrollees in accordance with section 2701(e).

    ``(c) Exception for Certain Benefits.--The requirements of subparts 
1 and 2 shall not apply to any group health plan (or group health 
insurance coverage) in relation to its provision of excepted benefits 
described in section 2791(c)(1).
    ``(d) Exception for Certain Benefits If Certain Conditions Met.--
            ``(1) Limited, excepted benefits.--The requirements of 
        subparts 1 and 2 shall not apply to any group health plan (and 
        group health insurance coverage offered in connection with a 
        group health plan) in relation to its provision of excepted 
        benefits described in section 2791(c)(2) if the benefits--
                    ``(A) are provided under a separate policy, 
                certificate, or contract of insurance; or
                    ``(B) are otherwise not an integral part of the 
                plan.
            ``(2) Noncoordinated, excepted benefits.--The requirements 
        of subparts 1 and 2 shall not apply to any group health plan 
        (and group health insurance coverage offered in connection with 
        a group health plan) in relation to its provision of excepted 
        benefits described in section 2791(c)(3) if all of the following 
        conditions are met:
                    ``(A) The benefits are provided under a separate 
                policy, certificate, or contract of insurance.
                    ``(B) There is no coordination between the provision 
                of such benefits and any exclusion of benefits under any 
                group health plan maintained by the same plan sponsor.
                    ``(C) Such benefits are paid with respect to an 
                event without regard to whether benefits are provided 
                with respect to such an event under any group health 
                plan maintained by the same plan sponsor.
            ``(3) Supplemental excepted benefits.--The requirements of 
        this part shall not apply to any group health plan (and group 
        health insurance coverage) in relation to its provision of 
        excepted benefits described in section 27971(c)(4) if the 
        benefits are provided under a separate policy, certificate, or 
        contract of insurance.

    ``(e) Treatment of Partnerships.--For purposes of this part--
            ``(1) Treatment as a group health plan.--Any plan, fund, or 
        program which would not be (but for this subsection) an employee 
        welfare benefit plan and which is established or maintained by a 
        partnership, to the extent that such plan, fund, or program 
        provides medical care (including items and services paid for as 
        medical care) to present or former partners in the partnership 
        or to their dependents (as defined under the terms of the plan, 
        fund, or program), directly or through insurance, reimbursement, 
        or otherwise, shall be treated (subject to paragraph (2)) as an 
        employee welfare benefit plan which is a group health plan.
            ``(2) Employer.--In the case of a group health plan, the 
        term `employer' also includes the partnership in relation to any 
        partner.
            ``(3) Participants of group health plans.--In the case of a 
        group health plan, the term `participant' also includes--
                    ``(A) in connection with a group health plan 
                maintained by a partnership, an individual who is a 
                partner in relation to the partnership, or
                    ``(B) in connection with a group health plan 
                maintained by a self-employed individual (under which 
                one or more employees are participants), the self-
                employed individual,
        if such individual is, or may become, eligible to receive a 
        benefit under the plan or such individual's beneficiaries may be 
        eligible to receive any such benefit.

``SEC. 2722. <<NOTE: 42 USC 2722.>>  ENFORCEMENT.

    ``(a) State Enforcement.--
            ``(1) State authority.--Subject to section 2723, each State 
        may require that health insurance issuers that issue, sell, 
        renew, or offer health insurance coverage in the State in the 
        small or large group markets meet the requirements of this part 
        with respect to such issuers.
            ``(2) Failure to implement provisions.--In the case of a 
        determination by the Secretary that a State has failed to 
        substantially enforce a provision (or provisions) in this part 
        with respect to health insurance issuers in the State, the 
        Secretary shall enforce such provision (or provisions) under 
        subsection (b) insofar as they relate to the issuance, sale, 
        renewal, and offering of health insurance coverage in connection 
        with group health plans in such State.

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

``SEC. 2723. <<NOTE: 42 USC 300gg-23.>>  PREEMPTION; STATE FLEXIBILITY; 
            CONSTRUCTION.

    ``(a) Continued Applicability of State Law With Respect to Health 
Insurance Issuers.--
            ``(1) In General.--Subject to paragraph (2) and except as 
        provided in subsection (b), this part and part C insofar as it 
        relates to this part shall not be construed to supersede any 
        provision of State law which establishes, implements, or 
        continues in effect any standard or requirement solely relating 
        to health insurance issuers in connection with group health 
        insurance coverage except to the extent that such standard or 
        requirement prevents the application of a requirement of this 
        part.
            ``(2) Continued preemption with respect to group health 
        plans.--Nothing in this part shall be construed to affect or 
        modify the provisions of section 514 of the Employee Retirement 
        Income Security Act of 1974 with respect to group health plans.

    ``(b) Special Rules in Case of Portability Requirements.--
            ``(1) In general.--Subject to paragraph (2), the provisions 
        of this part relating to health insurance coverage offered by a 
        health insurance issuer supersede any provision of State law 
        which establishes, implements, or continues in effect a standard 
        or requirement applicable to imposition of a preexisting 
        condition exclusion specifically governed by section 701 which 
        differs from the standards or requirements specified in such 
        section.
            ``(2) Exceptions.--Only in relation to health insurance 
        coverage offered by a health insurance issuer, the provisions of 
        this part do not supersede any provision of State law to the 
        extent that such provision--
                    ``(i) substitutes for the reference to `6-month 
                period' in section 2701(a)(1) a reference to any shorter 
                period of time;
                    ``(ii) substitutes for the reference to `12 months' 
                and `18 months' in section 2701(a)(2) a reference to any 
                shorter period of time;
                    ``(iii) substitutes for the references to `63' days 
                in sections 2701(c)(2)(A) and 2701(d)(4)(A) a reference 
                to any greater number of days;
                    ``(iv) substitutes for the reference to `30-day 
                period' in sections 2701(b)(2) and 2701(d)(1) a 
                reference to any greater period;
                    ``(v) prohibits the imposition of any preexisting 
                condition exclusion in cases not described in section 
                2701(d) or expands the exceptions described in such 
                section;
                    ``(vi) requires special enrollment periods in 
                addition to those required under section 2701(f); or
                    ``(vii) reduces the maximum period permitted in an 
                affiliation period under section 2701(g)(1)(B).

    ``(c) Rules of Construction.--Nothing in this part shall be 
construed as requiring a group health plan or health insurance coverage 
to provide specific benefits under the terms of such plan or coverage.
    ``(d) Definitions.--For purposes of this section--
            ``(1) State law.--The term `State law' includes all laws, 
        decisions, rules, regulations, or other State action having the 
        effect of law, of any State. A law of the United States 
        applicable only to the District of Columbia shall be treated as 
        a State law rather than a law of the United States.
            ``(2) State.--The term `State' includes a State (including 
        the Northern Mariana Islands), any political subdivisions of a 
        State or such Islands, or any agency or instrumentality of 
        either.

             ``Part C--Definitions; Miscellaneous Provisions

``SEC. 2791 <<NOTE: 42 USC 300gg-91.>> . DEFINITIONS.

    ``(a) Group Health Plan.--
            ``(1) Definition.--The term `group health plan' means an 
        employee welfare benefit plan (as defined in section 3(1) of the 
        Employee Retirement Income Security Act of 1974) to the extent 
        that the plan provides medical care (as defined in paragraph 
        (2)) and including items and services paid for as medical care) 
        to employees or their dependents (as defined under the terms of 
        the plan) directly or through insurance, reimbursement, or 
        otherwise.
            ``(2) Medical care.--The term `medical care' means amounts 
        paid for--
                    ``(A) the diagnosis, cure, mitigation, treatment, or 
                prevention of disease, or amounts paid for the purpose 
                of affecting any structure or function of the body,
                    ``(B) amounts paid for transportation primarily for 
                and essential to medical care referred to in 
                subparagraph (A), and
                    ``(C) amounts paid for insurance covering medical 
                care referred to in subparagraphs (A) and (B).
            ``(3) Treatment of certain plans as group health plan for 
        notice provision.--A program under which creditable coverage 
        described in subparagraph (C), (D), (E), or (F) of section 
        2701(c)(1) is provided shall be treated as a group health plan 
        for purposes of applying section 2701(e).

    ``(b) Definitions Relating to Health Insurance.--
            ``(1) Health insurance coverage.--The term `health insurance 
        coverage' means benefits consisting of medical care (provided 
        directly, through insurance or reimbursement, or otherwise and 
        including items and services paid for as medical care) under any 
        hospital or medical service policy or certificate, hospital or 
        medical service plan contract, or health maintenance 
        organization contract offered by a health insurance issuer.
            ``(2) Health insurance issuer.--The term `health insurance 
        issuer' means an insurance company, insurance service, or 
        insurance organization (including a health maintenance 
        organization, as defined in paragraph (3)) which is licensed to 
        engage in the business of insurance in a State and which is 
        subject to State law which regulates insurance (within the 
        meaning of section 514(b)(2) of the Employee Retirement Income 
        Security Act of 1974). Such term does not include a group health 
        plan.
            ``(3) Health maintenance organization.--The term `health 
        maintenance organization' means--
                    ``(A) a Federally qualified health maintenance 
                organization (as defined in section 1301(a)),
                    ``(B) an organization recognized under State law as 
                a health maintenance organization, or
                    ``(C) a similar organization regulated under State 
                law for solvency in the same manner and to the same 
                extent as such a health maintenance organization.
            ``(4) Group health insurance coverage.--The term `group 
        health insurance coverage' means, in connection with a group 
        health plan, health insurance coverage offered in connection 
        with such plan.
            ``(5) Individual health insurance coverage.--The term 
        `individual health insurance coverage' means health insurance 
        coverage offered to individuals in the individual market, but 
        does not include short-term limited duration insurance.

    ``(c) Excepted Benefits.--For purposes of this title, the term 
`excepted benefits' means benefits under one or more (or any combination 
thereof) of the following:
            ``(1) Benefits not subject to requirements.--
                    ``(A) Coverage only for accident, or disability 
                income insurance, or any combination thereof.
                    ``(B) Coverage issued as a supplement to liability 
                insurance.
                    ``(C) Liability insurance, including general 
                liability insurance and automobile liability insurance.
                    ``(D) Workers' compensation or similar insurance.
                    ``(E) Automobile medical payment insurance.
                    ``(F) Credit-only insurance.
                    ``(G) Coverage for on-site medical clinics.
                    ``(H) Other similar insurance coverage, specified in 
                regulations, under which benefits for medical care are 
                secondary or incidental to other insurance benefits.
            ``(2) Benefits not subject to requirements if offered 
        separately.--
                    ``(A) Limited scope dental or vision benefits.
                    ``(B) Benefits for long-term care, nursing home 
                care, home health care, community-based care, or any 
                combination thereof.
                    ``(C) Such other similar, limited benefits as are 
                specified in regulations.
            ``(3) Benefits not subject to requirements if offered as 
        independent, noncoordinated benefits.--
                    ``(A) Coverage only for a specified disease or 
                illness.
                    ``(B) Hospital indemnity or other fixed 
                indemnity insurance.
            ``(4) Benefits not subject to requirements if offered as 
        separate insurance policy.--Medicare supplemental health 
        insurance (as defined under section 1882(g)(1) of the Social 
        Security Act), coverage supplemental to the coverage provided 
        under chapter 55 of title 10, United States Code, and similar 
        supplemental coverage provided to coverage under a group health 
        plan.

    ``(d) Other Definitions.--
            ``(1) Applicable state authority.--The term `applicable 
        State authority' means, with respect to a health insurance 
        issuer in a State, the State insurance commissioner or official 
        or officials designated by the State to enforce the requirements 
        of this title for the State involved with respect to such 
        issuer.
            ``(2) Beneficiary.--The term `beneficiary' has the meaning 
        given such term under section 3(8) of the Employee Retirement 
        Income Security Act of 1974.
            ``(3) Bona fide association.--The term `bona fide 
        association' means, with respect to health insurance coverage 
        offered in a State, an association which--
                    ``(A) has been actively in existence for at least 5 
                years;
                    ``(B) has been formed and maintained in good faith 
                for purposes other than obtaining insurance;
                    ``(C) does not condition membership in the 
                association on any health status-related factor relating 
                to an individual (including an employee of an employer 
                or a dependent of an employee);
                    ``(D) makes health insurance coverage offered 
                through the association available to all members 
                regardless of any health status-related factor relating 
                to such members (or individuals eligible for coverage 
                through a member);
                    ``(E) does not make health insurance coverage 
                offered through the association available other than in 
                connection with a member of the association; and
                    ``(F) meets such additional requirements as may be 
                imposed under State law.
            ``(4) COBRA continuation provision.--The term `COBRA 
        continuation provision' means any of the following:
                    ``(A) Section 4980B of the Internal Revenue Code of 
                1986, other than subsection (f)(1) of such section 
                insofar as it relates to pediatric vaccines.
                    ``(B) Part 6 of subtitle B of title I of the 
                Employee Retirement Income Security Act of 1974, other 
                than section 609 of such Act.
                    ``(C) Title XXII of this Act.
            ``(5) Employee.--The term `employee' has the meaning given 
        such term under section 3(6) of the Employee Retirement Income 
        Security Act of 1974.
            ``(6) Employer.--The term `employer' has the meaning given 
        such term under section 3(5) of the Employee Retirement Income 
        Security Act of 1974, except that such term shall include only 
        employers of two or more employees.
            ``(7) Church plan.--The term `church plan' has the meaning 
        given such term under section 3(33) of the Employee Retirement 
        Income Security Act of 1974.
            ``(8) Governmental plan.--(A) The term `governmental plan' 
        has the meaning given such term under section 3(32) of the 
        Employee Retirement Income Security Act of 1974 and any Federal 
        governmental plan.
            ``(B) Federal governmental plan.--The term `Federal 
        governmental plan' means a governmental plan established or 
        maintained for its employees by the Government of the United 
        States or by any agency or instrumentality of such Government.
            ``(C) Non-Federal governmental plan.--The term `non-Federal 
        governmental plan' means a governmental plan that is not a 
        Federal governmental plan.
            ``(9) Health status-related factor.--The term `health 
        status-related factor' means any of the factors described in 
        section 2702(a)(1).
            ``(10) Network plan.--The term `network plan' means health 
        insurance coverage of a health insurance issuer under which the 
        financing and delivery of medical care (including items and 
        services paid for as medical care) are provided, in whole or in 
        part, through a defined set of providers under contract with the 
        issuer.
            ``(11) Participant.--The term `participant' has the meaning 
        given such term under section 3(7) of the Employee Retirement 
        Income Security Act of 1974.
            ``(12) Placed for adoption defined.--The term `placement', 
        or being `placed', for adoption, in connection with any 
        placement for adoption of a child with any person, means the 
        assumption and retention by such person of a legal obligation 
        for total or partial support of such child in anticipation of 
        adoption of such child. The child's placement with such person 
        terminates upon the termination of such legal obligation.
            ``(13) Plan sponsor.--The term `plan sponsor' has the 
        meaning given such term under section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974.
            ``(14) State.--The term `State' means each of the several 
        States, the District of Columbia, Puerto Rico, the Virgin 
        Islands, Guam, American Samoa, and the Northern Mariana Islands.

    ``(e) Definitions Relating to Markets and Small Em-
ployers.--For purposes of this title:
            ``(1) Individual market.--
                    ``(A) In general.--The term `individual market' 
                means the market for health insurance coverage offered 
                to individuals other than in connection with a group 
                health plan.
                    ``(B) Treatment of very small groups.--
                          ``(i) In general.--Subject to clause (ii), 
                      such terms includes coverage offered in connection 
                      with a group health plan that has fewer than two 
                      participants as current employees on the first day 
                      of the plan year.
                          ``(ii) State exception.--Clause (i) shall not 
                      apply in the case of a State that elects to 
                      regulate the coverage described in such clause as 
                      coverage in the small group market.
            ``(2) Large employer.--The term `large employer' means, in 
        connection with a group health plan with respect to a calendar 
        year and a plan year, an employer who employed an average of at 
        least 51 employees on business
days during the preceding calendar year and who employs at least 2 
employees on the first day of the plan year.
            ``(3) Large group market.--The term `large group market' 
        means the health insurance market under which individuals obtain 
        health insurance coverage (directly or through any arrangement) 
        on behalf of themselves (and their dependents) through a group 
        health plan maintained by a large employer.
            ``(4) Small employer.--The term `small employer' means, in 
        connection with a group health plan with respect to a calendar 
        year and a plan year, an employer who employed an average of at 
        least 2 but not more than 50 employees on business days during 
        the preceding calendar year and who employs at least 2 employees 
        on the first day of the plan year.
            ``(5) Small group market.--The term `small group market' 
        means the health insurance market under which individuals obtain 
        health insurance coverage (directly or through any arrangement) 
        on behalf of themselves (and their dependents) through a group 
        health plan maintained by a small employer.
            ``(6) Application of certain rules in determination of 
        employer size.--For purposes of this subsection--
                    ``(A) Application of aggregation rule for 
                employers.--all persons treated as a single employer 
                under subsection (b), (c), (m), or (o) of section 414 of 
                the Internal Revenue Code of 1986 shall be treated as 1 
                employer.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the preceding calendar year, the 
                determination of whether such employer is a small or 
                large employer shall be based on the average number of 
                employees that it is reasonably expected such employer 
                will employ on business days in the current calendar 
                year.
                    ``(C) Predecessors.--Any reference in this 
                subsection to an employer shall include a reference to 
                any predecessor of such employer.

``SEC. 2792. <<NOTE: 42 USC 300gg-92.>>  REGULATIONS.

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

    (d) Miscellaneous Correction.--Section 2208(1) of the Public Health 
Service Act (42 U.S.C. 300bb-8(1)) is amended by striking ``section 
162(i)(2)'' and inserting ``5000(b)''.
SEC. 103. REFERENCE TO IMPLEMENTATION THROUGH THE INTERNAL REVENUE 
                        CODE OF 1986.

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

SEC. 104. <<NOTE: 42 USC 300gg-92 note.>>  ASSURING COORDINATION.

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

                   Subtitle B--Individual Market Rules

SEC. 111. AMENDMENT TO PUBLIC HEALTH SERVICE ACT.

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

                    ``Part B--Individual Market Rules

``SEC. 2741 <<NOTE: 42 USC 300gg-41.>> . GUARANTEED AVAILABILITY 
                            OF INDIVIDUAL HEALTH INSURANCE 
                            COVERAGE TO CERTAIN INDIVIDUALS WITH 
                            PRIOR GROUP COVERAGE.

    ``(a) Guaranteed Availability.--
            ``(1) In general.--Subject to the succeeding subsections of 
        this section and section 2744, each health insurance issuer that 
        offers health insurance coverage (as defined in section 
        2791(b)(1)) in the individual market in a State may not, with 
        respect to an eligible individual (as defined in subsection (b)) 
        desiring to enroll in individual health insurance coverage--
                    ``(A) decline to offer such coverage to, or deny 
                enrollment of, such individual; or
                    ``(B) impose any preexisting condition exclusion (as 
                defined in section 2701(b)(1)(A)) with respect to such 
                coverage.
            ``(2) Substitution by state of acceptable alternative 
        mechanism.--The requirement of paragraph (1) shall not apply to 
        health insurance coverage offered in the individual market in a 
        State in which the State is implementing an acceptable 
        alternative mechanism under section 2744.

    ``(b) Eligible Individual Defined.--In this part, the term `eligible 
individual' means an individual--
            ``(1)(A) for whom, as of the date on which the individual 
        seeks coverage under this section, the aggregate of the periods 
        of creditable coverage (as defined in section 2701(c)) is 18 or 
        more months and (B) whose most recent prior creditable coverage 
        was under a group health plan, governmental plan, or church plan 
        (or health insurance coverage offered in connection with any 
        such plan);
            ``(2) who is not eligible for coverage under (A) a group 
        health plan, (B) part A or part B of title XVIII of the Social 
        Security Act, or (C) a State plan under title XIX of such Act 
        (or any successor program), and does not have other health 
        insurance coverage;
            ``(3) with respect to whom the most recent coverage within 
        the coverage period described in paragraph (1)(A) was not 
        terminated based on a factor described in paragraph (1) or (2) 
        of section 2712(b) (relating to nonpayment of premiums or 
        fraud);
            ``(4) if the individual had been offered the option of 
        continuation coverage under a COBRA continuation provision or 
        under a similar State program, who elected such coverage; and
            ``(5) who, if the individual elected such continuation 
        coverage, has exhausted such continuation coverage under such 
        provision or program.

    ``(c) Alternative Coverage Permitted Where No State Mechanism.--
            ``(1) In general.--In the case of health insurance coverage 
        offered in the individual market in a State in which the State 
        is not implementing an acceptable alternative mechanism under 
        section 2744, the health insurance issuer may elect to limit the 
        coverage offered under subsection (a) so long as it offers at 
        least two different policy forms of health insurance coverage 
        both of which--
                    ``(A) are designed for, made generally available to, 
                and actively marketed to, and enroll both eligible and 
                other individuals by the issuer; and
                    ``(B) meet the requirement of paragraph (2) or (3), 
                as elected by the issuer.
        For purposes of this subsection, policy forms which have 
        different cost-sharing arrangements or different riders shall be 
        considered to be different policy forms.
            ``(2) Choice of most popular policy forms.--The requirement 
        of this paragraph is met, for health insurance coverage policy 
        forms offered by an issuer in the individual market, if the 
        issuer offers the policy forms for individual health insurance 
        coverage with the largest, and next to
largest, premium volume of all such policy forms offered by the issuer 
in the State or applicable marketing or service area (as may be 
prescribed in regulation) by the issuer in the individual market in the 
period involved.
            ``(3) Choice of 2 policy forms with representative 
        coverage.--
                    ``(A) In general.--The requirement of this paragraph 
                is met, for health insurance coverage policy forms 
                offered by an issuer in the individual market, if the 
                issuer offers a lower-level coverage policy form (as 
                defined in subparagraph (B)) and a higher-level coverage 
                policy form (as defined in subparagraph (C)) each of 
                which includes benefits substantially similar to other 
                individual health insurance coverage offered by the 
                issuer in that State and each of which is covered under 
                a method described in section 2744(c)(3)(A) (relating to 
                risk adjustment, risk spreading, or financial 
                subsidization).
                    ``(B) Lower-level of coverage described.--A policy 
                form is described in this subparagraph if the actuarial 
                value of the benefits under the coverage is at least 85 
                percent but not greater than 100 percent of a weighted 
                average (described in subparagraph (D)).
                    ``(C) Higher-level of coverage described.--A policy 
                form is described in this subparagraph if--
                          ``(i) the actuarial value of the benefits 
                      under the coverage is at least 15 percent greater 
                      than the actuarial value of the coverage described 
                      in subparagraph (B) offered by the issuer in the 
                      area involved; and
                          ``(ii) the actuarial value of the benefits 
                      under the coverage is at least 100 percent but not 
                      greater than 120 percent of a weighted average 
                      (described in subparagraph (D)).
                    ``(D) Weighted average.--For purposes of this 
                paragraph, the weighted average described in this 
                subparagraph is the average actuarial value of the 
                benefits provided by all the health insurance coverage 
                issued (as elected by the issuer) either by that issuer 
                or by all issuers in the State in the individual market 
                during the previous year (not including coverage issued 
                under this section), weighted by enrollment for the 
                different coverage.
            ``(4) Election.--The issuer elections under this subsection 
        shall apply uniformly to all eligible individuals in the State 
        for that issuer. Such an election shall be effective for 
        policies offered during a period of not shorter than 2 years.
            ``(5) Assumptions.--For purposes of paragraph (3), the 
        actuarial value of benefits provided under individual health 
        insurance coverage shall be calculated based on a standardized 
        population and a set of standardized utilization and cost 
        factors.

    ``(d) Special Rules for Network Plans.--
            ``(1) In general.--In the case of a health insurance issuer 
        that offers health insurance coverage in the individual market 
        through a network plan, the issuer may--
                    ``(A) limit the individuals who may be enrolled 
                under such coverage to those who live, reside, or work 
                within the service area for such network plan; and
                    ``(B) within the service area of such plan, deny 
                such coverage to such individuals if the issuer has 
                demonstrated, if required, to the applicable State 
                authority that--
                          ``(i) it will not have the capacity to deliver 
                      services adequately to additional individual 
                      enrollees because of its obligations to existing 
                      group contract holders and enrollees and 
                      individual enrollees, and
                          ``(ii) it is applying this paragraph uniformly 
                      to individuals without regard to any health 
                      status-related factor of such individuals and 
                      without regard to whether the individuals are 
                      eligible individuals.
            ``(2) 180-day suspension upon denial of coverage.--An 
        issuer, upon denying health insurance coverage in any service 
        area in accordance with paragraph (1)(B), may not offer coverage 
        in the individual market within such service area for a period 
        of 180 days after such coverage is denied.

    ``(e) Application of Financial Capacity Limits.--
            ``(1) In general.--A health insurance issuer may deny health 
        insurance coverage in the individual market to an eligible 
        individual if the issuer has demonstrated, if required, to the 
        applicable State authority that--
                    ``(A) it does not have the financial reserves 
                necessary to underwrite additional coverage; and
                    ``(B) it is applying this paragraph uniformly to all 
                individuals in the individual market in the State 
                consistent with applicable State law and without regard 
                to any health status-related factor of such individuals 
                and without regard to whether the individuals are 
                eligible individuals.
            ``(2) 180-day suspension upon denial of coverage.--An issuer 
        upon denying individual health insurance coverage in any service 
        area in accordance with paragraph (1) may not offer such 
        coverage in the individual market within such service area for a 
        period of 180 days after the date such coverage is denied or 
        until the issuer has demonstrated, if required under applicable 
        State law, to the applicable State authority that the issuer has 
        sufficient financial reserves to underwrite additional coverage, 
        whichever is later. A State may provide for the application of 
        this paragraph on a service-area-specific basis.

    ``(e) Market Requirements.--
            ``(1) In general.--The provisions of subsection (a) shall 
        not be construed to require that a health insurance issuer 
        offering health insurance coverage only in connection with group 
        health plans or through one or more bona fide associations, or 
        both, offer such health insurance coverage in the individual 
        market.
            ``(2) Conversion policies.--A health insurance issuer 
        offering health insurance coverage in connection with group 
        health plans under this title shall not be deemed to be a health 
        insurance issuer offering individual health insurance coverage 
        solely because such issuer offers a conversion policy.

    ``(f) Construction.--Nothing in this section shall be 
construed--
            ``(1) to restrict the amount of the premium rates that an 
        issuer may charge an individual for health insurance coverage 
        provided in the individual market under applicable State law; or
            ``(2) to prevent a health insurance issuer offering health 
        insurance coverage in the individual market from establishing 
        premium discounts or rebates or modifying otherwise applicable 
        copayments or deductibles in return for adherence to programs of 
        health promotion and disease prevention.
``SEC. 2742. GUARANTEED <<NOTE: 42 USC 300gg-42.>>  RENEWABILITY 
                            OF INDIVIDUAL HEALTH INSURANCE 
                            COVERAGE.

    ``(a) In General.--Except as provided in this section, a health 
insurance issuer that provides individual health insurance coverage to 
an individual shall renew or continue in force such coverage at the 
option of the individual.
    ``(b) General Exceptions.--A health insurance issuer may nonrenew or 
discontinue health insurance coverage of an individual in the individual 
market based only on one or more of the following:
            ``(1) Nonpayment of premiums.--The individual has failed to 
        pay premiums or contributions in accordance with the terms of 
        the health insurance coverage or the issuer has not received 
        timely premium payments.
            ``(2) Fraud.--The individual has performed an act or 
        practice that constitutes fraud or made an intentional 
        misrepresentation of material fact under the terms of the 
        coverage.
            ``(3) Termination of plan.--The issuer is ceasing to offer 
        coverage in the individual market in accordance with subsection 
        (c) and applicable State law.
            ``(4) Movement outside service area.--In the case of a 
        health insurance issuer that offers health insurance coverage in 
        the market through a network plan, the individual no longer 
        resides, lives, or works in the service area (or in an area for 
        which the issuer is authorized to do business) but only if such 
        coverage is terminated under this paragraph uniformly without 
        regard to any health status-related factor of covered 
        individuals.
            ``(5) Association membership ceases.--In the case of health 
        insurance coverage that is made available in the individual 
        market only through one or more bona fide associations, the 
        membership of the individual in the association (on the basis of 
        which the coverage is provided) ceases but only if such coverage 
        is terminated under this paragraph uniformly without regard to 
        any health status-related factor of covered individuals.

    ``(c) Requirements for Uniform Termination of Coverage.--
            ``(1) Particular type of coverage not offered.--In any case 
        in which an issuer decides to discontinue offering a particular 
        type of health insurance coverage offered in the individual 
        market, coverage of such type may be discontinued by the issuer 
        only if--
                    ``(A) the issuer provides notice to each covered 
                individual provided coverage of this type in such market 
                of such discontinuation at least 90 days prior to the 
                date of the discontinuation of such coverage;
                    ``(B) the issuer offers to each individual in the 
                individual market provided coverage of this type, the 
                option to purchase any other individual health insurance 
                coverage currently being offered by the issuer for 
                individuals in such market; and
                    ``(C) in exercising the option to discontinue 
                coverage of this type and in offering the option of 
                coverage under subparagraph (B), the issuer acts 
                uniformly without regard to any health status-related 
                factor of enrolled individuals or individuals who may 
                become eligible for such coverage.
            ``(2) Discontinuance of all coverage.--
                    ``(A) In general.--Subject to subparagraph (C), in 
                any case in which a health insurance issuer elects to 
                discontinue offering all health insurance coverage in 
                the individual market in a State, health insurance 
                coverage may be discontinued by the issuer only if--
                          ``(i) the issuer provides notice to the 
                      applicable State authority and to each individual 
                      of such discontinuation at least 180 days prior to 
                      the date of the expiration of such coverage, and
                          ``(ii) all health insurance issued or 
                      delivered for issuance in the State in such market 
                      are discontinued and coverage under such health 
                      insurance coverage in such market is not renewed.
                    ``(B) Prohibition on market reentry.--In the case of 
                a discontinuation under subparagraph (A) in the 
                individual market, the issuer may not provide for the 
                issuance of any health insurance coverage in the market 
                and State involved during the 5-year period beginning on 
                the date of the discontinuation of the last health 
                insurance coverage not so renewed.

    ``(d) Exception for Uniform Modification of Coverage.--At the time 
of coverage renewal, a health insurance issuer may modify the health 
insurance coverage for a policy form offered to individuals in the 
individual market so long as such modification is consistent with State 
law and effective on a uniform basis among all individuals with that 
policy form.
    ``(e) Application to Coverage Offered Only Through Associations.--In 
applying this section in the case of health insurance coverage that is 
made available by a health insurance issuer in the individual market to 
individuals only through one or more associations, a reference to an 
`individual' is deemed to include a reference to such an association (of 
which the individual is a member).

``SEC. 2743. <<NOTE: 42 USC 300gg-43.>>  CERTIFICATION OF COVERAGE.

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

``SEC. 2744. <<NOTE: 42 USC 300gg-44.>>  STATE FLEXIBILITY IN INDIVIDUAL 
            MARKET REFORMS.

    ``(a) Waiver of Requirements Where Implementation of Acceptable 
Alternative Mechanism.--
            ``(1) In general.--The requirements of section 2741 shall 
        not apply with respect to health insurance coverage offered in 
        the individual market in the State so long as a State is found 
        to be implementing, in accordance with this section and 
        consistent with section 2746(b), an alternative mechanism (in 
        this section referred to as an `acceptable alternative 
        mechanism')--
                    ``(A) under which all eligible individuals are 
                provided a choice of health insurance coverage;
                    ``(B) under which such coverage does not impose any 
                preexisting condition exclusion with respect to such 
                coverage;
                    ``(C) under which such choice of coverage includes 
                at least one policy form of coverage that is comparable 
                to comprehensive health insurance coverage offered in 
                the individual market in such State or that is 
                comparable to a standard option of coverage available 
                under the group or individual health insurance laws of 
                such State; and
                    ``(D) in a State which is implementing--
                          ``(i) a model act described in subsection 
                      (c)(1),
                          ``(ii) a qualified high risk pool described in 
                      subsection (c)(2), or
                          ``(iii) a mechanism described in subsection 
                      (c)(3).
            ``(2) Permissible Forms of mechanisms.--A private or public 
        individual health insurance mechanism (such as a health 
        insurance coverage pool or programs, mandatory group conversion 
        policies, guaranteed issue of one or more plans of individual 
        health insurance coverage, or open enrollment by one or more 
        health insurance issuers), or combination of such mechanisms, 
        that is designed to provide access to health benefits for 
        individuals in the individual market in the State in accordance 
        with this section may constitute an acceptable alternative 
        mechanism.

    ``(b) Application of Acceptable Alternative Mechanisms.--
            ``(1) Presumption.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, a State is presumed to be 
                implementing an acceptable alternative mechanism in 
                accordance with this section as of July 1, 1997, if, by 
                not later than April 1, 1997, the chief executive 
                officer of a State--
                          ``(i) notifies the Secretary that the State 
                      has enacted or intends to enact (by not later than 
                      January 1, 1998, or July 1, 1998, in the case of a 
                      State described in subparagraph (B)(ii)) any 
                      necessary legislation to provide for the 
                      implementation of a mechanism reasonably designed 
                      to be an acceptable alternative mechanism as of 
                      January 1, 1998, (or, in the case of a State 
                      described in subparagraph (B)(ii), July 1, 1998); 
                      and
                          ``(ii) provides the Secretary with such 
                      information as the Secretary may require to review 
                      the mechanism and its implementation (or proposed 
                      implementation) under this subsection.
                    ``(B) Delay permitted for certain states.--
                          ``(i) Effect of delay.--In the case of a State 
                      described in clause (ii) that provides notice 
                      under subparagraph (A)(i), for the presumption to 
                      continue on and after July 1, 1998, the chief 
                      executive officer of the State by April 1, 1998--
                                    ``(I) must notify the Secretary that 
                                the State has enacted any necessary 
                                legislation to provide for the 
                                implementation of a mechanism reasonably 
                                designed to be an acceptable alternative 
                                mechanism as of July 1, 1998; and
                                    ``(II) must provide the Secretary 
                                with such information as the Secretary 
                                may require to review the mechanism and 
                                its implementation (or proposed 
                                implementation) under this subsection.
                          ``(ii) States described.--A State described in 
                      this clause is a State that has a legislature that 
                      does not meet within the 12-month period beginning 
                      on the date of enactment of this Act.
                    ``(C) Continued application.--In order for a 
                mechanism to continue to be presumed to be an acceptable 
                alternative mechanism, the State shall provide the 
                Secretary every 3 years with information described in 
                subparagraph (A)(ii) or (B)(i)(II) (as the case may be).
            ``(2) Notice.--If the Secretary finds, after review of 
        information provided under paragraph (1) and in consultation 
        with the chief executive officer of the State and the insurance 
        commissioner or chief insurance regulatory official of the 
        State, that such a mechanism is not an acceptable alternative 
        mechanism or is not (or no longer) being implemented, the 
        Secretary--
                    ``(A) shall notify the State of--
                          ``(i) such preliminary determination, and
                          ``(ii) the consequences under paragraph (3) of 
                      a failure to implement such a mechanism; and
                    ``(B) shall permit the State a reasonable 
                opportunity in which to modify the mechanism (or to 
                adopt another mechanism) in a manner so that may be an 
                acceptable alternative mechanism or to provide for 
                implementation of such a mechanism.
            ``(3) Final determination.--If, after providing notice and 
        opportunity under paragraph (2), the Secretary finds that the 
        mechanism is not an acceptable alternative mechanism or the 
        State is not implementing such a mechanism, the Secretary shall 
        notify the State that the State is no longer considered to be 
        implementing an acceptable alternative mechanism and that the 
        requirements of section 2741 shall apply to health insurance 
        coverage offered in the individual market in the State, 
        effective as of a date specified in the notice.
            ``(4) Limitation on secretarial authority.--The Secretary 
        shall not make a determination under paragraph (2) or (3) on any 
        basis other than the basis that a mechanism is not an acceptable 
        alternative mechanism or is not being implemented.
            ``(5) Future adoption of mechanisms.--If a State, after 
        January 1, 1997, submits the notice and information described in 
        paragraph (1), unless the Secretary makes a finding described in 
        paragraph (3) within the 90-day period beginning on the date of 
        submission of the notice and information, the mechanism shall be 
        considered to be an acceptable alternative mechanism for 
        purposes of this section, effective 90 days after the end of 
        such period, subject to the second sentence of paragraph (1).

    ``(c) Provision Related to Risk.--
            ``(1) Adoption of naic models.--The model act referred to in 
        subsection (a)(1)(D)(i) is the Small Employer and Individual 
        Health Insurance Availability Model Act (adopted by the National 
        Association of Insurance Commissioners on June 3, 1996) insofar 
        as it applies to individual health insurance coverage or the 
        Individual Health Insurance Portability Model Act (also adopted 
        by such Association on such date).
            ``(2) Qualified high risk pool.--For purposes of subsection 
        (a)(1)(D)(ii), a `qualified high risk pool' described in this 
        paragraph is a high risk pool that--
                    ``(A) provides to all eligible individuals health 
                insurance coverage (or comparable coverage) that does 
                not impose any preexisting condition exclusion with 
                respect to such coverage for all eligible individuals, 
                and
                    ``(B) provides for premium rates and covered 
                benefits for such coverage consistent with standards 
                included in the NAIC Model Health Plan for Uninsurable 
                Individuals Act (as in effect as of the date of the 
                enactment of this title).
            ``(3) Other mechanisms.--For purposes of subsection 
        (a)(1)(D)(iii), a mechanism described in this paragraph--
                    ``(A) provides for risk adjustment, risk spreading, 
                or a risk spreading mechanism (among issuers or policies 
                of an issuer) or otherwise provides for some financial 
                subsidization for eligible individuals, including 
                through assistance to participating issuers; or
                    ``(B) is a mechanism under which each eligible 
                individual is provided a choice of all individual health 
                insurance coverage otherwise available.

``SEC. 2745. <<NOTE: 42 USC 300gg-45.>>  ENFORCEMENT.

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

    ``(b) Secretarial Enforcement Authority.--The Secretary shall have 
the same authority in relation to enforcement of the provisions of this 
part with respect to issuers of health insurance coverage in the 
individual market in a State as the Secretary has under section 
2722(b)(2) in relation to the enforcement of the provisions of part A 
with respect to issuers of health insurance coverage in the small group 
market in the State.

``SEC. <<NOTE: 42 USC 300gg-46.>>  2746. PREEMPTION.

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

``SEC. 2747. <<NOTE: 42 USC 300gg-47.>>  GENERAL EXCEPTIONS.

    ``(a) Exception for Certain Benefits.--The requirements of this part 
shall not apply to any health insurance coverage in relation to its 
provision of excepted benefits described in section 2791(c)(1).
    ``(b) Exception for Certain Benefits If Certain Conditions Met.--The 
requirements of this part shall not apply to any health insurance 
coverage in relation to its provision of excepted benefits described in 
paragraph (2), (3), or (4) of section 2791(c) if the benefits are 
provided under a separate policy, certificate, or contract of 
insurance.''.
    (b) Effective <<NOTE: 42 USC 300gg-41 note.>>  Date.--
            (1) In general.--Except as provided in this subsection, part 
        B of title XXVII of the Public Health Service Act (as inserted 
        by subsection (a)) shall apply with respect to health insurance 
        coverage offered, sold, issued, renewed, in effect, or operated 
        in the individual market after June 30, 1997, regardless of when 
        a period of creditable coverage occurs.
            (2) Application of certification rules.--The provisions of 
        section 102(d)(2) of this Act shall apply to section 2743 of the 
        Public Health Service Act in the same manner as it applies to 
        section 2701(e) of such Act.

            Subtitle C--General and Miscellaneous Provisions

SEC. 191. <<NOTE: 42 USC 300gg note.>>  HEALTH COVERAGE AVAILABILITY 
            STUDIES.

    (a) Studies.--
            (1) Study on effectiveness of reforms.--The Secretary of 
        Health and Human Services shall provide for a study on the 
        effectiveness of the provisions of this title and the various 
        State laws, in ensuring the availability of reasonably priced 
        health coverage to employers purchasing group coverage and 
        individuals purchasing coverage on a non-group basis.
            (2) Study on access and choice.--The Secretary also shall 
        provide for a study on--
                    (A) the extent to which patients have direct access 
                to, and choice of, health care providers, including 
                specialty providers, within a network plan, as well as 
                the opportunity to utilize providers outside of the 
                network plan, under the various types of coverage 
                offered under the provisions of this title; and
                    (B) the cost and cost-effectiveness to health 
                insurance issuers of providing access to out-of-network 
                providers, and the potential impact of providing such 
                access on the cost and quality of health insurance 
                coverage offered under provisions of this title.
            (3) Consultation.--The studies under this subsection shall 
        be conducted in consultation with the Secretary of Labor, 
        representatives of State officials, consumers, and other 
        representatives of individuals and entities that have expertise 
        in health insurance and employee benefits.

    (b) Reports.--Not later than January 1, 2000, the Secretary shall 
submit to the appropriate committees of Congress a report on each of the 
studies under subsection (a).

SEC. 192. REPORT ON MEDICARE REIMBURSEMENT OF TELEMEDICINE.

    The Health Care Financing Administration shall complete its ongoing 
study of Medicare reimbursement of all telemedicine services and submit 
a report to Congress on Medicare reimbursement of telemedicine services 
by not later than March 1, 1997. The report shall--
            (1) utilize data compiled from the current demonstration 
        projects already under review and gather data from other ongoing 
        telemedicine networks;
            (2) include an analysis of the cost of services provided via 
        telemedicine; and
            (3) include a proposal for Medicare reimbursement of such 
        services.
SEC. 193. ALLOWING FEDERALLY-QUALIFIED HMOS TO OFFER HIGH 
                        DEDUCTIBLE PLANS.

    Section 1301(b) of the Public Health Service Act (42 U.S.C. 300e(b)) 
is amended by adding at the end the following new paragraph:
            ``(6) A health maintenance organization that otherwise meets 
        the requirements of this title may offer a high-deductible 
        health plan (as defined in section 220(c)(2) of the Internal 
        Revenue Code of 1986).''.
SEC. 194. VOLUNTEER SERVICES PROVIDED BY HEALTH PROFESSIONALS AT 
                        FREE CLINICS.

    Section 224 of the Public Health Service Act (42 U.S.C. 233) is 
amended by adding at the end the following subsection:
    ``(o)(1) For purposes of this section, a free clinic health 
professional shall in providing a qualifying health service to an 
individual be deemed to be an employee of the Public Health Service for 
a calendar year that begins during a fiscal year for which a transfer 
was made under paragraph (6)(D). The preceding sentence is subject to 
the provisions of this subsection.
    ``(2) In providing a health service to an individual, a health care 
practitioner shall for purposes of this subsection be considered to be a 
free clinic health professional if the following conditions are met:
            ``(A) The service is provided to the individual at a free 
        clinic, or through offsite programs or events carried out by the 
        free clinic.
            ``(B) The free clinic is sponsoring the health care 
        practitioner pursuant to paragraph (5)(C).
            ``(C) The service is a qualifying health service (as defined 
        in paragraph (4)).
            ``(D) Neither the health care practitioner nor the free 
        clinic receives any compensation for the service from the 
        individual or from any third-party payor (including 
        reimbursement under any insurance policy or health plan, or 
        under any Federal or State health benefits program). With 
        respect to compliance with such condition:
                    ``(i) The health care practitioner may receive 
                repayment from the free clinic for reasonable expenses 
                incurred by the health care practitioner in the 
                provision of the service to the individual.
                    ``(ii) The free clinic may accept voluntary 
                donations for the provision of the service by the health 
                care practitioner to the individual.
            ``(E) Before the service is provided, the health care 
        practitioner or the free clinic provides written notice to the 
        individual of the extent to which the legal liability of the 
        health care practitioner is limited pursuant to this subsection 
        (or in the case of an emergency, the written notice is provided 
        to the individual as soon after the emergency as is 
        practicable). If the individual is a minor or is otherwise 
        legally incompetent, the condition under this subparagraph is 
        that the written notice be provided to a legal guardian or other 
        person with legal responsibility for the care of the individual.
            ``(F) At the time the service is provided, the health care 
        practitioner is licensed or certified in accordance with 
        applicable law regarding the provision of the service.

    ``(3)(A) For purposes of this subsection, the term `free clinic' 
means a health care facility operated by a nonprofit private entity 
meeting the following requirements:
            ``(i) The entity does not, in providing health services 
        through the facility, accept reimbursement from any third-party 
        payor (including reimbursement under any insurance policy or 
        health plan, or under any Federal or State health benefits 
        program).
            ``(ii) The entity, in providing health services through the 
        facility, either does not impose charges on the individuals to 
        whom the services are provided, or imposes a charge according to 
        the ability of the individual involved to pay the charge.
            ``(iii) The entity is licensed or certified in accordance 
        with applicable law regarding the provision of health services.

    ``(B) With respect to compliance with the conditions under 
subparagraph (A), the entity involved may accept voluntary donations for 
the provision of services.
    ``(4) For purposes of this subsection, the term `qualifying health 
service' means any medical assistance required or authorized to be 
provided in the program under title XIX of the Social Security Act, 
without regard to whether the medical assistance is included in the plan 
submitted under such program by the State in which the health care 
practitioner involved provides the medical assistance. References in the 
preceding sentence to such program shall as applicable be considered to 
be references to any successor to such program.
    ``(5) Subsection (g) (other than paragraphs (3) through (5)) and 
subsections (h), (i), and (l) apply to a health care practitioner for 
purposes of this subsection to the same extent and in the same manner as 
such subsections apply to an officer, governing board member, employee, 
or contractor of an entity described in subsection (g)(4), subject to 
paragraph (6) and subject to the 
following:
            ``(A) The first sentence of paragraph (1) applies in lieu of 
        the first sentence of subsection (g)(1)(A).
            ``(B) This subsection may not be construed as deeming any 
        free clinic to be an employee of the Public Health Service for 
        purposes of this section.
            ``(C) With respect to a free clinic, a health care 
        practitioner is not a free clinic health professional unless the 
        free clinic sponsors the health care practitioner. For purposes 
        of this subsection, the free clinic shall be considered to be 
        sponsoring the health care practitioner if--
                    ``(i) with respect to the health care practitioner, 
                the free clinic submits to the Secretary an application 
                meeting the requirements of subsection (g)(1)(D); and
                    ``(ii) the Secretary, pursuant to subsection 
                (g)(1)(E), determines that the health care practitioner 
                is deemed to be an employee of the Public Health 
                Service.
            ``(D) In the case of a health care practitioner who is 
        determined by the Secretary pursuant to subsection (g)(1)(E) to 
        be a free clinic health professional, this subsection applies to 
        the health care practitioner (with respect to the free clinic 
        sponsoring the health care practitioner pursuant to subparagraph 
        (C)) for any cause of action arising from an act or omission of 
        the health care practitioner
occurring on or after the date on which the Secretary makes such 
determination.
            ``(E) Subsection (g)(1)(F) applies to a health care 
        practitioner for purposes of this subsection only to the extent 
        that, in providing health services to an individual, each of the 
        conditions specified in paragraph (2) is met.

    ``(6)(A) For purposes of making payments for judgments against the 
United States (together with related fees and expenses of witnesses) 
pursuant to this section arising from the acts or omissions of free 
clinic health professionals, there is authorized to be appropriated 
$10,000,000 for each fiscal year.
    ``(B) The Secretary shall establish a fund for purposes of this 
subsection. Each fiscal year amounts appropriated under subparagraph (A) 
shall be deposited in such fund.
    ``(C) Not later <<NOTE: Reports.>>  than May 1 of each fiscal year, 
the Attorney General, in consultation with the Secretary, shall submit 
to the Congress a report providing an estimate of the amount of claims 
(together with related fees and expenses of witnesses) that, by reason 
of the acts or omissions of free clinic health professionals, will be 
paid pursuant to this section during the calendar year that begins in 
the following fiscal year. Subsection (k)(1)(B) applies to the estimate 
under the preceding sentence regarding free clinic health professionals 
to the same extent and in the same manner as such subsection applies to 
the estimate under such subsection regarding officers, governing board 
members, employees, and contractors of entities described in subsection 
(g)(4).

    ``(D) Not later than December 31 of each fiscal year, the Secretary 
shall transfer from the fund under subparagraph (B) to the appropriate 
accounts in the Treasury an amount equal to the estimate made under 
subparagraph (C) for the calendar year beginning in such fiscal year, 
subject to the extent of amounts in the fund.
    ``(7)(A) This <<NOTE: Effective date.>>  subsection takes effect on 
the date of the enactment of the first appropriations Act that makes an 
appropriation under paragraph (6)(A), except as provided in subparagraph 
(B)(i).

    ``(B)(i) Effective on the date of the enactment of the Health 
Insurance Portability and Accountability Act of 1996--
            ``(I) the Secretary may issue regulations for carrying out 
        this subsection, and the Secretary may accept and consider 
        applications submitted pursuant to paragraph (5)(C); and
            ``(II) reports under paragraph (6)(C) may be submitted to 
        the Congress.

    ``(ii) For the first fiscal year for which an appropriation is made 
under subparagraph (A) of paragraph (6), if an estimate under 
subparagraph (C) of such paragraph has not been made for the calendar 
year beginning in such fiscal year, the transfer under subparagraph (D) 
of such paragraph shall be made notwithstanding the lack of the 
estimate, and the transfer shall be made in an amount equal to the 
amount of such appropriation.''.

SEC. 195. FINDINGS; <<NOTE: 42 USC 300gg note.>>  SEVERABILITY.

    (a) Findings Relating to Exercise of Commerce Clause Authority.--
Congress finds the following in relation to the provisions of this 
title:
            (1) Provisions in group health plans and health insurance 
        coverage that impose certain preexisting condition exclusions 
        impact the ability of employees to seek employment in interstate 
        commerce, thereby impeding such commerce.
            (2) Health insurance coverage is commercial in nature and is 
        in and affects interstate commerce.
            (3) It is a necessary and proper exercise of Congressional 
        authority to impose requirements under this title on group 
        health plans and health insurance coverage (including coverage 
        offered to individuals previously covered under group health 
        plans) in order to promote commerce among the States.
            (4) Congress, however, intends to defer to States, to the 
        maximum extent practicable, in carrying out such requirements 
        with respect to insurers and health maintenance organizations 
        that are subject to State regulation, consistent with the 
        provisions of the Employee Retirement Income Security Act of 
        1974.

    (b) Severability.--If any provision of this title or the application 
of such provision to any person or circumstance is held to be 
unconstitutional, the remainder of this title and the application of the 
provisions of such to any person or circumstance shall not be affected 
thereby.

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

SEC. 200. REFERENCES IN TITLE.

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

               Subtitle A--Fraud and Abuse Control Program

SEC. 201. FRAUD AND ABUSE CONTROL PROGRAM.

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

                    ``fraud and abuse control program

    ``Sec. 1128C. (a) <<NOTE: 42 USC 1320a-7c.>>  Establishment of 
Program.--
            ``(1) In general.--Not later than January 1, 1997, the 
        Secretary, acting through the Office of the Inspector General of 
        the Department of Health and Human Services, and the Attorney 
        General shall establish a program--
                    ``(A) to coordinate Federal, State, and local law 
                enforcement programs to control fraud and abuse with 
                respect to health plans,
                    ``(B) to conduct investigations, audits, 
                evaluations, and inspections relating to the delivery of 
                and payment for health care in the United States,
                    ``(C) to facilitate the enforcement of the 
                provisions of sections 1128, 1128A, and 1128B and other 
                statutes applicable to health care fraud and abuse,
                    ``(D) to provide for the modification and 
                establishment of safe harbors and to issue advisory 
                opinions and special fraud alerts pursuant to section 
                1128D, and
                    ``(E) to provide for the reporting and disclosure of 
                certain final adverse actions against health care 
                providers, suppliers, or practitioners pursuant to the 
                data collection system established under section 1128E.
            ``(2) Coordination with health plans.--In carrying out the 
        program established under paragraph (1), the Secretary and the 
        Attorney General shall consult with, and arrange for the sharing 
        of data with representatives of health plans.
            ``(3) Guidelines.--
                    ``(A) In general.--The Secretary and the Attorney 
                General shall issue guidelines to carry out the program 
                under paragraph (1). The provisions of sections 553, 
                556, and 557 of title 5, United States Code, shall not 
                apply in the issuance of such guidelines.
                    ``(B) Information guidelines.--
                          ``(i) In general.--Such guidelines shall 
                      include guidelines relating to the furnishing of 
                      information by health plans, providers, and others 
                      to enable the Secretary and the Attorney General 
                      to carry out the program (including coordination 
                      with health plans under paragraph (2)).
                          ``(ii) Confidentiality.--Such guidelines shall 
                      include procedures to assure that such information 
                      is provided and utilized in a manner that 
                      appropriately protects the confidentiality of the 
                      information and the privacy of individuals 
                      receiving health care services and items.
                          ``(iii) Qualified immunity for providing 
                      information.--The provisions of section 1157(a) 
                      (relating to limitation on liability) shall apply 
                      to a person providing information to the Secretary 
                      or the Attorney General in conjunction with their 
                      performance of duties under this section.
            ``(4) Ensuring access to documentation.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to exercise such authority described in paragraphs 
        (3) through (9) of section 6 of the Inspector General Act of 
        1978 (5 U.S.C. App.) as necessary with respect to the activities 
        under the fraud and abuse control program established under this 
        subsection.
            ``(5) Authority of inspector general.--Nothing in this Act 
        shall be construed to diminish the authority of any Inspector 
        General, including such authority as provided in the Inspector 
        General Act of 1978 (5 U.S.C. App.).

    ``(b) Additional Use of Funds by Inspector General.--
            ``(1) Reimbursements for investigations.--The Inspector 
        General of the Department of Health and Human Services is 
        authorized to receive and retain for current use reimbursement 
        for the costs of conducting investigations and audits and for 
        monitoring compliance plans when such costs are ordered by a 
        court, voluntarily agreed to by the payor, or otherwise.
            ``(2) Crediting.--Funds received by the Inspector General 
        under paragraph (1) as reimbursement for costs of conducting 
        investigations shall be deposited to the credit of the 
        appropriation from which initially paid, or to appropriations 
        for similar purposes currently available at the time of deposit, 
        and shall remain available for obligation for 1 year from the 
        date of the deposit of such funds.

    ``(c) Health Plan Defined.--For purposes of this section, the term 
`health plan' means a plan or program that provides health benefits, 
whether directly, through insurance, or otherwise, and includes--
            ``(1) a policy of health insurance;
            ``(2) a contract of a service benefit organization; and
            ``(3) a membership agreement with a health maintenance 
        organization or other prepaid health plan.''.

    (b) Establishment of Health Care Fraud and Abuse Control Account in 
Federal Hospital Insurance Trust Fund.--Section 1817 (42 U.S.C. 1395i) 
is amended by adding at the end the following new subsection:
    ``(k) Health Care Fraud and Abuse Control Account.--
            ``(1) Establishment.--There is hereby established in the 
        Trust Fund an expenditure account to be known as the `Health 
        Care Fraud and Abuse Control Account' (in this subsection 
        referred to as the `Account').
            ``(2) Appropriated amounts to trust fund.--
                    ``(A) In general.--There are hereby appropriated to 
                the Trust Fund--
                          ``(i) such gifts and bequests as may be made 
                      as provided in subparagraph (B);
                          ``(ii) such amounts as may be deposited in the 
                      Trust Fund as provided in sections 242(b) and 
                      249(c) of the Health Insurance Portability and 
                      Accountability Act of 1996, and title XI; and
                          ``(iii) such amounts as are transferred to the 
                      Trust Fund under subparagraph (C).
                    ``(B) Authorization to accept gifts.--The Trust Fund 
                is authorized to accept on behalf of the United States 
                money gifts and bequests made unconditionally to the 
                Trust Fund, for the benefit of the Account or any 
                activity financed through the Account.
                    ``(C) Transfer of amounts.--The Managing Trustee 
                shall transfer to the Trust Fund, under rules similar to 
                the rules in section 9601 of the Internal Revenue Code 
                of 1986, an amount equal to the sum of the following:
                          ``(i) Criminal fines recovered in cases 
                      involving a Federal health care offense (as 
                      defined in section 982(a)(6)(B) of title 18, 
                      United States Code).
                          ``(ii) Civil monetary penalties and 
                      assessments imposed in health care cases, 
                      including amounts recovered under titles XI, 
                      XVIII, and XIX, and chapter 38 of title 31, United 
                      States Code (except as otherwise provided by law).
                          ``(iii) Amounts resulting from the forfeiture 
                      of property by reason of a Federal health care 
                      offense.
                          ``(iv) Penalties and damages obtained and 
                      otherwise creditable to miscellaneous receipts of 
                      the general fund of the Treasury obtained under 
                      sections 3729 through 3733 of title 31, United 
                      States Code (known as the False Claims Act), in 
                      cases involving claims related to the provision of 
                      health care items and services (other than funds 
                      awarded to a relator, for restitution or otherwise 
                      authorized by law).
                    ``(D) Application.--Nothing in subparagraph (C)(iii) 
                shall be construed to limit the availability of 
                recoveries and forfeitures obtained under title I of the 
                Employee Retirement Income Security Act of 1974 for the 
                purpose of providing equitable or remedial relief for 
                employee welfare benefit plans, and for participants and 
                beneficiaries under such plans, as authorized under such 
                title.
            ``(3) Appropriated amounts to account for fraud and abuse 
        control program, etc.--
                    ``(A) Departments of health and human services and 
                justice.--
                          ``(i) In general.--There are hereby 
                      appropriated to the Account from the Trust Fund 
                      such sums as the Secretary and the Attorney 
                      General certify are necessary to carry out the 
                      purposes described in subparagraph (C), to be 
                      available without further appropriation, in an 
                      amount not to exceed--
                                    ``(I) for fiscal year 1997, 
                                $104,000,000,
                                    ``(II) for each of the fiscal years 
                                1998 through 2003, the limit for the 
                                preceding fiscal year, increased by 15 
                                percent; and
                                    ``(III) for each fiscal year after 
                                fiscal year 2003, the limit for fiscal 
                                year 2003.
                          ``(ii) Medicare and medicaid activities.--For 
                      each fiscal year, of the amount appropriated in 
                      clause (i), the following amounts shall be 
                      available only for the purposes of the activities 
                      of the Office of the Inspector General of the 
                      Department of Health and Human Services with 
                      respect to the Medicare and medicaid programs--
                                    ``(I) for fiscal year 1997, not less 
                                than $60,000,000 and not more than 
                                $70,000,000;
                                    ``(II) for fiscal year 1998, not 
                                less than $80,000,000 and not more than 
                                $90,000,000;
                                    ``(III) for fiscal year 1999, not 
                                less than $90,000,000 and not more than 
                                $100,000,000;
                                    ``(IV) for fiscal year 2000, not 
                                less than $110,000,000 and not more than 
                                $120,000,000;
                                    ``(V) for fiscal year 2001, not less 
                                than $120,000,000 and not more than 
                                $130,000,000;
                                    ``(VI) for fiscal year 2002, not 
                                less than $140,000,000 and not more than 
                                $150,000,000; and
                                    ``(VII) for each fiscal year after 
                                fiscal year 2002, not less than 
                                $150,000,000 and not more than 
                                $160,000,000.
                    ``(B) Federal bureau of investigation.--There are 
                hereby appropriated from the general fund of the United 
                States Treasury and hereby appropriated to the Account 
                for transfer to the Federal Bureau of Investigation to 
                carry out the purposes described in subparagraph (C), to 
                be available without further appropriation--
                          ``(i) for fiscal year 1997, $47,000,000;
                          ``(ii) for fiscal year 1998, $56,000,000;
                          ``(iii) for fiscal year 1999, $66,000,000;
                          ``(iv) for fiscal year 2000, $76,000,000;
                          ``(v) for fiscal year 2001, $88,000,000;
                          ``(vi) for fiscal year 2002, $101,000,000; and
                          ``(vii) for each fiscal year after fiscal year 
                      2002, $114,000,000.
                    ``(C) Use of funds.--The purposes described in this 
                subparagraph are to cover the costs (including 
                equipment, salaries and benefits, and travel and 
                training) of the administration and operation of the 
                health care fraud and abuse control program established 
                under section 1128C(a), including the costs of--
                          ``(i) prosecuting health care matters (through 
                      criminal, civil, and administrative proceedings);
                          ``(ii) investigations;
                          ``(iii) financial and performance audits of 
                      health care programs and operations;
                          ``(iv) inspections and other evaluations; and
                          ``(v) provider and consumer education 
                      regarding compliance with the provisions of title 
                      XI.
            ``(4) Appropriated amounts to account for Medicare integrity 
        program.--
                    ``(A) In general.--There are hereby appropriated to 
                the Account from the Trust Fund for each fiscal year 
                such amounts as are necessary to carry out the Medicare 
                Integrity Program under section 1893, subject to 
                subparagraph (B) and to be available without further 
                appropriation.
                    ``(B) Amounts specified.--The amount appropriated 
                under subparagraph (A) for a fiscal year is as follows:
                          ``(i) For fiscal year 1997, such amount shall 
                      be not less than $430,000,000 and not more than 
                      $440,000,000.
                          ``(ii) For fiscal year 1998, such amount shall 
                      be not less than $490,000,000 and not more than 
                      $500,000,000.
                          ``(iii) For fiscal year 1999, such amount 
                      shall be not less than $550,000,000 and not more 
                      than $560,000,000.
                          ``(iv) For fiscal year 2000, such amount shall 
                      be not less than $620,000,000 and not more than 
                      $630,000,000.
                          ``(v) For fiscal year 2001, such amount shall 
                      be not less than $670,000,000 and not more than 
                      $680,000,000.
                          ``(vi) For fiscal year 2002, such amount shall 
                      be not less than $690,000,000 and not more than 
                      $700,000,000.
                          ``(vii) For each fiscal year after fiscal year 
                      2002, such amount shall be not less than 
                      $710,000,000 and not more than $720,000,000.
            ``(5) Annual report.--Not later than January 1, the 
        Secretary and the Attorney General shall submit jointly a report 
        to Congress which identifies--
                    ``(A) the amounts appropriated to the Trust Fund for 
                the previous fiscal year under paragraph (2)(A) and the 
                source of such amounts; and
                    ``(B) the amounts appropriated from the Trust Fund 
                for such year under paragraph (3) and the justification 
                for the expenditure of such amounts.
            ``(6) GAO report.--Not later than January 1 of 2000, 2002, 
        and 2004, the Comptroller General of the United States shall 
        submit a report to Congress which--
                    ``(A) identifies--
                          ``(i) the amounts appropriated to the Trust 
                      Fund for the previous two fiscal years under 
                      paragraph (2)(A) and the source of such amounts; 
                      and
                          ``(ii) the amounts appropriated from the Trust 
                      Fund for such fiscal years under paragraph (3) and 
                      the justification for the expenditure of such 
                      amounts;
                    ``(B) identifies any expenditures from the Trust 
                Fund with respect to activities not involving the 
                Medicare program under title XVIII;
                    ``(C) identifies any savings to the Trust Fund, and 
                any other savings, resulting from expenditures from the 
                Trust Fund; and
                    ``(D) analyzes such other aspects of the operation 
                of the Trust Fund as the Comptroller General of the 
                United States considers appropriate.''.

SEC. 202. MEDICARE INTEGRITY PROGRAM.

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

                      ``medicare integrity program

    ``Sec. 1893. (a) Establishment <<NOTE: 42 USC 1395ddd.>>  of 
Program.--There is hereby established the Medicare Integrity Program (in 
this section referred to as the `Program') under which the Secretary 
shall promote the integrity of the Medicare program by entering into 
contracts in accordance with this section with eligible entities to 
carry out the activities described in subsection (b).

    ``(b) Activities Described.--The activities described in this 
subsection are as follows:
            ``(1) Review of activities of providers of services or other 
        individuals and entities furnishing items and services for which 
        payment may be made under this title (including skilled nursing 
        facilities and home health agencies), including medical and 
        utilization review and fraud review (employing similar 
        standards, processes, and technologies used by private health 
        plans, including equipment and software technologies which 
        surpass the capability of the equipment and technologies used in 
        the review of claims under this title as of the date of the 
        enactment of this section).
            ``(2) Audit of cost reports.
            ``(3) Determinations as to whether payment should not be, or 
        should not have been, made under this title by reason of section 
        1862(b), and recovery of payments that should not have been 
        made.
            ``(4) Education of providers of services, beneficiaries, and 
        other persons with respect to payment integrity and benefit 
        quality assurance issues.
            ``(5) Developing (and periodically updating) a list of items 
        of durable medical equipment in accordance with section 
        1834(a)(15) which are subject to prior authorization under such 
        section.

    ``(c) Eligibility of Entities.--An entity is eligible to enter into 
a contract under the Program to carry out any of the activities 
described in subsection (b) if--
            ``(1) the entity has demonstrated capability to carry out 
        such activities;
            ``(2) in carrying out such activities, the entity agrees to 
        cooperate with the Inspector General of the Department of Health 
        and Human Services, the Attorney General, and other law 
        enforcement agencies, as appropriate, in the investigation and 
        deterrence of fraud and abuse in relation to this title and in 
        other cases arising out of such activities;
            ``(3) the entity complies with such conflict of interest 
        standards as are generally applicable to Federal acquisition and 
        procurement; and
            ``(4) the entity meets such other requirements as the 
        Secretary may impose.

In the case of the activity described in subsection (b)(5), an entity 
shall be deemed to be eligible to enter into a contract under the 
Program to carry out the activity if the entity is a carrier with a 
contract in effect under section 1842.
    ``(d) Process <<NOTE: Regulations.>>  for Entering Into Contracts.--
The Secretary shall enter into contracts under the Program in accordance 
with such procedures as the Secretary shall by regulation establish, 
except that such procedures shall include the following:
            ``(1) Procedures for identifying, evaluating, and resolving 
        organizational conflicts of interest that are generally 
        applicable to Federal acquisition and procurement.
            ``(2) Competitive procedures to be used--
                    ``(A) when entering into new contracts under this 
                section;
                    ``(B) when entering into contracts that may result 
                in the elimination of responsibilities of an individual 
                fiscal intermediary or carrier under section 202(b) of 
                the Health Insurance Portability and Accountability Act 
                of 1996; and
                    ``(C) at any other time considered appropriate by 
                the Secretary,
        except that the Secretary may continue to contract with entities 
        that are carrying out the activities described in this section 
        pursuant to agreements under section 1816 or contracts under 
        section 1842 in effect on the date of the enactment of this 
        section.
            ``(3) Procedures under which a contract under this section 
        may be renewed without regard to any provision of law requiring 
        competition if the contractor has met or exceeded the 
        performance requirements established in the current contract.

The Secretary may enter into such contracts without regard to final 
rules having been promulgated.
    ``(e) Limitation <<NOTE: Regulations.>>  on Contractor Liability.--
The Secretary shall by regulation provide for the limitation of a 
contractor's liability for actions taken to carry out a contract under 
the Program, and such regulation shall, to the extent the Secretary 
finds appropriate, employ the same or comparable standards and other 
substantive and procedural provisions as are contained in section 
1157.''.

    (b) Elimination of FI and Carrier Responsibility for Carrying Out 
Activities Subject to Program.--
            (1) Responsibilities of fiscal intermediaries under part 
        a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at the 
        end the following new subsection:

    ``(l) No agency or organization may carry out (or receive payment 
for carrying out) any activity pursuant to an agreement under this 
section to the extent that the activity is carried out pursuant to a 
contract under the Medicare Integrity Program under 
section 1893.''.
            (2) Responsibilities of carriers under part b.--Section 
        1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end the 
        following new paragraph:

    ``(6) No carrier may carry out (or receive payment for carrying out) 
any activity pursuant to a contract under this subsection to the extent 
that the activity is carried out pursuant to a contract under the 
Medicare Integrity Program under section 1893. The previous sentence 
shall not apply with respect to the activity described in section 
1893(b)(5) (relating to prior authorization of certain items of durable 
medical equipment under section 1834(a)(15)).''.

SEC. 203. BENEFICIARY <<NOTE: 42 USC 1395b-5.>>  INCENTIVE PROGRAMS.

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

    (c) Program To Collect Information on Program 
Efficiency.--
            (1) Establishment of program.--Not later than 3 months after 
        the date of the enactment of this Act, the Secretary shall 
        establish a program under which the Secretary shall encourage 
        individuals to submit to the Secretary suggestions on methods to 
        improve the efficiency of the Medicare program.
            (2) Payment of portion of program savings.--If an individual 
        submits a suggestion to the Secretary under the program 
        established under paragraph (1) which is adopted by the 
        Secretary and which results in savings to the program, the 
        Secretary may make a payment to the individual of such amount as 
        the Secretary considers appropriate.
SEC. 204. APPLICATION OF CERTAIN HEALTH ANTIFRAUD AND ABUSE 
                          SANCTIONS TO FRAUD AND ABUSE AGAINST 
                          FEDERAL HEALTH CARE PROGRAMS.

    (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is amended as 
follows:
            (1) In the heading, by striking ``Medicare or state health 
        care programs'' and inserting ``federal health care programs''.
            (2) In subsection (a)(1), by striking ``a program under 
        title XVIII or a State health care program (as defined in 
        section 1128(h))'' and inserting ``a Federal health care program 
        (as defined in subsection (f))''.
            (3) In subsection (a)(5), by striking ``a program under 
        title XVIII or a State health care program'' and inserting ``a 
        Federal health care program''.
            (4) In the second sentence of subsection (a)--
                    (A) by striking ``a State plan approved under title 
                XIX'' and inserting ``a Federal health care program'', 
                and
                    (B) by striking ``the State may at its option 
                (notwithstanding any other provision of that title or of 
                such plan)'' and inserting ``the administrator of such 
                program may at its option (notwithstanding any other 
                provision of such program)''.
            (5) In subsection (b), by striking ``title XVIII or a State 
        health care program'' each place it appears and inserting ``a 
        Federal health care program''.
            (6) In subsection (c), by inserting ``(as defined in section 
        1128(h))'' after ``a State health care program''.
            (7) By adding at the end the following new subsection:

    ``(f) For purposes of this section, the term `Federal health care 
program' means--
            ``(1) any plan or program that provides health benefits, 
        whether directly, through insurance, or otherwise, which is 
        funded directly, in whole or in part, by the United States 
        Government (other than the health insurance program under 
        chapter 89 of title 5, United States Code); or
            ``(2) any State health care program, as defined in section 
        1128(h).''.

    (b) Effective <<NOTE: 42 USC 1320a-7b note.>>  Date.--The amendments 
made by this section shall take effect on January 1, 1997.
SEC. 205. GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND 
                        ABUSE SANCTIONS.

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

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

    ``Sec. 1128D. (a) Solicitation <<NOTE: 42 USC 1320a-7d.>>  and 
Publication of Modifications to Existing Safe Harbors and New Safe 
Harbors.--
            ``(1) In general.--
                    ``(A) Solicitation <<NOTE: Federal Register, 
                publication.>>  of proposals for safe harbors.--Not 
                later than January 1, 1997, and not less than annually 
                thereafter, the Secretary shall publish a notice in the 
                Federal Register soliciting proposals, which will be 
                accepted during a 60-day period, for--
                          ``(i) modifications to existing safe harbors 
                      issued pursuant to section 14(a) of the Medicare 
                      and Medicaid Patient and Program Protection Act of 
                      1987 (42 U.S.C. 1320a-7b note);
                          ``(ii) additional safe harbors specifying 
                      payment practices that shall not be treated as a 
                      criminal offense under section 1128B(b) and shall 
                      not serve as the basis for an exclusion under 
                      section 1128(b)(7);
                          ``(iii) advisory opinions to be issued 
                      pursuant to subsection (b); and
                          ``(iv) special fraud alerts to be issued 
                      pursuant to subsection (c).
                    ``(B) Publication of proposed modifications and 
                proposed additional safe <<NOTE: Federal Register, 
                publication.>>  harbors.--After considering the 
                proposals described in clauses (i) and (ii) of 
                subparagraph (A), the Secretary, in consultation with 
                the Attorney General, shall publish in the Federal 
                Register proposed modifications to existing safe harbors 
                and proposed additional safe harbors, if appropriate, 
                with a 60-day comment period. After considering any 
                public comments received during this period, the 
                Secretary shall issue final rules modifying the existing 
                safe harbors and establishing new safe harbors, as 
                appropriate.
                    ``(C) Report.--The Inspector General of the 
                Department of Health and Human Services (in this section 
                referred to as the `Inspector General') shall, in an 
                annual report to Congress or as part of the year-end 
                semiannual report required by section 5 of the Inspector 
                General Act of 1978 (5 U.S.C. App.), describe the 
                proposals received under clauses (i) and (ii) of 
                subparagraph (A) and explain which proposals were 
                included in the publication described in subparagraph 
                (B), which proposals were not included in that 
                publication, and the reasons for the rejection of the 
                proposals that were not included.
            ``(2) Criteria for modifying and establishing safe 
        harbors.--In modifying and establishing safe harbors under 
        paragraph (1)(B), the Secretary may consider the extent to which 
        providing a safe harbor for the specified payment practice may 
        result in any of the following:
                    ``(A) An increase or decrease in access to health 
                care services.
                    ``(B) An increase or decrease in the quality of 
                health care services.
                    ``(C) An increase or decrease in patient freedom of 
                choice among health care providers.
                    ``(D) An increase or decrease in competition among 
                health care providers.
                    ``(E) An increase or decrease in the ability of 
                health care facilities to provide services in medically 
                underserved areas or to medically underserved 
                populations.
                    ``(F) An increase or decrease in the cost to Federal 
                health care programs (as defined in section 1128B(f)).
                    ``(G) An increase or decrease in the potential 
                overutilization of health care services.
                    ``(H) The existence or nonexistence of any potential 
                financial benefit to a health care professional or 
                provider which may vary based on their decisions of--
                          ``(i) whether to order a health care item or 
                      service; or
                          ``(ii) whether to arrange for a referral of 
                      health care items or services to a particular 
                      practitioner or provider.
                    ``(I) Any other factors the Secretary deems 
                appropriate in the interest of preventing fraud and 
                abuse in Federal health care programs (as so defined).

    ``(b) Advisory Opinions.--
            ``(1) Issuance of advisory opinions.--The Secretary, in 
        consultation with the Attorney General, shall issue written 
        advisory opinions as provided in this subsection.
            ``(2) Matters subject to advisory opinions.--The Secretary 
        shall issue advisory opinions as to the following matters:
                    ``(A) What constitutes prohibited remuneration 
                within the meaning of section 1128B(b).
                    ``(B) Whether an arrangement or proposed arrangement 
                satisfies the criteria set forth in section 1128B(b)(3) 
                for activities which do not result in prohibited 
                remuneration.
                    ``(C) Whether an arrangement or proposed arrangement 
                satisfies the criteria which the Secretary has 
                established, or shall establish by regulation for 
                activities which do not result in prohibited 
                remuneration.
                    ``(D) What constitutes an inducement to reduce or 
                limit services to individuals entitled to benefits under 
                title XVIII or title XIX within the meaning of section 
                1128B(b).
                    ``(E) Whether any activity or proposed activity 
                constitutes grounds for the imposition of a sanction 
                under section 1128, 1128A, or 1128B.
            ``(3) Matters not subject to advisory opinions.--Such 
        advisory opinions shall not address the following matters:
                    ``(A) Whether the fair market value shall be, or was 
                paid or received for any goods, services or property.
                    ``(B) Whether an individual is a bona fide employee 
                within the requirements of section 3121(d)(2) of the 
                Internal Revenue Code of 1986.
            ``(4) Effect of advisory opinions.--
                    ``(A) Binding as to secretary and parties 
                involved.--Each advisory opinion issued by the Secretary 
                shall be binding as to the Secretary and the party or 
                parties requesting the opinion.
                    ``(B) Failure to seek opinion.--The failure of a 
                party to seek an advisory opinion may not be introduced 
                into evidence to prove that the party intended to 
                violate the provisions of sections 1128, 1128A, or 
                1128B.
            ``(5) Regulations.--
                    ``(A) In general.--Not later than 180 days after the 
                date of the enactment of this section, the Secretary 
                shall issue regulations to carry out this section. Such 
                regulations shall provide for--
                          ``(i) the procedure to be followed by a party 
                      applying for an advisory opinion;
                          ``(ii) the procedure to be followed by the 
                      Secretary in responding to a request for an 
                      advisory opinion;
                          ``(iii) the interval in which the Secretary 
                      shall respond;
                          ``(iv) the reasonable fee to be charged to the 
                      party requesting an advisory opinion; and
                          ``(v) the manner in which advisory opinions 
                      will be made available to the public.
                    ``(B) Specific contents.--Under the regulations 
                promulgated pursuant to subparagraph (A)--
                          ``(i) the Secretary shall be required to issue 
                      to a party requesting an advisory opinion by not 
                      later than 60 days after the request is received; 
                      and
                          ``(ii) the fee charged to the party requesting 
                      an advisory opinion shall be equal to the costs 
                      incurred by the Secretary in responding to the 
                      request.
            ``(6) Application of subsection.--This subsection shall 
        apply to requests for advisory opinions made on or after the 
        date which is 6 months after the date of enactment of this 
        section and before the date which is 4 years after such date of 
        enactment.

    ``(c) Special Fraud Alerts.--
            ``(1) In general.--
                    ``(A) Request for special fraud alerts.--Any person 
                may present, at any time, a request to the Inspector 
                General for a notice which informs the public of 
                practices which the Inspector General considers to be 
                suspect or of particular concern under the Medicare 
                program under title XVIII or a State health care 
                program, as defined in section 1128(h) (in this 
                subsection referred to as a `special fraud alert').
                    ``(B) Issuance and publication of special fraud 
                alerts.--Upon receipt of a request described in 
                subparagraph (A), the Inspector General shall 
                investigate the subject matter of the request to 
                determine whether a special fraud alert should be 
                issued. If appropriate, the Inspector General shall 
                issue a special fraud alert in response to the request. 
                All special fraud alerts issued pursuant to this 
                subparagraph shall be published in the Federal Register.
            ``(2) Criteria for special fraud alerts.--In determining 
        whether to issue a special fraud alert upon a request described 
        in paragraph (1), the Inspector General may consider--
                    ``(A) whether and to what extent the practices that 
                would be identified in the special fraud alert may 
                result in any of the consequences described in 
                subsection (a)(2); and
                    ``(B) the volume and frequency of the conduct that 
                would be identified in the special fraud alert.''.

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

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

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

    (b) Individual Convicted of Felony Relating to Controlled 
Substance.--
            (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as 
        amended by subsection (a), is amended by adding at the end the 
        following new paragraph:
            ``(4) Felony conviction relating to controlled substance.--
        Any individual or entity that has been convicted for an offense 
        which occurred after the date of the enactment of the Health 
        Insurance Portability and Accountability Act of 1996, under 
        Federal or State law, of a criminal offense consisting of a 
        felony relating to the unlawful manufacture, distribution, 
        prescription, or dispensing of a controlled substance.''.
            (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C. 
        1320a-7(b)(3)) is amended--
                    (A) in the heading, by striking ``Conviction'' and 
                inserting ``Misdemeanor conviction''; and
                    (B) by striking ``criminal offense'' and inserting 
                ``criminal offense consisting of a misdemeanor''.
SEC. 212. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR CERTAIN 
                        INDIVIDUALS AND ENTITIES SUBJECT TO 
                        PERMISSIVE EXCLUSION FROM MEDICARE AND 
                        STATE HEALTH CARE PROGRAMS.

    Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by adding at 
the end the following new subparagraphs:
    ``(D) In the case of an exclusion of an individual or entity under 
paragraph (1), (2), or (3) of subsection (b), the period of the 
exclusion shall be 3 years, unless the Secretary determines in 
accordance with published regulations that a shorter period is 
appropriate because of mitigating circumstances or that a longer period 
is appropriate because of aggravating circumstances.
    ``(E) In the case of an exclusion of an individual or entity under 
subsection (b)(4) or (b)(5), the period of the exclusion shall not be 
less than the period during which the individual's or entity's license 
to provide health care is revoked, suspended, or surrendered, or the 
individual or the entity is excluded or suspended from a Federal or 
State health care program.
    ``(F) In the case of an exclusion of an individual or entity under 
subsection (b)(6)(B), the period of the exclusion shall be not less than 
1 year.''.
SEC. 213. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP OR 
                        CONTROL INTEREST IN SANCTIONED ENTITIES.

    Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding at the 
end the following new paragraph:
            ``(15) Individuals controlling a sanctioned entity.--(A) Any 
        individual--
                    ``(i) who has a direct or indirect ownership or 
                control interest in a sanctioned entity and who knows or 
                should know (as defined in section 1128A(i)(6)) of the 
                action constituting the basis for the conviction or 
                exclusion described in subparagraph (B); or
                    ``(ii) who is an officer or managing employee (as 
                defined in section 1126(b)) of such an entity.
            ``(B) For purposes of subparagraph (A), the term `sanctioned 
        entity' means an entity--
                    ``(i) that has been convicted of any offense 
                described in subsection (a) or in paragraph (1), (2), or 
                (3) of this subsection; or
                    ``(ii) that has been excluded from participation 
                under a program under title XVIII or under a State 
                health care program.''.
SEC. 214. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR FAILURE 
                        TO COMPLY WITH STATUTORY OBLIGATIONS.

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

    (b) Repeal of ``Unwilling or Unable'' Condition for Imposition of 
Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-5(b)(1)) is amended--
            (1) in the second sentence, by striking ``and determines'' 
        and all that follows through ``such obligations,''; and
            (2) by striking the third sentence.
SEC. 215. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH MAINTENANCE 
                        ORGANIZATIONS.

    (a) Application of Intermediate Sanctions for any Program 
Violations.--
            (1) In general.--Section 1876(i)(1) (42 U.S.C. 1395mm(i)(1)) 
        is amended by striking ``the Secretary may terminate'' and all 
        that follows and inserting ``in accordance with procedures 
        established under paragraph (9), the Secretary may at any time 
        terminate any such contract or may impose the intermediate 
        sanctions described in paragraph (6)(B) or (6)(C) (whichever is 
        applicable) on the eligible organization if the Secretary 
        determines that the organization--
            ``(A) has failed substantially to carry out the contract;
            ``(B) is carrying out the contract in a manner substantially 
        inconsistent with the efficient and effective administration of 
        this section; or
            ``(C) no longer substantially meets the applicable 
        conditions of subsections (b), (c), (e), and (f).''.
            (2) Other intermediate sanctions for miscellaneous program 
        violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
        amended by adding at the end the following new subparagraph:

    ``(C) In the case of an eligible organization for which the 
Secretary makes a determination under paragraph (1), the basis of which 
is not described in subparagraph (A), the Secretary may apply the 
following intermediate sanctions:
            ``(i) Civil money penalties of not more than $25,000 for 
        each determination under paragraph (1) if the deficiency that is 
        the basis of the determination has directly adversely affected 
        (or has the substantial likelihood of adversely affecting) an 
        individual covered under the organization's contract.
            ``(ii) Civil money penalties of not more than $10,000 for 
        each week beginning after the initiation of procedures by the 
        Secretary under paragraph (9) during which the deficiency that 
        is the basis of a determination under paragraph (1) exists.
            ``(iii) Suspension of enrollment of individuals under this 
        section after the date the Secretary notifies the organization 
        of a determination under paragraph (1) and until the Secretary 
        is satisfied that the deficiency that is the basis for the 
        determination has been corrected and is not likely to recur.''.
            (3) Procedures for imposing sanctions.--Section 1876(i) (42 
        U.S.C. 1395mm(i)) is amended by adding at the end the following 
        new paragraph:

    ``(9) The Secretary may terminate a contract with an eligible 
organization under this section or may impose the intermediate sanctions 
described in paragraph (6) on the organization in accordance with formal 
investigation and compliance procedures established by the Secretary 
under which--
            ``(A) the Secretary first provides the organization with the 
        reasonable opportunity to develop and implement a corrective 
        action plan to correct the deficiencies that were the basis of 
        the Secretary's determination under paragraph (1) and the 
        organization fails to develop or implement such a plan;
            ``(B) in deciding whether to impose sanctions, the Secretary 
        considers aggravating factors such as whether an organization 
        has a history of deficiencies or has not taken action to correct 
        deficiencies the Secretary has brought to the organization's 
        attention;
            ``(C) there are no unreasonable or unnecessary delays 
        between the finding of a deficiency and the imposition of 
        sanctions; and
            ``(D) the Secretary provides the organization with 
        reasonable notice and opportunity for hearing (including the 
        right to appeal an initial decision) before imposing any 
        sanction or terminating the contract.''.
            (4) Conforming amendments.--Section 1876(i)(6)(B) (42 U.S.C. 
        1395mm(i)(6)(B)) is amended by striking the second sentence.

    (b) Agreements With Peer Review Organizations.--Section 
1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by striking ``an 
agreement'' and inserting ``a written agreement''.
    (c) Effective <<NOTE: 42 USC 1395mm note.>>  Date.--The amendments 
made by this section shall apply with respect to contract years 
beginning on or after January 1, 1997.
SEC. 216. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES FOR 
                        RISK-SHARING ARRANGEMENTS.

    (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is 
amended--
            (1) by striking ``and'' at the end of subparagraph (D);
            (2) by striking the period at the end of subparagraph (E) 
        and inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(F) any remuneration between an organization and an 
        individual or entity providing items or services, or a 
        combination thereof, pursuant to a written agreement between the 
        organization and the individual or entity if the organization is 
        an eligible organization under section 1876 or if the written 
        agreement, through a risk-sharing arrangement, places the 
        individual or entity at substantial financial risk for the cost 
        or utilization of the items or services, or a combination 
        thereof, which the individual or entity is obligated to 
        provide.''.

    (b) Negotiated <<NOTE: 42 USC 1320a-7b note.>>  Rulemaking for Risk-
Sharing Exception.--
            (1) Establishment.--
                    (A) In general.--The Secretary of Health and Human 
                Services (in this subsection referred to as the 
                ``Secretary'') shall establish, on an expedited basis 
                and using a negotiated rulemaking process under 
                subchapter 3 of chapter 5 of title 5, United States 
                Code, standards relating to the exception for risk-
                sharing arrangements to the anti-kickback penalties 
                described in section 1128B(b)(3)(F) of the Social 
                Security Act, as added by subsection (a).
                    (B) Factors to consider.--In establishing standards 
                relating to the exception for risk-sharing arrangements 
                to the anti-kickback penalties under subparagraph (A), 
                the Secretary--
                          (i) shall consult with the Attorney General 
                      and representatives of the hospital, physician, 
                      other health practitioner, and health plan 
                      communities, and other interested parties; and
                          (ii) shall take into account--
                                    (I) the level of risk appropriate to 
                                the size and type of arrangement;
                                    (II) the frequency of assessment and 
                                distribution of incentives;
                                    (III) the level of capital 
                                contribution; and
                                    (IV) the extent to which the risk-
                                sharing arrangement provides incentives 
                                to control the cost and quality of 
                                health care services.
            (2) Publication of notice.--In carrying out the rulemaking 
        process under this subsection, the Secretary shall publish the 
        notice provided for under section 564(a) of title 5, United 
        States Code, by not later than 45 days after the date of the 
        enactment of this Act.
            (3) Target date for publication of rule.--As part of the 
        notice under paragraph (2), and for purposes of this subsection, 
        the ``target date for publication'' (referred to in section 
        564(a)(5) of such title) shall be January 1, 1997.
            (4) Abbreviated period for submission of comments.--In 
        applying section 564(c) of such title under this subsection, 
        ``15 days'' shall be substituted for ``30 days''.
            (5) Appointment of negotiated rulemaking committee and 
        facilitator.--The Secretary shall provide for--
                    (A) the appointment of a negotiated rulemaking 
                committee under section 565(a) of such title by not 
                later than 30 days after the end of the comment period 
                provided for under section 564(c) of such title (as 
                shortened under paragraph (4)), and
                    (B) the nomination of a facilitator under section 
                566(c) of such title by not later than 10 days after the 
                date of appointment of the committee.
            (6) Preliminary committee report.--The negotiated rulemaking 
        committee appointed under paragraph (5) shall report to the 
        Secretary, by not later than October 1, 1996, regarding the 
        committee's progress on achieving a consensus with regard to the 
        rulemaking proceeding and whether such consensus is likely to 
        occur before one month before the target date for publication of 
        the rule. If the committee reports that the committee has failed 
        to make significant progress toward such consensus or is 
        unlikely to reach such consensus by the target date, the 
        Secretary may terminate such process and provide for the 
        publication of a rule under this subsection through such other 
        methods as the Secretary may provide.
            (7) Final committee report.--If the committee is not 
        terminated under paragraph (6), the rulemaking committee shall 
        submit a report containing a proposed rule by not later than one 
        month before the target publication date.
            (8) Interim, final <<NOTE: Federal Register, publication.>>  
        effect.--The Secretary shall publish a rule under this 
        subsection in the Federal Register by not later than the target 
        publication date. Such rule shall be effective and final 
        immediately on an interim basis, but is subject to change and 
        revision after public notice and opportunity for a period (of 
        not less than 60 days) for public comment. In connection with 
        such rule, the Secretary shall specify the process for the 
        timely review and approval of applications of entities to be 
        certified as provider-sponsored organizations pursuant to such 
        rules and consistent with this subsection.
            (9) Publication of rule after public comment.--The Secretary 
        shall provide for consideration of such comments and 
        republication of such rule by not later than 1 year after the 
        target publication date.

    (c) Effective <<NOTE: 42 USC 1320a-7b note.>>  Date.--The amendments 
made by subsection (a) shall apply to written agreements entered into on 
or after January 1, 1997, without regard to whether regulations have 
been issued to implement such amendments.
SEC. 217. CRIMINAL PENALTY FOR FRAUDULENT DISPOSITION OF ASSETS IN 
                        ORDER TO OBTAIN MEDICAID BENEFITS.

    Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by adding ``or'' at the end of paragraph (5); and
            (3) by inserting after paragraph (5) the following new 
        paragraph:
            ``(6) knowingly and willfully disposes of assets (including 
        by any transfer in trust) in order for an individual to become 
        eligible for medical assistance under a State plan under title 
        XIX, if disposing of the assets results in the imposition of a 
        period of ineligibility for such assistance under section 
        1917(c),''.
SEC. 218. EFFECTIVE <<NOTE: 42 USC 1320a-7 note.>>  DATE.

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

                       Subtitle C--Data Collection

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

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

          ``health care fraud and abuse data collection program

    ``Sec. 1128E. (a) General <<NOTE: 42 USC 1320a-7e.>>  Purpose.--Not 
later than January 1, 1997, the Secretary shall establish a national 
health care fraud and abuse data collection program for the reporting of 
final adverse actions (not including settlements in which no findings of 
liability have been made) against health care providers, suppliers, or 
practitioners as required by subsection (b), with access as set forth in 
subsection (c), and shall maintain a database of the information 
collected under this section.

    ``(b) Reporting of Information.--
            ``(1) In general.--Each Government agency and health plan 
        shall report any final adverse action (not including settlements 
        in which no findings of liability have been made) taken against 
        a health care provider, supplier, or practitioner.
            ``(2) Information to be reported.--The information to be 
        reported under paragraph (1) includes:
                    ``(A) The name and TIN (as defined in section 
                7701(a)(41) of the Internal Revenue Code of 1986) of any 
                health care provider, supplier, or practitioner who is 
                the subject of a final adverse action.
                    ``(B) The name (if known) of any health care entity 
                with which a health care provider, supplier, or 
                practitioner, who is the subject of a final adverse 
                action, is affiliated or associated.
                    ``(C) The nature of the final adverse action and 
                whether such action is on appeal.
                    ``(D) A description of the acts or omissions and 
                injuries upon which the final adverse action was based, 
                and such other information as the Secretary determines 
                by regulation is required for appropriate interpretation 
                of information reported under this section.
            ``(3) Confidentiality.--In determining what information is 
        required, the Secretary shall include procedures to assure that 
        the privacy of individuals receiving health care services is 
        appropriately protected.
            ``(4) Timing and form of reporting.--The information 
        required to be reported under this subsection shall be reported 
        regularly (but not less often than monthly) and in such form and 
        manner as the Secretary prescribes. Such information shall first 
        be required to be reported on a date specified by the Secretary.
            ``(5) To whom reported.--The information required to be 
        reported under this subsection shall be reported to the 
        Secretary.

    ``(c) Disclosure and Correction of Information.--
            ``(1) Disclosure.--With respect to the information about 
        final adverse actions (not including settlements in which no 
        findings of liability have been made) reported to the Secretary 
        under this section with respect to a health care provider, 
        supplier, or practitioner, the Secretary shall, by regulation, 
        provide for--
                    ``(A) disclosure of the information, upon request, 
                to the health care provider, supplier, or licensed 
                practitioner, and
                    ``(B) procedures in the case of disputed accuracy of 
                the information.
            ``(2) Corrections.--Each Government agency and health plan 
        shall report corrections of information already reported about 
        any final adverse action taken against a health care provider, 
        supplier, or practitioner, in such form and manner that the 
        Secretary prescribes by regulation.

    ``(d) Access to Reported Information.--
            ``(1) Availability.--The information in the database 
        maintained under this section shall be available to Federal and 
        State government agencies and health plans pursuant to 
        procedures that the Secretary shall provide by regulation.
            ``(2) Fees for disclosure.--The Secretary may establish or 
        approve reasonable fees for the disclosure of information in 
        such database (other than with respect to requests by Federal 
        agencies). The amount of such a fee shall be sufficient to 
        recover the full costs of operating the database. Such fees 
        shall be available to the Secretary or, in the Secretary's 
        discretion to the agency designated under this section to cover 
        such costs.

    ``(e) Protection From Liability for Reporting.--No person or entity, 
including the agency designated by the Secretary in subsection (b)(5) 
shall be held liable in any civil action with respect to any report made 
as required by this section, without knowledge of the falsity of the 
information contained in the report.
    ``(f) Coordination With National Practitioner Data Bank.--The 
Secretary shall implement this section in such a manner as to avoid 
duplication with the reporting requirements established for the National 
Practitioner Data Bank under the Health Care Quality Improvement Act of 
1986 (42 U.S.C. 11101 et seq.).
    ``(g) Definitions and Special Rules.--For purposes of this section:
            ``(1) Final adverse action.--
                    ``(A) In general.--The term `final adverse action' 
                includes:
                          ``(i) Civil judgments against a health care 
                      provider, supplier, or practitioner in Federal or 
                      State court related to the delivery of a health 
                      care item or service.
                          ``(ii) Federal or State criminal convictions 
                      related to the delivery of a health care item or 
                      service.
                          ``(iii) Actions by Federal or State agencies 
                      responsible for the licensing and certification of 
                      health care providers, suppliers, and licensed 
                      health care practitioners, including--
                                    ``(I) formal or official actions, 
                                such as revocation or suspension of a 
                                license (and the length of any such 
                                suspension), reprimand, censure or 
                                probation,
                                    ``(II) any other loss of license or 
                                the right to apply for, or renew, a 
                                license of the provider, supplier, or 
                                practitioner, whether by operation of 
                                law, voluntary surrender, non-
                                renewability, or otherwise, or
                                    ``(III) any other negative action or 
                                finding by such Federal or State agency 
                                that is publicly available information.
                          ``(iv) Exclusion from participation in Federal 
                      or State health care programs (as defined in 
                      sections 1128B(f) and 1128(h), respectively).
                          ``(v) Any other adjudicated actions or 
                      decisions that the Secretary shall establish by 
                      regulation.
                    ``(B) Exception.--The term does not include any 
                action with respect to a malpractice claim.
            ``(2) Practitioner.--The terms `licensed health care 
        practitioner', `licensed practitioner', and `practitioner' mean, 
        with respect to a State, an individual who is licensed or 
        otherwise authorized by the State to provide health care 
        services (or any individual who, without authority holds himself 
        or herself out to be so licensed or authorized).
            ``(3) Government agency.--The term `Government agency' shall 
        include:
                    ``(A) The Department of Justice.
                    ``(B) The Department of Health and Human Services.
                    ``(C) Any other Federal agency that either 
                administers or provides payment for the delivery of 
                health care services, including, but not limited to the 
                Department of Defense and the Veterans' Administration.
                    ``(D) State law enforcement agencies.
                    ``(E) State medicaid fraud control units.
                    ``(F) Federal or State agencies responsible for the 
                licensing and certification of health care providers and 
                licensed health care practitioners.
            ``(4) Health plan.--The term `health plan' has the meaning 
        given such term by section 1128C(c).
            ``(5) Determination of conviction.--For purposes of 
        paragraph (1), the existence of a conviction shall be determined 
        under paragraph (4) of section 1128(i).''.

    (b) Improved Prevention in Issuance of Medicare Provider Numbers.--
Section 1842(r) (42 U.S.C. 1395u(r)) is amended by adding at the end the 
following new sentence: ``Under such system, the Secretary may impose 
appropriate fees on such physicians to cover the costs of investigation 
and recertification activities with respect to the issuance of the 
identifiers.''.

                  Subtitle D--Civil Monetary Penalties

SEC. 231. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

    (a) General Civil Monetary Penalties.--Section 1128A (42 U.S.C. 
1320a-7a) is amended as follows:
            (1) In the third sentence of subsection (a), by striking 
        ``programs under title XVIII'' and inserting ``Federal health 
        care programs (as defined in section 1128B(f)(1))''.
            (2) In subsection (f)--
                    (A) by redesignating paragraph (3) as paragraph 
                (4); and
                    (B) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) With respect to amounts recovered arising out of a 
        claim under a Federal health care program (as defined in section 
        1128B(f)), the portion of such amounts as is determined to have 
        been paid by the program shall be repaid to the program, and the 
        portion of such amounts attributable to the amounts recovered 
        under this section by reason of the amendments made by the 
        Health Insurance Portability and Accountability Act of 1996 (as 
        estimated by the Secretary) shall be deposited into the Federal 
        Hospital Insurance Trust Fund pursuant to section 
        1817(k)(2)(C).''.
            (3) In subsection (i)--
                    (A) in paragraph (2), by striking ``title V, XVIII, 
                XIX, or XX of this Act'' and inserting ``a Federal 
                health care program (as defined in section 1128B(f))'',
                    (B) in paragraph (4), by striking ``a health 
                insurance or medical services program under title XVIII 
                or XIX of this Act'' and inserting ``a Federal health 
                care program (as so defined)'', and
                    (C) in paragraph (5), by striking ``title V, XVIII, 
                XIX, or XX'' and inserting ``a Federal health care 
                program (as so defined)''.
            (4) By adding at the end the following new subsection:

    ``(m)(1) For purposes of this section, with respect to a Federal 
health care program not contained in this Act, references to the 
Secretary in this section shall be deemed to be references to the 
Secretary or Administrator of the department or agency with jurisdiction 
over such program and references to the Inspector General of the 
Department of Health and Human Services in this section shall be deemed 
to be references to the Inspector General of the applicable department 
or agency.
    ``(2)(A) The Secretary and Administrator of the departments and 
agencies referred to in paragraph (1) may include in any action pursuant 
to this section, claims within the jurisdiction of other Federal 
departments or agencies as long as the following conditions are 
satisfied:
            ``(i) The case involves primarily claims submitted to the 
        Federal health care programs of the department or agency 
        initiating the action.
            ``(ii) The Secretary or Administrator of the department or 
        agency initiating the action gives notice and an opportunity to 
        participate in the investigation to the Inspector General of the 
        department or agency with primary jurisdiction over the Federal 
        health care programs to which the claims were submitted.

    ``(B) If the conditions specified in subparagraph (A) are fulfilled, 
the Inspector General of the department or agency initiating the action 
is authorized to exercise all powers granted under the Inspector General 
Act of 1978 (5 U.S.C. App.) with respect to the claims submitted to the 
other departments or agencies to the same manner and extent as provided 
in that Act with respect to claims submitted to such departments or 
agencies.''.
    (b) Excluded Individual Retaining Ownership or Control Interest in 
Participating Entity.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
amended--
            (1) by striking ``or'' at the end of paragraph (1)(D);
            (2) by striking ``, or'' at the end of paragraph (2) and 
        inserting a semicolon;
            (3) by striking the semicolon at the end of paragraph (3) 
        and inserting ``; or''; and
            (4) by inserting after paragraph (3) the following new 
        paragraph:
            ``(4) in the case of a person who is not an organization, 
        agency, or other entity, is excluded from participating in a 
        program under title XVIII or a State health care program in 
        accordance with this subsection or under section 1128 and who, 
        at the time of a violation of this subsection--
                    ``(A) retains a direct or indirect ownership or 
                control interest in an entity that is participating in a 
                program under title XVIII or a State health care 
                program, and who knows or should know of the action 
                constituting the basis for the exclusion; or
                    ``(B) is an officer or managing employee (as defined 
                in section 1126(b)) of such an entity;''.

    (c) Modifications of Amounts of Penalties and Assessments.--Section 
1128A(a) (42 U.S.C. 1320a-7a(a)), as amended by subsection (b), is 
amended in the matter following paragraph (4)--
            (1) by striking ``$2,000'' and inserting ``$10,000'';
            (2) by inserting ``; in cases under paragraph (4), $10,000 
        for each day the prohibited relationship occurs'' after ``false 
        or misleading information was given''; and
            (3) by striking ``twice the amount'' and inserting ``3 times 
        the amount''.

    (d) Clarification of Level of Knowledge Required for Imposition of 
Civil Monetary Penalties.--
            (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) is 
        amended--
                    (A) in paragraphs (1) and (2), by inserting 
                ``knowingly'' before ``presents'' each place it appears; 
                and
                    (B) in paragraph (3), by striking ``gives'' and 
                inserting ``knowingly gives or causes to be given''.
            (2) Definition of standard.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)), as amended by subsection (h)(2), is amended by 
        adding at the end the following new paragraph:
            ``(7) The term `should know' means that a person, with 
        respect to information--
                    ``(A) acts in deliberate ignorance of the truth or 
                falsity of the information; or
                    ``(B) acts in reckless disregard of the truth or 
                falsity of the information,
        and no proof of specific intent to defraud is required.''.

    (e) Claim for Item or Service Based on Incorrect Coding or Medically 
Unnecessary Services.--Section 1128A(a)(1) (42 U.S.C. 1320a-7a(a)(1)), 
as amended by subsection (b), is amended--
            (1) in subparagraph (A) by striking ``claimed,'' and 
        inserting ``claimed, including any person who engages in a 
        pattern or practice of presenting or causing to be presented a 
        claim for an item or service that is based on a code that the 
        person knows or should know will result in a greater payment to 
        the person than the code the person knows or should know is 
        applicable to the item or service actually provided,'';
            (2) in subparagraph (C), by striking ``or'' at the end;
            (3) in subparagraph (D), by striking the semicolon and 
        inserting ``, or''; and
            (4) by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) is for a pattern of medical or other items or 
                services that a person knows or should know are not 
                medically necessary;''.

    (f) Sanctions Against Practitioners and Persons for Failure To 
Comply With Statutory Obligations.--Section 1156(b)(3) (42 U.S.C. 1320c-
5(b)(3)) is amended by striking ``the actual or estimated cost'' and 
inserting ``up to $10,000 for each instance''.
    (g) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
1395mm(i)(6)), as amended by section 215(a)(2), is amended by adding at 
the end the following new subparagraph:
    ``(D) The provisions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under subparagraph (B)(i) 
or (C)(i) in the same manner as such provisions apply to a civil money 
penalty or proceeding under section 1128A(a).''.
    (h) Prohibition Against Offering Inducements to Individuals Enrolled 
Under Programs or Plans.--
            (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C. 
        1320a-7a(a)), as amended by subsection (b), is amended--
                    (A) by striking ``or'' at the end of paragraph (3);
                    (B) by striking the semicolon at the end of 
                paragraph (4) and inserting ``; or''; and
                    (C) by inserting after paragraph (4) the following 
                new paragraph:
            ``(5) offers to or transfers remuneration to any individual 
        eligible for benefits under title XVIII of this Act, or under a 
        State health care program (as defined in section 1128(h)) that 
        such person knows or should know is likely to influence such 
        individual to order or receive from a particular provider, 
        practitioner, or supplier any item or service for which payment 
        may be made, in whole or in part, under title XVIII, or a State 
        health care program (as so defined);''.
            (2) Remuneration defined.--Section 1128A(i) (42 U.S.C. 
        1320a-7a(i)) is amended by adding at the end the following new 
        paragraph:
            ``(6) The term `remuneration' includes the waiver of 
        coinsurance and deductible amounts (or any part thereof), and 
        transfers of items or services for free or for other than fair 
        market value. The term `remuneration' does not include--
                    ``(A) the waiver of coinsurance and deductible 
                amounts by a person, if--
                          ``(i) the waiver is not offered as part of any 
                      advertisement or solicitation;
                          ``(ii) the person does not routinely waive 
                      coinsurance or deductible amounts; and
                          ``(iii) the person--
                                    ``(I) waives the coinsurance and 
                                deductible amounts after determining in 
                                good faith that the individual is in 
                                financial need;
                                    ``(II) fails to collect coinsurance 
                                or deductible amounts after making 
                                reasonable collection 
                                efforts; or
                                    ``(III) provides for any permissible 
                                waiver as specified in section 
                                1128B(b)(3) or in regulations issued by 
                                the Secretary;
                    ``(B) differentials in coinsurance and deductible 
                amounts as part of a benefit plan design as long as the 
                differentials have been disclosed in writing to all 
                beneficiaries, third party payers, and providers, to 
                whom claims are presented and as long as the 
                differentials meet the standards as defined in 
                regulations promulgated 
                by the Secretary not later than 180 days after the date 
                of the enactment of the Health Insurance Portability and 
                Accountability Act of 1996; or
                    ``(C) incentives given to individuals to promote the 
                delivery of preventive care as determined by the 
                Secretary in regulations so promulgated.''.

    (i) Effective <<NOTE: 42 USC 1320a-7a note.>>  Date.--The amendments 
made by this section shall apply to acts or omissions occurring on or 
after January 1, 1997.
SEC. 232. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH 
                        SERVICES.

    (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) is amended 
by adding at the end the following new paragraph:
    ``(3)(A) Any physician who executes a document described in 
subparagraph (B) with respect to an individual knowing that all of the 
requirements referred to in such subparagraph are not met with respect 
to the individual shall be subject to a civil monetary penalty of not 
more than the greater of--
            ``(i) $5,000, or
            ``(ii) three times the amount of the payments under title 
        XVIII for home health services which are made pursuant to such 
        certification.

    ``(B) A document described in this subparagraph is any document that 
certifies, for purposes of title XVIII, that an individual meets the 
requirements of section 1814(a)(2)(C) or 1835(a)(2)(A) in the case of 
home health services furnished to the individual.''.
    (b) Effective <<NOTE: 42 USC 1320a-7a note.>>  Date.--The amendment 
made by subsection (a) shall apply to certifications made on or after 
the date of the enactment of this Act.

                  Subtitle E--Revisions to Criminal Law

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

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

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

    ``(a) As used in this title, the term `Federal health care offense' 
means a violation of, or a criminal conspiracy to violate--
            ``(1) section 669, 1035, 1347, or 1518 of this title;
            ``(2) section 287, 371, 664, 666, 1001, 1027, 1341, 1343, or 
        1954 of this title, if the violation or conspiracy relates to a 
        health care benefit program.

    ``(b) As used in this title, the term `health care benefit program' 
means any public or private plan or contract, affecting commerce, under 
which any medical benefit, item, or service is provided to any 
individual, and includes any individual or entity who is providing a 
medical benefit, item, or service for which payment may be made under 
the plan or contract.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 2 of title 18, United States Code, is amended by inserting after 
the item relating to section 23 the following new item:

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

SEC. 242. HEALTH CARE FRAUD.

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

``Sec. 1347. Health care fraud

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

in connection with the delivery of or payment for health care benefits, 
items, or services, shall be fined under this title or imprisoned not 
more than 10 years, or both. If the violation results in serious bodily 
injury (as defined in section 1365 of this title), such person shall be 
fined under this title or imprisoned not more than 20 years, or both; 
and if the violation results in death, such person shall be fined under 
this title, or imprisoned for any term of years or for life, or both.''.
            (2) Clerical amendment.--The table of sections at the 
        beginning of chapter 63 of title 18, United States Code, is 
        amended by adding at the end the following:

``1347. Health care fraud.''.

    (b) Criminal <<NOTE: 42 USC 1395i note.>>  Fines Deposited in 
Federal Hospital Insurance Trust Fund.--The Secretary of the Treasury 
shall deposit into the Federal Hospital Insurance Trust Fund pursuant to 
section 1817(k)(2)(C) of the Social Security Act (42 U.S.C. 1395i) an 
amount equal to the criminal fines imposed under section 1347 of title 
18, United States Code (relating to health care fraud).

SEC. 243. THEFT OR EMBEZZLEMENT.

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

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

    ``(a) Whoever knowingly and willfully embezzles, steals, or 
otherwise without authority converts to the use of any person other than 
the rightful owner, or intentionally misapplies any of the moneys, 
funds, securities, premiums, credits, property, or other assets of a 
health care benefit program, shall be fined under this title or 
imprisoned not more than 10 years, or both; but if the value of such 
property does not exceed the sum of $100 the defendant shall be fined 
under this title or imprisoned not more than one year, or both.
    ``(b) As used in this section, the term `health care benefit 
program' has the meaning given such term in section 24(b) of this 
title.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 31 of title 18, United States Code, is amended by adding at the 
end the following:

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

SEC. 244. FALSE STATEMENTS.

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

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

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

in connection with the delivery of or payment for health care benefits, 
items, or services, shall be fined under this title or imprisoned not 
more than 5 years, or both.
    ``(b) As used in this section, the term `health care benefit 
program' has the meaning given such term in section 24(b) of this 
title.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 47 of title 18, United States Code, is amended by adding at the 
end the following new item:

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

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

    (a) In General.--Chapter 73 of title 18, United States Code, is 
amended by adding at the end the following:
``Sec. 1518. Obstruction of criminal investigations of health care 
                    offenses

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

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

SEC. 246. LAUNDERING OF MONETARY INSTRUMENTS.

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

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

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

    (b) Freezing of Assets.--Section 1345(a)(2) of title 18, United 
States Code, is amended by inserting ``or a Federal health care 
offense'' after ``title)''.

SEC. 248. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

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

``Sec. 3486. Authorized investigative demand procedures

    ``(a) Authorization.--(1) In any investigation relating to any act 
or activity involving a Federal health care offense, the Attorney 
General or the Attorney General's designee may issue in writing and 
cause to be served a subpoena--
            ``(A) requiring the production of any records (including any 
        books, papers, documents, electronic media, or other objects or 
        tangible things), which may be relevant to an authorized law 
        enforcement inquiry, that a person or legal entity may possess 
        or have care, custody, or control; or
            ``(B) requiring a custodian of records to give testimony 
        concerning the production and authentication of such records.

    ``(2) A subpoena under this subsection shall describe the objects 
required to be produced and prescribe a return date within a reasonable 
period of time within which the objects can be assembled and made 
available.

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

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

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

SEC. 249. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

    (a) In General.--Section 982(a) of title 18, United States Code, is 
amended by adding after paragraph (5) the following new paragraph:
    ``(6) The court, in imposing sentence on a person convicted of a 
Federal health care offense, shall order the person to forfeit property, 
real or personal, that constitutes or is derived, directly or 
indirectly, from gross proceeds traceable to the commission of the 
offense.''.

    (b) Conforming Amendment.--Section 982(b)(1)(A) of title 18, United 
States Code, is amended by inserting ``or (a)(6)'' after ``(a)(1)''.
    (c) Property Forfeited <<NOTE: 42 USC 1395i note.>>  Deposited in 
Federal Hospital Insurance Trust Fund.--
            (1) In general.--After the payment of the costs of asset 
        forfeiture has been made and after all restoration payments (if 
        any) have been made, and notwithstanding any other provision of 
        law, the Secretary of the Treasury shall deposit into the 
        Federal Hospital Insurance Trust Fund pursuant to section 
        1817(k)(2)(C) of the Social Security Act, as added by section 
        301(b), an amount equal to the net amount realized from the 
        forfeiture of property by reason of a Federal health care 
        offense pursuant to section 982(a)(6) of title 18, United States 
        Code.
            (2) Costs of asset forfeiture.--For purposes of paragraph 
        (1), the term ``payment of the costs of asset forfeiture'' 
        means--
                    (A) the payment, at the discretion of the Attorney 
                General, of any expenses necessary to seize, detain, 
                inventory, safeguard, maintain, advertise, sell, or 
                dispose of property under seizure, detention, or 
                forfeited, or of any other necessary expenses incident 
                to the seizure, detention, forfeiture, or disposal of 
                such property, including payment for--
                          (i) contract services;
                          (ii) the employment of outside contractors to 
                      operate and manage properties or provide other 
                      specialized services necessary to dispose of such 
                      properties in an effort to maximize the return 
                      from such properties; and
                          (iii) reimbursement of any Federal, State, or 
                      local agency for any expenditures made to perform 
                      the functions described in this subparagraph;
                    (B) at the discretion of the Attorney General, the 
                payment of awards for information or assistance leading 
                to a civil or criminal forfeiture involving any Federal 
                agency participating in the Health Care Fraud and Abuse 
                Control Account;
                    (C) the compromise and payment of valid liens and 
                mortgages against property that has been forfeited, 
                subject to the discretion of the Attorney General to 
                determine the validity of any such lien or mortgage and 
                the amount of payment to be made, and the employment of 
                attorneys and other personnel skilled in State real 
                estate law as necessary;
                    (D) payment authorized in connection with remission 
                or mitigation procedures relating to property forfeited; 
                and
                    (E) the payment of State and local property taxes on 
                forfeited real property that accrued between the date of 
                the violation giving rise to the forfeiture and the date 
                of the forfeiture order.
            (3) Restoration payment.--Notwithstanding any other 
        provision of law, if the Federal health care offense referred to 
        in paragraph (1) resulted in a loss to an employee welfare 
        benefit plan within the meaning of section 3(1) of the Employee 
        Retirement Income Security Act of 1974, the Secretary of the 
        Treasury shall transfer to such employee welfare benefit plan, 
        from the amount realized from the forfeiture of property 
        referred to in paragraph (1), an amount equal to such loss. For 
        purposes of paragraph (1), the term ``restoration payment'' 
        means the amount transferred to an employee welfare benefit plan 
        pursuant to this paragraph.

SEC. 250. RELATION <<NOTE: 29 USC 1136 note.>>  TO ERISA AUTHORITY.

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

                Subtitle F--Administrative Simplification

SEC. 261. <<NOTE: 42 USC 1320d note.>>  PURPOSE.

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

SEC. 262. ADMINISTRATIVE SIMPLIFICATION.

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

                 ``Part C--Administrative Simplification

                              ``definitions

    ``Sec. 1171. For <<NOTE: 42 USC 1320d.>>  purposes of this part:
            ``(1) Code set.--The term `code set' means any set of codes 
        used for encoding data elements, such as tables of terms, 
        medical concepts, medical diagnostic codes, or medical procedure 
        codes.
            ``(2) Health care clearinghouse.--The term `health care 
        clearinghouse' means a public or private entity that processes 
        or facilitates the processing of nonstandard data elements of 
        health information into standard data elements.
            ``(3) Health care provider.--The term `health care provider' 
        includes a provider of services (as defined in section 1861(u)), 
        a provider of medical or other health services (as defined in 
        section 1861(s)), and any other person furnishing health care 
        services or supplies.
            ``(4) Health information.--The term `health information' 
        means any information, whether oral or recorded in any form or 
        medium, that--
                    ``(A) is created or received by a health care 
                provider, health plan, public health authority, 
                employer, life insurer, school or university, or health 
                care clearinghouse; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an individual, 
                the provision of health care to an individual, or the 
                past, present, or future payment for the provision of 
                health care to an individual.
            ``(5) Health plan.--The term `health plan' means an 
        individual or group plan that provides, or pays the cost of, 
        medical care (as such term is defined in section 2791 of the 
        Public Health Service Act). Such term includes the following, 
        and any combination thereof:
                    ``(A) A group health plan (as defined in section 
                2791(a) of the Public Health Service Act), but only if 
                the plan--
                          ``(i) has 50 or more participants (as defined 
                      in section 3(7) of the Employee Retirement Income 
                      Security Act of 1974); or
                          ``(ii) is administered by an entity other than 
                      the employer who established and maintains the 
                      plan.
                    ``(B) A health insurance issuer (as defined in 
                section 2791(b) of the Public Health Service Act).
                    ``(C) A health maintenance organization (as defined 
                in section 2791(b) of the Public Health Service Act).
                    ``(D) Part A or part B of the Medicare program under 
                title XVIII.
                    ``(E) The medicaid program under title XIX.
                    ``(F) A Medicare supplemental policy (as defined in 
                section 1882(g)(1)).
                    ``(G) A long-term care policy, including a nursing 
                home fixed indemnity policy (unless the Secretary 
                determines that such a policy does not provide 
                sufficiently comprehensive coverage of a benefit so that 
                the policy should be treated as a health plan).
                    ``(H) An employee welfare benefit plan or any other 
                arrangement which is established or maintained for the 
                purpose of offering or providing health benefits to the 
                employees of 2 or more employers.
                    ``(I) The health care program for active military 
                personnel under title 10, United States Code.
                    ``(J) The veterans health care program under chapter 
                17 of title 38, United States Code.
                    ``(K) The Civilian Health and Medical Program of the 
                Uniformed Services (CHAMPUS), as defined in section 
                1072(4) of title 10, United States Code.
                    ``(L) The Indian health service program under the 
                Indian Health Care Improvement Act (25 U.S.C. 1601 et 
                seq.).
                    ``(M) The Federal Employees Health Benefit Plan 
                under chapter 89 of title 5, United States Code.
            ``(6) Individually identifiable health information.--The 
        term `individually identifiable health information' means any 
        information, including demographic information collected from an 
        individual, that--
                    ``(A) is created or received by a health care 
                provider, health plan, employer, or health care 
                clearinghouse; and
                    ``(B) relates to the past, present, or future 
                physical or mental health or condition of an individual, 
                the provision of health care to an individual, or the 
                past, present, or future payment for the provision of 
                health care to an individual, and--
                          ``(i) identifies the individual; or
                          ``(ii) with respect to which there is a 
                      reasonable basis to believe that the information 
                      can be used to identify the individual.
            ``(7) Standard.--The term `standard', when used with 
        reference to a data element of health information or a 
        transaction referred to in section 1173(a)(1), means any such 
        data element or transaction that meets each of the standards and 
        implementation specifications adopted or established by the 
        Secretary with respect to the data element or transaction under 
        sections 1172 through 1174.
            ``(8) Standard setting organization.--The term `standard 
        setting organization' means a standard setting organization 
        accredited by the American National Standards Institute, 
        including the National Council for Prescription Drug Programs, 
        that develops standards for information transactions, data 
        elements, or any other standard that is necessary to, or will 
        facilitate, the implementation of this part.

            ``general requirements for adoption of standards

    ``Sec. 1172. (a) Applicability.--Any <<NOTE: 42 USC 1320d-1.>>  
standard adopted under this part shall apply, in whole or in part, to 
the following persons:
            ``(1) A health plan.
            ``(2) A health care clearinghouse.
            ``(3) A health care provider who transmits any health 
        information in electronic form in connection with a transaction 
        referred to in section 1173(a)(1).

    ``(b) Reduction of Costs.--Any standard adopted under this part 
shall be consistent with the objective of reducing the administrative 
costs of providing and paying for health care.
    ``(c) Role of Standard Setting Organizations.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        standard adopted under this part shall be a standard that has 
        been developed, adopted, or modified by a standard setting 
        organization.
            ``(2) Special rules.--
                    ``(A) Different standards.--The Secretary may adopt 
                a standard that is different from any standard 
                developed, adopted, or modified by a standard setting 
                organization, if--
                          ``(i) the different standard will 
                      substantially reduce administrative costs to 
                      health care providers and health plans compared to 
                      the alternatives; and
                          ``(ii) the standard is promulgated in 
                      accordance with the rulemaking procedures of 
                      subchapter III of chapter 5 of title 5, United 
                      States Code.
                    ``(B) No standard by standard setting 
                organization.--If no standard setting organization has 
                developed, adopted, or modified any standard relating to 
                a standard that the Secretary is authorized or required 
                to adopt under this part--
                          ``(i) paragraph (1) shall not apply; and
                          ``(ii) subsection (f) shall apply.
            ``(3) Consultation requirement.--
                    ``(A) In general.--A standard may not be adopted 
                under this part unless--
                          ``(i) in the case of a standard that has been 
                      developed, adopted, or modified by a standard 
                      setting organization, the organization consulted 
                      with each of the organizations described in 
                      subparagraph (B) in the course of such 
                      development, adoption, or modification; and
                          ``(ii) in the case of any other standard, the 
                      Secretary, in complying with the requirements of 
                      subsection (f), consulted with each of the 
                      organizations described in subparagraph (B) before 
                      adopting the standard.
                    ``(B) Organizations described.--The organizations 
                referred to in subparagraph (A) are the following:
                          ``(i) The National Uniform Billing Committee.
                          ``(ii) The National Uniform Claim Committee.
                          ``(iii) The Workgroup for Electronic Data 
                      Interchange.
                          ``(iv) The American Dental Association.

    ``(d) Implementation Specifications.--The Secretary shall establish 
specifications for implementing each of the standards adopted under this 
part.
    ``(e) Protection of Trade Secrets.--Except as otherwise required by 
law, a standard adopted under this part shall not require disclosure of 
trade secrets or confidential commercial information by a person 
required to comply with this part.
    ``(f) Assistance to the Secretary.--In complying with the 
requirements of this part, the Secretary shall rely on the 
recommendations of the National Committee on Vital and Health Statistics 
established under section 306(k) of the Public Health Service Act (42 
U.S.C. 242k(k)), and shall consult with appropriate Federal and State 
agencies <<NOTE: Federal Register, publication.>>  and private 
organizations. The Secretary shall publish in the Federal Register any 
recommendation of the National Committee on Vital and Health Statistics 
regarding the adoption of a standard under this part.

    ``(g) Application to Modifications of Standards.--This section shall 
apply to a modification to a standard (including an addition to a 
standard) adopted under section 1174(b) in the same manner as it applies 
to an initial standard adopted under section 1174(a).

       ``standards for information transactions and data elements

    ``Sec. 1173. (a) Standards <<NOTE: 42 USC 1320d-2.>>  To Enable 
Electronic Exchange.--
            ``(1) In general.--The Secretary shall adopt standards for 
        transactions, and data elements for such transactions, to enable 
        health information to be exchanged electronically, that are 
        appropriate for--
                    ``(A) the financial and administrative transactions 
                described in paragraph (2); and
                    ``(B) other financial and administrative 
                transactions determined appropriate by the Secretary, 
                consistent with the goals of improving the operation of 
                the health care system and reducing administrative 
                costs.
            ``(2) Transactions.--The transactions referred to in 
        paragraph (1)(A) are transactions with respect to the following:
                    ``(A) Health claims or equivalent encounter 
                information.
                    ``(B) Health claims attachments.
                    ``(C) Enrollment and disenrollment in a health plan.
                    ``(D) Eligibility for a health plan.
                    ``(E) Health care payment and remittance advice.
                    ``(F) Health plan premium payments.
                    ``(G) First report of injury.
                    ``(H) Health claim status.
                    ``(I) Referral certification and authorization.
            ``(3) Accommodation of specific providers.--The 
        standards adopted by the Secretary under paragraph (1) shall 
        accommodate the needs of different types of health care 
        providers.

    ``(b) Unique Health Identifiers.--
            ``(1) In general.--The Secretary shall adopt standards 
        providing for a standard unique health identifier for each 
        individual, employer, health plan, and health care provider for 
        use in the health care system. In carrying out the preceding 
        sentence for each health plan and health care provider, the 
        Secretary shall take into account multiple uses for identifiers 
        and multiple locations and specialty classifications for health 
        care providers.
            ``(2) Use of identifiers.--The standards adopted under 
        paragraph (1) shall specify the purposes for which a unique 
        health identifier may be used.

    ``(c) Code Sets.--
            ``(1) In general.--The Secretary shall adopt standards 
        that--
                    ``(A) select code sets for appropriate data elements 
                for the transactions referred to in subsection (a)(1) 
                from among the code sets that have been developed by 
                private and public entities; or
                    ``(B) establish code sets for such data elements if 
                no code sets for the data elements have been developed.
            ``(2) Distribution.--The Secretary shall establish efficient 
        and low-cost procedures for distribution (including electronic 
        distribution) of code sets and modifications made to such code 
        sets under section 1174(b).

    ``(d) Security Standards for Health Information.--
            ``(1) Security standards.--The Secretary shall adopt 
        security standards that--
                    ``(A) take into account--
                          ``(i) the technical capabilities of record 
                      systems used to maintain health information;
                          ``(ii) the costs of security measures;
                          ``(iii) the need for training persons who have 
                      access to health information;
                          ``(iv) the value of audit trails in 
                      computerized record systems; and
                          ``(v) the needs and capabilities of small 
                      health care providers and rural health care 
                      providers (as such providers are defined by the 
                      Secretary); and
                    ``(B) ensure that a health care clearinghouse, if it 
                is part of a larger organization, has policies and 
                security procedures which isolate the activities of the 
                health care clearinghouse with respect to processing 
                information in a manner that prevents unauthorized 
                access to such information by such larger organization.
            ``(2) Safeguards.--Each person described in section 1172(a) 
        who maintains or transmits health information shall maintain 
        reasonable and appropriate administrative, technical, and 
        physical safeguards--
                    ``(A) to ensure the integrity and confidentiality of 
                the information;
                    ``(B) to protect against any reasonably 
                anticipated--
                          ``(i) threats or hazards to the security or 
                      integrity of the information; and
                          ``(ii) unauthorized uses or disclosures of the 
                      information; and
                    ``(C) otherwise to ensure compliance with this part 
                by the officers and employees of such person.

    ``(e) Electronic Signature.--
            ``(1) Standards.--The Secretary, in coordination with the 
        Secretary of Commerce, shall adopt standards specifying 
        procedures for the electronic transmission and authentication of 
        signatures with respect to the transactions referred to in 
        subsection (a)(1).
            ``(2) Effect of compliance.--Compliance with the standards 
        adopted under paragraph (1) shall be deemed to satisfy Federal 
        and State statutory requirements for written signatures with 
        respect to the transactions referred to in subsection (a)(1).

    ``(f) Transfer of Information Among Health Plans.--The Secretary 
shall adopt standards for transferring among health plans appropriate 
standard data elements needed for the coordination of benefits, the 
sequential processing of claims, and other data elements for individuals 
who have more than one health plan.

                 ``timetables for adoption of standards

    ``Sec. 1174. (a) Initial <<NOTE: 42 USC 1320d-3.>>  Standards.--The 
Secretary shall carry out section 1173 not later than 18 months after 
the date of the enactment of the Health Insurance Portability and 
Accountability Act of 1996, except that standards relating to claims 
attachments shall be adopted not later than 30 months after such date.

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

                             ``requirements

    ``Sec. 1175. (a) Conduct <<NOTE: 42 USC 1320d-4.>>  of Transactions 
by Plans.--
            ``(1) In general.--If a person desires to conduct a 
        transaction referred to in section 1173(a)(1) with a health plan 
        as a standard transaction--
                    ``(A) the health plan may not refuse to conduct such 
                transaction as a standard transaction;
                    ``(B) the insurance plan may not delay such 
                transaction, or otherwise adversely affect, or attempt 
                to adversely affect, the person or the transaction on 
                the ground that the transaction is a standard 
                transaction; and
                    ``(C) the information transmitted and received in 
                connection with the transaction shall be in the form of 
                standard data elements of health information.
            ``(2) Satisfaction of requirements.--A health plan may 
        satisfy the requirements under paragraph (1) by--
                    ``(A) directly transmitting and receiving standard 
                data elements of health information; or
                    ``(B) submitting nonstandard data elements to a 
                health care clearinghouse for processing into standard 
                data elements and transmission by the health care 
                clearinghouse, and receiving standard data elements 
                through the health care clearinghouse.
            ``(3) Timetable for compliance.--Paragraph (1) shall not be 
        construed to require a health plan to comply with any standard, 
        implementation specification, or modification to a standard or 
        specification adopted or established by the Secretary under 
        sections 1172 through 1174 at any time prior to the date on 
        which the plan is required to comply with the standard or 
        specification under subsection (b).

    ``(b) Compliance With Standards.--
            ``(1) Initial compliance.--
                    ``(A) In general.--Not later than 24 months after 
                the date on which an initial standard or implementation 
                specification is adopted or established under sections 
                1172 and 1173, each person to whom the standard or 
                implementation specification applies shall comply with 
                the standard or specification.
                    ``(B) Special rule for small health plans.--In the 
                case of a small health plan, paragraph (1) shall be 
                applied by substituting `36 months' for `24 months'. For 
                purposes of this subsection, the Secretary shall 
                determine the plans that qualify as small health plans.
            ``(2) Compliance with modified standards.--If the Secretary 
        adopts a modification to a standard or implementation 
        specification under this part, each person to whom the standard 
        or implementation specification applies shall comply with the 
        modified standard or implementation specification at such time 
        as the Secretary determines appropriate, taking into account the 
        time needed to comply due to the nature and extent of the 
        modification. The time determined appropriate under the 
        preceding sentence may not be earlier than the last day of the 
        180-day period beginning on the date such modification is 
        adopted. The Secretary may extend the time for compliance for 
        small health plans, if the Secretary determines that such 
        extension is appropriate.
            ``(3) Construction.--Nothing in this subsection shall be 
        construed to prohibit any person from complying with a standard 
        or specification by--
                    ``(A) submitting nonstandard data elements to a 
                health care clearinghouse for processing into standard 
                data elements and transmission by the health care 
                clearing-
                house; or
                    ``(B) receiving standard data elements through a 
                health care clearinghouse.

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

    ``Sec. 1176. (a) General <<NOTE: 42 USC 1320d-5.>>  Penalty.--
            ``(1) In general.--Except as provided in subsection (b), the 
        Secretary shall impose on any person who violates a provision of 
        this part a penalty of not more than $100 for each such 
        violation, except that the total amount imposed on the person 
        for all violations of an identical requirement or prohibition 
        during a calendar year may not exceed $25,000.
            ``(2) Procedures.--The provisions of section 1128A (other 
        than subsections (a) and (b) and the second sentence of 
        subsection (f)) shall apply to the imposition of a civil money 
        penalty under this subsection in the same manner as such 
        provisions apply to the imposition of a penalty under such 
        section 1128A.

    ``(b) Limitations.--
            ``(1) Offenses otherwise punishable.--A penalty may not be 
        imposed under subsection (a) with respect to an act if the act 
        constitutes an offense punishable under section 1177.
            ``(2) Noncompliance not discovered.--A penalty may not be 
        imposed under subsection (a) with respect to a provision of this 
        part if it is established to the satisfaction of the Secretary 
        that the person liable for the penalty did not know, and by 
        exercising reasonable diligence would not have known, that such 
        person violated the provision.
            ``(3) Failures due to reasonable cause.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a penalty may not be imposed under 
                subsection 
                (a) if--
                          ``(i) the failure to comply was due to 
                      reasonable cause and not to willful neglect; and
                          ``(ii) the failure to comply is corrected 
                      during the 30-day period beginning on the first 
                      date the person liable for the penalty knew, or by 
                      exercising reasonable diligence would have known, 
                      that the failure to comply occurred.
                    ``(B) Extension of period.--
                          ``(i) No penalty.--The period referred to in 
                      subparagraph (A)(ii) may be extended as determined 
                      appropriate by the Secretary based on the nature 
                      and extent of the failure to comply.
                          ``(ii) Assistance.--If the Secretary 
                      determines that a person failed to comply because 
                      the person was unable to comply, the Secretary may 
                      provide technical assistance to the person during 
                      the period described in subparagraph (A)(ii). Such 
                      assistance shall be provided in any manner 
                      determined appropriate by the Secretary.
            ``(4) Reduction.--In the case of a failure to comply which 
        is due to reasonable cause and not to willful neglect, any 
        penalty under subsection (a) that is not entirely waived under 
        paragraph (3) may be waived to the extent that the payment of 
        such penalty would be excessive relative to the compliance 
        failure involved.

  ``wrongful disclosure of individually identifiable health information

    ``Sec. 1177. (a) Offense.--A <<NOTE: 42 USC 1320d-6.>>  person who 
knowingly and in violation of this part--
            ``(1) uses or causes to be used a unique health identifier;
            ``(2) obtains individually identifiable health information 
        relating to an individual; or
            ``(3) discloses individually identifiable health information 
        to another person,

shall be punished as provided in subsection (b).
    ``(b) Penalties.--A person described in subsection (a) shall--
            ``(1) be fined not more than $50,000, imprisoned not more 
        than 1 year, or both;
            ``(2) if the offense is committed under false pretenses, be 
        fined not more than $100,000, imprisoned not more than 5 years, 
        or both; and
            ``(3) if the offense is committed with intent to sell, 
        transfer, or use individually identifiable health information 
        for commercial advantage, personal gain, or malicious harm, be 
        fined not more than $250,000, imprisoned not more than 10 years, 
                                    or both.

    ``Sec. 1178. (a) General <<NOTE: 42 USC 1320d-7.>>  Effect.--
            ``(1) General rule.--Except as provided in paragraph (2), a 
        provision or requirement under this part, or a standard or 
        implementation specification adopted or established under 
        sections 1172 through 1174, shall supersede any contrary 
        provision of State law, including a provision of State law that 
        requires medical or health plan records (including billing 
        information) to be maintained or transmitted in written rather 
        than electronic form.
            ``(2) Exceptions.--A provision or requirement under this 
        part, or a standard or implementation specification adopted or 
        established under sections 1172 through 1174, shall not 
        supersede a contrary provision of State law, if the provision of 
        State law--
                    ``(A) is a provision the Secretary determines--
                          ``(i) is necessary--
                                    ``(I) to prevent fraud and abuse;
                                    ``(II) to ensure appropriate State 
                                regulation of insurance and health 
                                plans;
                                    ``(III) for State reporting on 
                                health care delivery or costs; or
                                    ``(IV) for other purposes; or
                          ``(ii) addresses controlled substances; or
                    ``(B) subject to section 264(c)(2) of the Health 
                Insurance Portability and Accountability Act of 1996, 
                relates to the privacy of individually identifiable 
                health information.

    ``(b) Public Health.--Nothing in this part shall be construed to 
invalidate or limit the authority, power, or procedures established 
under any law providing for the reporting of disease or injury, child 
abuse, birth, or death, public health surveillance, or public health 
investigation or intervention.
    ``(c) State Regulatory Reporting.--Nothing in this part shall limit 
the ability of a State to require a health plan to report, or to provide 
access to, information for management audits, financial audits, program 
monitoring and evaluation, facility licensure or certification, or 
individual licensure or certification.

       ``processing payment transactions by financial institutions

    ``Sec. 1179. To <<NOTE: 42 USC 1320d-8.>>  the extent that an entity 
is engaged in activities of a financial institution (as defined in 
section 1101 of the Right to Financial Privacy Act of 1978), or is 
engaged in authorizing, processing, clearing, settling, billing, 
transferring, reconciling, or collecting payments, for a financial 
institution, this part, and any standard adopted under this part, shall 
not apply to the entity with respect to such activities, including the 
following:
            ``(1) The use or disclosure of information by the entity for 
        authorizing, processing, clearing, settling, billing, 
        transferring, reconciling or collecting, a payment for, or 
        related to, health plan premiums or health care, where such 
        payment is made by any means, including a credit, debit, or 
        other payment card, an account, check, or electronic funds 
        transfer.
            ``(2) The request for, or the use or disclosure of, 
        information by the entity with respect to a payment described in 
        para-
        graph (1)--
                    ``(A) for transferring receivables;
                    ``(B) for auditing;
                    ``(C) in connection with--
                          ``(i) a customer dispute; or
                          ``(ii) an inquiry from, or to, a customer;
                    ``(D) in a communication to a customer of the entity 
                regarding the customer's transactions, payment card, 
                account, check, or electronic funds transfer;
                    ``(E) for reporting to consumer reporting agencies; 
                or
                    ``(F) for complying with--
                          ``(i) a civil or criminal subpoena; or
                          ``(ii) a Federal or State law regulating the 
                      entity.''.

    (b) Conforming Amendments.--
            (1) Requirement for medicare providers.--Section 1866(a)(1) 
        (42 U.S.C. 1395cc(a)(1)) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (P);
                    (B) by striking the period at the end of 
                subparagraph (Q) and inserting ``; and''; and
                    (C) by inserting immediately after subparagraph (Q) 
                the following new subparagraph:
            ``(R) to contract only with a health care clearinghouse (as 
        defined in section 1171) that meets each standard and 
        implementation specification adopted or established under part C 
        of title XI on or after the date on which the health care 
        clearinghouse is required to comply with the standard or 
        specification.''.
            (2) Title heading.--Title XI (42 U.S.C. 1301 et seq.) is 
        amended by striking the title heading and inserting the 
        following:

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

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

    Section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k)) 
is amended--
            (1) in paragraph (1), by striking ``16'' and inserting 
        ``18'';
            (2) by amending paragraph (2) to read as follows:

    ``(2) The members of the Committee shall be appointed from among 
persons who have distinguished themselves in the fields of health 
statistics, electronic interchange of health care information, privacy 
and security of electronic information, population-based public health, 
purchasing or financing health care services, integrated computerized 
health information systems, health services research, consumer interests 
in health information, health data standards, epidemiology, and the 
provision of health services. Members of the Committee shall be 
appointed for terms of 4 years.'';
            (3) by redesignating paragraphs (3) through (5) as 
        paragraphs (4) through (6), respectively, and inserting after 
        paragraph (2) the following:

    ``(3) Of the members of the Committee--
            ``(A) 1 shall be appointed, not later than 60 days after the 
        date of the enactment of the Health Insurance Portability and 
        Accountability Act of 1996, by the Speaker of the House of 
        Representatives after consultation with the Minority Leader of 
        the House of Representatives;
            ``(B) 1 shall be appointed, not later than 60 days after the 
        date of the enactment of the Health Insurance Portability and 
        Accountability Act of 1996, by the President pro tempore of the 
        Senate after consultation with the Minority Leader of the 
        Senate; and
            ``(C) 16 shall be appointed by the Secretary.'';
            (4) by amending paragraph (5) (as so redesignated) to read 
        as follows:

    ``(5) The Committee--
            ``(A) shall assist and advise the Secretary--
                    ``(i) to delineate statistical problems bearing on 
                health and health services which are of national or 
                international interest;
                    ``(ii) to stimulate studies of such problems by 
                other organizations and agencies whenever possible or to 
                make investigations of such problems through 
                subcommittees;
                    ``(iii) to determine, approve, and revise the terms, 
                definitions, classifications, and guidelines for 
                assessing health status and health services, their 
                distribution and costs, for use (I) within the 
                Department of Health and Human Services, (II) by all 
                programs administered or funded by the Secretary, 
                including the Federal-State-local cooperative health 
                statistics system referred to in subsection (e), and 
                (III) to the extent possible as determined by the head 
                of the agency involved, by the Department of Veterans 
                Affairs, the Department of Defense, and other Federal 
                agencies concerned with health and health services;
                    ``(iv) with respect to the design of and approval of 
                health statistical and health information systems 
                concerned with the collection, processing, and 
                tabulation of health statistics within the Department of 
                Health and Human Services, with respect to the 
                Cooperative Health Statistics System established under 
                subsection (e), and with respect to the standardized 
                means for the collection of health information and 
                statistics to be established by the Secretary under 
                subsection (j)(1);
                    ``(v) to review and comment on findings and 
                proposals developed by other organizations and agencies 
                and to make recommendations for their adoption or 
                implementation by local, State, national, or 
                international agencies;
                    ``(vi) to cooperate with national committees of 
                other countries and with the World Health Organization 
                and other national agencies in the studies of problems 
                of mutual interest;
                    ``(vii) to issue <<NOTE: Reports.>>  an annual 
                report on the state of the Nation's health, its health 
                services, their costs and distributions, and to make 
                proposals for improvement of the Nation's health 
                statistics and health information systems; and
                    ``(viii) in complying with the requirements imposed 
                on the Secretary under part C of title XI of the Social 
                Security Act;
            ``(B) shall study the issues related to the adoption of 
        uniform data standards for patient medical record information 
        and the electronic exchange of such information;
            ``(C) shall <<NOTE: Reports.>>  report to the Secretary not 
        later than 4 years after the date of the enactment of the Health 
        Insurance Portability and Accountability Act of 1996 
        recommendations and legislative proposals for such standards and 
        electronic exchange; and
            ``(D) shall be responsible generally for advising the 
        Secretary and the Congress on the status of the implementation 
        of part C of title XI of the Social Security Act.''; and
            (5) by adding at the end the following:

    ``(7) <<NOTE: Reports.>>  Not later than 1 year after the date of 
the enactment of the Health Insurance Portability and Accountability Act 
of 1996, and annually thereafter, the Committee shall submit to the 
Congress, and make public, a report regarding the implementation of part 
C of title XI of the Social Security Act. Such report shall address the 
following subjects, to the extent that the Committee determines 
appropriate:
            ``(A) The extent to which persons required to comply with 
        part C of title XI of the Social Security Act are cooperating in 
        implementing the standards adopted under such part.
            ``(B) The extent to which such entities are meeting the 
        security standards adopted under such part and the types of 
        penalties assessed for noncompliance with such standards.
            ``(C) Whether the Federal and State Governments are 
        receiving information of sufficient quality to meet their 
        responsibilities under such part.
            ``(D) Any problems that exist with respect to implementation 
        of such part.
            ``(E) The extent to which timetables under such part are 
        being met.''.
SEC. 264. RECOMMENDATIONS WITH <<NOTE: 42 USC 1320d-2 note.>>  
                        RESPECT TO PRIVACY OF CERTAIN HEALTH 
                        INFORMATION.

    (a) In General.--Not later than the date that is 12 months after the 
date of the enactment of this Act, the Secretary of 
Health and Human Services shall submit to the Committee on Labor and 
Human Resources and the Committee on Finance of the Senate and the 
Committee on Commerce and the Committee on Ways and Means of the House 
of Representatives detailed 
recommendations on standards with respect to the privacy of individually 
identifiable health information.
    (b) Subjects for Recommendations.--The recommendations under 
subsection (a) shall address at least the following:
            (1) The rights that an individual who is a subject of 
        individually identifiable health information should have.
            (2) The procedures that should be established for the 
        exercise of such rights.
            (3) The uses and disclosures of such information that should 
        be authorized or required.

    (c) Regulations.--
            (1) In <<NOTE: Regulations.>>  general.--If legislation 
        governing standards with respect to the privacy of individually 
        identifiable health information transmitted in connection with 
        the transactions described in section 1173(a) of the Social 
        Security Act (as added by section 262) is not enacted by the 
        date that is 36 months after the date of the enactment of this 
        Act, the Secretary of Health and Human Services shall promulgate 
        final regulations containing such standards not later than the 
        date that is 42 months after the date of the enactment of this 
        Act. Such regulations shall address at least the subjects 
        described in subsection (b).
            (2) Preemption.--A regulation promulgated under paragraph 
        (1) shall not supercede a contrary provision of State law, if 
        the provision of State law imposes requirements, standards, or 
        implementation specifications that are more stringent than the 
        requirements, standards, or implementation specifications 
        imposed under the regulation.

    (d) Consultation.--In carrying out this section, the Secretary of 
Health and Human Services shall consult with--
            (1) the National Committee on Vital and Health Statistics 
        established under section 306(k) of the Public Health Service 
        Act (42 U.S.C. 242k(k)); and
            (2) the Attorney General.

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

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

    (a) Treatment of Certain Health Insurance Policies as 
Nonduplicative.--Section 1882(d)(3)(A) (42 U.S.C. 1395ss(d)(3)(A)) is 
amended--
            (1) in clause (iii), by striking ``clause (i)'' and 
        inserting ``clause (i)(II)''; and
            (2) by adding at the end the following:

    ``(iv) For purposes of this subparagraph, a health insurance policy 
(other than a Medicare supplemental policy) providing for benefits which 
are payable to or on behalf of an individual without regard to other 
health benefit coverage of such individual is not considered to 
`duplicate' any health benefits under this title, under title XIX, or 
under a health insurance policy, and subclauses (I) and (III) of clause 
(i) do not apply to such a policy.
    ``(v) For purposes of this subparagraph, a health insurance policy 
(or a rider to an insurance contract which is not a health insurance 
policy) is not considered to `duplicate' health benefits under this 
title or under another health insurance policy if it--
            ``(I) provides health care benefits only for long-term care, 
        nursing home care, home health care, or community-based care, or 
        any combination thereof,
            ``(II) coordinates against or excludes items and services 
        available or paid for under this title or under another health 
        insurance policy, and
            ``(III) for policies sold or issued on or after the end of 
        the 90-day period beginning on the date of enactment of the 
        Health Insurance Portability and Accountability Act of 1996 
        discloses such coordination or exclusion in the policy's outline 
        of coverage.

For purposes of this clause, the terms `coordinates' and `coordination' 
mean, with respect to a policy in relation to health benefits under this 
title or under another health insurance policy, that the policy under 
its terms is secondary to, or excludes from payment, items and services 
to the extent available or paid for under this title or under another 
health insurance policy.
    ``(vi)(I) An individual entitled to benefits under part A or 
enrolled under part B of this title who is applying for a health 
insurance policy (other than a policy described in subclause (III)) 
shall be furnished a disclosure statement described in clause (vii) for 
the type of policy being applied for. Such statement shall be furnished 
as a part of (or together with) the application for such policy.
    ``(II) Whoever issues or sells a health insurance policy (other than 
a policy described in subclause (III)) to an individual described in 
subclause (I) and fails to furnish the appropriate disclosure statement 
as required under such subclause shall be fined under title 18, United 
States Code, or imprisoned not more than 5 years, or both, and, in 
addition to or in lieu of such a criminal penalty, is subject to a civil 
money penalty of not to exceed $25,000 (or $15,000 in the case of a 
person other than the issuer of the policy) for each such violation.
    ``(III) A policy described in this subclause (to which subclauses 
(I) and (II) do not apply) is a Medicare supplemental policy or a health 
insurance policy identified under 60 Federal Register 30880 (June 12, 
1995) as a policy not required to have a disclosure statement.
    ``(IV) Any reference in this section to the revised NAIC model 
regulation (referred to in subsection (m)(1)(A)) is deemed a reference 
to such regulation as revised by section 171(m)(2) of the Social 
Security Act Amendments of 1994 (Public Law 103-432) and as modified by 
substituting, for the disclosure required under section 16D(2), 
disclosure under subclause (I) of an appropriate disclosure statement 
under clause (vii).
    ``(vii) The disclosure statement described in this clause for a type 
of policy is the statement specified under subparagraph (D) of this 
paragraph (as in effect before the date of the enactment of the Health 
Insurance Portability and Accountability Act of 1996) for that type of 
policy, as revised as follows:
            ``(I) In each statement, amend the second line to read as 
        follows:

              `THIS IS NOT MEDICARE SUPPLEMENT INSURANCE'.

            ``(II) In each statement, strike the third line and insert 
        the following: `Some health care services paid for by Medicare 
        may also trigger the payment of benefits under this policy.'.
            ``(III) In each statement not described in subclause (V), 
        strike the boldface matter that begins `This insurance' and all 
        that follows up to the next paragraph that begins `Medicare'.
            ``(IV) In each statement not described in subclause (V), 
        insert before the boxed matter (that states `Before You Buy This 
        Insurance') the following: `This policy must pay benefits 
        without regard to other health benefit coverage to which you may 
        be entitled under Medicare or other insurance.'.
            ``(V) In a statement relating to policies providing both 
        nursing home and non-institutional coverage, to policies 
        providing nursing home benefits only, or policies providing home 
        care benefits only, amend the sentence that begins `Federal law' 
        to read as follows: `Federal law requires us to inform you that 
        in certain situations this insurance may pay for some care also 
        covered by Medicare.'.

    ``(viii)(I) Subject to subclause (II), nothing in this subparagraph 
shall restrict or preclude a State's ability to regulate health 
insurance policies, including any health insurance policy that is 
described in clause (iv), (v), or (vi)(III).
    ``(II) A State may not declare or specify, in statute, regulation, 
or otherwise, that a health insurance policy (other than a Medicare 
supplemental policy) or rider to an insurance contract which is not a 
health insurance policy, that is described in clause (iv), (v), or 
(vi)(III) and that is sold, issued, or renewed to an individual entitled 
to benefits under part A or enrolled under part B `duplicates' health 
benefits under this title or under a Medicare supplemental policy.''.
    (b) Conforming Amendments.--Section 1882(d)(3) (42 U.S.C. 
1395ss(d)(3)) is amended--
            (1) in subparagraph (C)--
                    (A) by striking ``with respect to (i)'' and 
                inserting ``with respect to'', and
                    (B) by striking ``, (ii) the sale'' and all that 
                follows up to the period at the end; and
            (2) by striking subparagraph (D).

    (c) Transitional <<NOTE: 42 USC 1395ss note.>>  Provision.--
            (1) No penalties.--Subject to paragraph (3), no criminal or 
        civil money penalty may be imposed under section 1882(d)(3)(A) 
        of the Social Security Act for any act or omission that occurred 
        during the transition period (as defined in paragraph (4)) and 
        that relates to any health insurance policy that is described in 
        clause (iv) or (v) of such section (as amended by subsection 
        (a)).
            (2) Limitation on legal action.--Subject to paragraph (3), 
        no legal action shall be brought or continued in any Federal or 
        State court insofar as such action--
                    (A) includes a cause of action which arose, or which 
                is based on or evidenced by any act or omission which 
                occurred, during the transition period; and
                    (B) relates to the application of section 
                1882(d)(3)(A) of the Social Security Act to any act or 
                omission with respect to the sale, issuance, or renewal 
                of any health insurance policy that is described in 
                clause (iv) or (v) of such section (as amended by 
                subsection (a)).
            (3) Disclosure condition.--In the case of a policy described 
        in clause (iv) of section 1882(d)(3)(A) of the Social Security 
        Act that is sold or issued on or after the effective date of 
        statements under section 171(d)(3)(C) of the Social Security Act 
        Amendments of 1994 and before the end of the 30-day period 
        beginning on the date of the enactment of this Act, paragraphs 
        (1) and (2) shall only apply if disclosure was made in 
        accordance with section 1882(d)(3)(C)(ii) of the Social Security 
        Act (as in effect before the date of the enactment of this Act).
            (4) Transition period.--In this subsection, the term 
        ``transition period'' means the period beginning on November 5, 
        1991, and ending on the date of the enactment of this Act.

    (d) Effective <<NOTE: 42 USC 1395ss note.>>  Date.--(1) Except as 
provided in this subsection, the amendment made by subsection (a) shall 
be effective as if included in the enactment of section 4354 of the 
Omnibus Budget Reconciliation Act of 1990.

    (2)(A) Clause (vi) of section 1882(d)(3)(A) of the Social Security 
Act, as added by subsection (a), shall only apply to individuals 
applying for--
            (i) a health insurance policy described in section 
        1882(d)(3)(A)(iv) of such Act (as added by subsection (a)), 
        after the date of the enactment of this Act, or
            (ii) another health insurance policy after the end of the 
        30-day period beginning on the date of the enactment of this 
        Act.

    (B) A seller or issuer of a health insurance policy may substitute, 
for the disclosure statement described in clause (vii) of such section, 
the statement specified under section 1882(d)(3)(D) of the Social 
Security Act (as in effect before the date of the enactment of this 
Act), without the revision specified in such clause.

                TITLE III--TAX-RELATED HEALTH PROVISIONS

SEC. 300. AMENDMENT OF 1986 CODE.

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

                  Subtitle A--Medical Savings Accounts

SEC. 301. MEDICAL SAVINGS ACCOUNTS.

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

``SEC. 220. MEDICAL SAVINGS ACCOUNTS.

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

    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible individual' 
                means, with respect to any month, any individual if--
                          ``(i) such individual is covered under a high 
                      deductible health plan as of the 1st day of such 
                      month,
                          ``(ii) such individual is not, while covered 
                      under a high deductible health plan, covered under 
                      any health plan--
                                    ``(I) which is not a high deductible 
                                health plan, and
                                    ``(II) which provides coverage for 
                                any benefit which is covered under the 
                                high deductible health plan, and
                          ``(iii)(I) the high deductible health plan 
                      covering such individual is established and 
                      maintained by 
                      the employer of such individual or of the spouse 
                      of such individual and such employer is a small 
                      employer, or
                          ``(II) such individual is an employee (within 
                      the meaning of section 401(c)(1)) or the spouse of 
                      such an employee and the high deductible health 
                      plan covering such individual is not established 
                      or maintained by any employer of such individual 
                      or spouse.
                    ``(B) Certain coverage disregarded.--Subparagraph 
                (A)(ii) shall be applied without regard to--
                          ``(i) coverage for any benefit provided by 
                      permitted insurance, and
                          ``(ii) coverage (whether through insurance or 
                      otherwise) for accidents, disability, dental care, 
                      vision care, or long-term care.
                    ``(C) Continued eligibility of employee and spouse 
                establishing medical savings accounts.--If, while an 
                employer is a small employer--
                          ``(i) any amount is contributed to a medical 
                      savings account of an individual who is an 
                      employee of such employer or the spouse of such an 
                      employee, and
                          ``(ii) such amount is excludable from gross 
                      income under section 106(b) or allowable as a 
                      deduction under this section,
                such individual shall not cease to meet the requirement 
                of subparagraph (A)(iii)(I) by reason of such employer 
                ceasing to be a small employer so long as such employee 
                continues to be an employee of such employer.
                    ``(D) Limitations on eligibility.--
                 ``For limitations on number of taxpayers who are 
                eligible to have medical savings accounts, see 
                subsection (i).

            ``(2) High deductible health plan.--
                    ``(A) In general.--The term `high deductible health 
                plan' means a health plan--
                          ``(i) in the case of self-only coverage, which 
                      has an annual deductible which is not less than 
                      $1,500 and not more than $2,250,
                          ``(ii) in the case of family coverage, which 
                      has an annual deductible which is not less than 
                      $3,000 and not more than $4,500, and
                          ``(iii) the annual out-of-pocket expenses 
                      required to be paid under the plan (other than for 
                      premiums) for covered benefits does not exceed--
                                    ``(I) $3,000 for self-only coverage, 
                                and
                                    ``(II) $5,500 for family coverage.
                    ``(B) Special rules.--
                          ``(i) Exclusion of certain plans.--Such term 
                      does not include a health plan if substantially 
                      all of its coverage is coverage described in 
                      paragraph (1)(B).
                          ``(ii) Safe harbor for absence of preventive 
                      care deductible.--A plan shall not fail to be 
                      treated as a high deductible health plan by reason 
                      of failing to have a deductible for preventive 
                      care if the absence of a deductible for such care 
                      is required by State law.
            ``(3) Permitted insurance.--The term `permitted insurance' 
        means--
                    ``(A) Medicare supplemental insurance,
                    ``(B) insurance if substantially all of the coverage 
                provided under such insurance relates to--
                          ``(i) liabilities incurred under workers' 
                      compensation laws,
                          ``(ii) tort liabilities,
                          ``(iii) liabilities relating to ownership or 
                      use of property, or
                          ``(iv) such other similar liabilities as the 
                      Secretary may specify by regulations,
                    ``(C) insurance for a specified disease or illness, 
                and
                    ``(D) insurance paying a fixed amount per day (or 
                other period) of hospitalization.
            ``(4) Small employer.--
                    ``(A) In general.--The term `small employer' means, 
                with respect to any calendar year, any employer if such 
                employer employed an average of 50 or fewer employees on 
                business days during either of the 2 preceding calendar 
                years. For purposes of the preceding sentence, a 
                preceding calendar year may be taken into account only 
                if the employer was in existence throughout such year.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the 1st preceding calendar year, 
                the determination under subparagraph (A) shall be based 
                on the average number of employees that it is reasonably 
                expected such employer will employ on business days in 
                the current calendar year.
                    ``(C) Certain growing employers retain treatment as 
                small employer.--The term `small employer' includes, 
                with respect to any calendar year, any employer if--
                          ``(i) such employer met the requirement of 
                      subparagraph (A) (determined without regard to 
                      subparagraph (B)) for any preceding calendar year 
                      after 1996,
                          ``(ii) any amount was contributed to the 
                      medical savings account of any employee of such 
                      employer with respect to coverage of such employee 
                      under a high deductible health plan of such 
                      employer during such preceding calendar year and 
                      such amount was excludable from gross income under 
                      section 106(b) or allowable as a deduction under 
                      this section, and
                          ``(iii) such employer employed an average of 
                      200 or fewer employees on business days during 
                      each preceding calendar year after 1996.
                    ``(D) Special rules.--
                          ``(i) Controlled groups.--For purposes of this 
                      paragraph, all persons treated as a single 
                      employer under subsection (b), (c), (m), or (o) of 
                      section 414 shall be treated as 1 employer.
                          ``(ii) Predecessors.--Any reference in this 
                      paragraph to an employer shall include a reference 
                      to any predecessor of such employer.
                    ``(5) Family coverage.--The term `family coverage' 
                means any coverage other than self-only coverage.

    ``(d) Medical Savings Account.--For purposes of this 
section--
            ``(1) Medical savings account.--The term `medical savings 
        account' means a trust created or organized in the United States 
        exclusively for the purpose of paying the qualified medical 
        expenses of the account holder, but only if the written 
        governing instrument creating the trust meets the following 
        requirements:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (f)(5), no contribution will be 
                accepted--
                          ``(i) unless it is in cash, or
                          ``(ii) to the extent such contribution, when 
                      added to previous contributions to the trust for 
                      the calendar year, exceeds 75 percent of the 
                      highest annual limit deductible permitted under 
                      subsection (c)(2)(A)(ii) for such calendar year.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be consistent 
                with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be commingled 
                with other property except in a common trust fund or 
                common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder for medical care (as defined 
                in section 213(d)) for such individual, the spouse of 
                such individual, and any dependent (as defined in 
                section 152) of such individual, but only to the extent 
                such amounts are not compensated for by insurance or 
                otherwise.
                    ``(B) Health insurance may not be purchased from 
                account.--
                          ``(i) In general.--Subparagraph (A) shall not 
                      apply to any payment for insurance.
                          ``(ii) Exceptions.--Clause (i) shall not apply 
                      to any expense for coverage under--
                                    ``(I) a health plan during any 
                                period of continuation coverage required 
                                under any Federal law,
                                    ``(II) a qualified long-term care 
                                insurance contract (as defined in 
                                section 7702B(b)), or
                                    ``(III) a health plan during a 
                                period in which the individual is 
                                receiving unemployment compensation 
                                under any Federal or State law.
                    ``(C) Medical expenses of individuals who are not 
                eligible individuals.--Subparagraph (A) shall apply to 
                an amount paid by an account holder for medical care of 
                an individual who is not an eligible individual for the 
                month in which the expense for such care is incurred 
                only if no amount is contributed (other than a rollover 
                contribution) to any medical savings account of such 
                account holder for the taxable year which includes such 
                month. This subparagraph shall not apply to any expense 
                for coverage described in subclause (I) or (III) of 
                subparagraph (B)(ii).
            ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the medical savings account was 
        established.
            ``(4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 219(d)(2) (relating to no deduction 
                for rollovers).
                    ``(B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                    ``(C) Except as provided in section 106(b), section 
                219(f)(5) (relating to employer payments).
                    ``(D) Section 408(g) (relating to community property 
                laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).

    ``(e) Tax Treatment of Accounts.--
            ``(1) In general.--A medical savings account is exempt from 
        taxation under this subtitle unless such account has ceased to 
        be a medical savings account. Notwithstanding the preceding 
        sentence, any such account is subject to the taxes imposed by 
        section 511 (relating to imposition of tax on unrelated business 
        income of charitable, etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to medical 
        savings accounts, and any amount treated as distributed under 
        such rules shall be treated as not used to pay qualified medical 
        expenses.

    ``(f) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a medical savings account 
        which is used exclusively to pay qualified medical expenses of 
        any account holder shall not be includible in gross income.
            ``(2) Inclusion of amounts not used for qualified medical 
        expenses.--Any amount paid or distributed out of a medical 
        savings account which is not used exclusively to pay the 
        qualified medical expenses of the account holder shall be 
        included in the gross income of such holder.
            ``(3) Excess contributions returned before due date of 
        return.--
                    ``(A) In general.--If any excess contribution is 
                contributed for a taxable year to any medical savings 
                account of an individual, paragraph (2) shall not apply 
                to distributions from the medical savings accounts of 
                such individual (to the extent such distributions do not 
                exceed the aggregate excess contributions to all such 
                accounts of such individual for such year) if--
                          ``(i) such distribution is received by the 
                      individual on or before the last day prescribed by 
                      law (including extensions of time) for filing such 
                      individual's return for such taxable year, and
                          ``(ii) such distribution is accompanied by the 
                      amount of net income attributable to such excess 
                      contribution.
                Any net income described in clause (ii) shall be 
                included in the gross income of the individual for the 
                taxable year in which it is received.
                    ``(B) Excess contribution.--For purposes of 
                subparagraph (A), the term `excess contribution' means 
                any contribution (other than a rollover contribution) 
                which is neither excludable from gross income under 
                section 106(b) nor deductible under this section.
            ``(4) Additional tax on distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                on the account holder for any taxable year in which 
                there is a payment or distribution from a medical 
                savings account of such holder which is includible in 
                gross income under paragraph (2) shall be increased by 
                15 percent of the amount which is so includible.
                    ``(B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment or 
                distribution is made after the account holder becomes 
                disabled within the meaning of section 72(m)(7) or dies.
                    ``(C) Exception for distributions after medicare 
                eligibility.--Subparagraph (A) shall not apply to any 
                payment or distribution after the date on which the 
                account holder attains the age specified in section 1811 
                of the Social Security Act.
            ``(5) Rollover contribution.--An amount is described in this 
        paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any amount paid or distributed from a medical savings 
                account to the account holder to the extent the amount 
                received is paid into a medical savings account for the 
                benefit of such holder not later than the 60th day after 
                the day on which the holder receives the payment or 
                distribution.
                    ``(B) Limitation.--This paragraph shall not apply to 
                any amount described in subparagraph (A) received by an 
                individual from a medical savings account if, at any 
                time during the 1-year period ending on the day of such 
                receipt, such individual received any other amount 
                described in subparagraph (A) from a medical savings 
                account which was not includible in the individual's 
                gross income because of the application of this 
                paragraph.
            ``(6) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of a medical 
        savings account for qualified medical expenses shall not be 
        treated as an expense paid for medical care.
            ``(7) Transfer of account incident to divorce.--The transfer 
        of an individual's interest in a medical savings account to an 
        individual's spouse or former spouse under a divorce or 
        separation instrument described in subparagraph (A) of section 
        71(b)(2) shall not be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this subtitle, 
        and such interest shall, after such transfer, be treated as a 
        medical savings account with respect to which such spouse is the 
        account holder.
            ``(8) Treatment after death of account holder.--
                    ``(A) Treatment if designated beneficiary is 
                spouse.--If the account holder's surviving spouse 
                acquires such holder's interest in a medical savings 
                account by reason of being the designated beneficiary of 
                such account at the death of the account holder, such 
                medical savings account shall be treated as if the 
                spouse were the account holder.
                    ``(B) Other cases.--
                          ``(i) In general.--If, by reason of the death 
                      of the account holder, any person acquires the 
                      account holder's interest in a medical savings 
                      account in a case to which subparagraph (A) does 
                      not apply--
                                    ``(I) such account shall cease to be 
                                a medical savings account as of the date 
                                of death, and
                                    ``(II) an amount equal to the fair 
                                market value of the assets in such 
                                account on such date shall be includible 
                                if such person is not the estate of such 
                                holder, in such person's gross income 
                                for the taxable year which includes such 
                                date, or if such person is the estate of 
                                such holder, in such holder's gross 
                                income for the last taxable year of such 
                                holder.
                          ``(ii) Special rules.--
                                    ``(I) Reduction of inclusion for 
                                pre-death expenses.--The amount 
                                includible in gross income under clause 
                                (i) by any person (other than the 
                                estate) shall be reduced by the amount 
                                of qualified medical expenses which were 
                                incurred by the decedent before the date 
                                of the decedent's death and paid by such 
                                person within 1 year after such date.
                                    ``(II) Deduction for estate taxes.--
                                An appropriate deduction shall be 
                                allowed under section 691(c) to any 
                                person (other than the decedent or the 
                                decedent's spouse) with respect to 
                                amounts included in gross income under 
                                clause (i) by such person.

    ``(g) Cost-of-Living Adjustment.--In the case of any taxable year 
beginning in a calendar year after 1998, each dollar amount in 
subsection (c)(2) shall be increased by an amount equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) the cost-of-living adjustment determined under section 
        1(f)(3) for the calendar year in which such taxable year begins 
        by substituting `calendar year 1997' for `calendar year 1992' in 
        subparagraph (B) thereof.

If any increase under the preceding sentence is not a multiple of $50, 
such increase shall be rounded to the nearest multiple of $50.
    ``(h) Reports.--The Secretary may require the trustee of a medical 
savings account to make such reports regarding such account to the 
Secretary and to the account holder with respect to contributions, 
distributions, and such other matters as the Secretary determines 
appropriate. The reports required by this subsection shall be filed at 
such time and in such manner and furnished to such individuals at such 
time and in such manner as may be required by the Secretary.
    ``(i) Limitation on Number of Taxpayers Having Medical Savings 
Accounts.--
            ``(1) In general.--Except as provided in paragraph (5), no 
        individual shall be treated as an eligible individual for any 
        taxable year beginning after the cut-off year unless--
                    ``(A) such individual was an active MSA participant 
                for any taxable year ending on or before the close of 
                the cut-off year, or
                    ``(B) such individual first became an active MSA 
                participant for a taxable year ending after the cut-off 
                year by reason of coverage under a high deductible 
                health plan of an MSA-participating employer.
            ``(2) Cut-off year.--For purposes of paragraph (1), the term 
        `cut-off year' means the earlier of--
                    ``(A) calendar year 2000, or
                    ``(B) the first calendar year before 2000 for which 
                the Secretary determines under subsection (j) that the 
                numerical limitation for such year has been exceeded.
            ``(3) Active msa participant.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `active MSA participant' 
                means, with respect to any taxable year, any individual 
                who is the account holder of any medical savings account 
                into which any contribution was made which was 
                excludable from gross income under section 106(b), or 
                allowable as a deduction under this section, for such 
                taxable year.
                    ``(B) Special rule for cut-off years before 2000.--
                In the case of a cut-off year before 2000--
                          ``(i) an individual shall not be treated as an 
                      eligible individual for any month of such year or 
                      an active MSA participant under paragraph (1)(A) 
                      unless such individual is, on or before the cut-
                      off date, covered under a high deductible health 
                      plan, and
                          ``(ii) an employer shall not be treated as an 
                      MSA-participating employer unless the employer, on 
                      or before the cut-off date, offered coverage under 
                      a high deductible health plan to any employee.
                    ``(C) Cut-off date.--For purposes of subpara-
                graph (B)--
                          ``(i) In general.--Except as otherwise 
                      provided in this subparagraph, the cut-off date is 
                      October 1 of the cut-off year.
                          ``(ii) Employees with enrollment periods after 
                      october 1.--In the case of an individual described 
                      in subclause (I) of subsection (c)(1)(A)(iii), if 
                      the regularly scheduled enrollment period for 
                      health plans of the individual's employer occurs 
                      during the last 3 months of the cut-off year, the 
                      cut-off date is December 31 of the cut-off year.
                          ``(iii) Self-employed individuals.--In the 
                      case of an individual described in subclause (II) 
                      of subsection (c)(1)(A)(iii), the cut-off date is 
                      November 1 of the cut-off year.
                          ``(iv) Special rules for 1997.--If 1997 is a 
                      cut-off year by reason of subsection (j)(1)(A)--
                                    ``(I) each of the cut-off dates 
                                under clauses (i) and (iii) shall be 1 
                                month earlier than the date determined 
                                without regard to this clause, and
                                    ``(II) clause (ii) shall be applied 
                                by substituting `4 months' for `3 
                                months'.
            ``(4) MSA-participating employer.--For purposes of this 
        subsection, the term `MSA-participating employer' means any 
        small employer if--
                    ``(A) such employer made any contribution to the 
                medical savings account of any employee during the cut-
                off year or any preceding calendar year which was 
                excludable from gross income under section 106(b), or
                    ``(B) at least 20 percent of the employees of such 
                employer who are eligible individuals for any month of 
                the cut-off year by reason of coverage under a high 
                deductible health plan of such employer each made a 
                contribution of at least $100 to their medical savings 
                accounts for any taxable year ending with or within the 
                cut-off year which was allowable as a deduction under 
                this section.
            ``(5) Additional eligibility after cut-off year.--If the 
        Secretary determines under subsection (j)(2)(A) that the 
        numerical limit for the calendar year following a cut-off year 
        described in paragraph (2)(B) has not been exceeded--
                    ``(A) this subsection shall not apply to any 
                otherwise eligible individual who is covered under a 
                high deductible health plan during the first 6 months of 
                the second calendar year following the cut-off year (and 
                such individual shall be treated as an active MSA 
                participant for purposes of this subsection if a 
                contribution is made to any medical savings account with 
                respect to such coverage), and
                    ``(B) any employer who offers coverage under a high 
                deductible health plan to any employee during such 6-
                month period shall be treated as an MSA-participating 
                employer for purposes of this subsection if the 
                requirements of paragraph (4) are met with respect to 
                such coverage.
        For purposes of this paragraph, subsection (j)(2)(A) shall be 
        applied for 1998 by substituting `750,000' for `600,000'.

    ``(j) Determination of Whether Numerical Limits Are Exceeded.--
            ``(1) Determination of whether limit exceeded for 1997.--The 
        numerical limitation for 1997 is exceeded if, based on the 
        reports required under paragraph (4), the number of medical 
        savings accounts established as of--
                    ``(A) April 30, 1997, exceeds 375,000, or
                    ``(B) June 30, 1997, exceeds 525,000.
            ``(2) Determination of whether limit exceeded for 1998 or 
        1999.--
                    ``(A) In general.--The numerical limitation for 1998 
                or 1999 is exceeded if the sum of--
                          ``(i) the number of MSA returns filed on or 
                      before April 15 of such calendar year for taxable 
                      years ending with or within the preceding calendar 
                      year, plus
                          ``(ii) the Secretary's estimate (determined on 
                      the basis of the returns described in clause (i)) 
                      of the number of MSA returns for such taxable 
                      years which will be filed after such date,
                exceeds 600,000 (750,000 in the case of 1999). For 
                purposes of the preceding sentence, the term `MSA 
                return' means any return on which any exclusion is 
                claimed under section 106(b) or any deduction is claimed 
                under this section.
                    ``(B) Alternative computation of limitation.--The 
                numerical limitation for 1998 or 1999 is also exceeded 
                if the sum of--
                          ``(i) 90 percent of the sum determined under 
                      subparagraph (A) for such calendar year, plus
                          ``(ii) the product of 2.5 and the number of 
                      medical savings accounts established during the 
                      portion of such year preceding July 1 (based on 
                      the reports required under paragraph (4)) for 
                      taxable years beginning in such year,
                exceeds 750,000.
            ``(3) Previously uninsured individuals not included in 
        determination.--
                    ``(A) In general.--The determination of whether any 
                calendar year is a cut-off year shall be made by not 
                counting the medical savings account of any previously 
                uninsured individual.
                    ``(B) Previously uninsured individual.--For purposes 
                of this subsection, the term `previously uninsured 
                individual' means, with respect to any medical savings 
                account, any individual who had no health plan coverage 
                (other than coverage referred to in subsection 
                (c)(1)(B)) at any time during the 6-month period before 
                the date such individual's coverage under the high 
                deductible health plan commences.
            ``(4) Reporting by msa trustees.--
                    ``(A) In general.--Not later than August 1 of 1997, 
                1998, and 1999, each person who is the trustee of a 
                medical savings account established before July 1 of 
                such calendar year shall make a report to the Secretary 
                (in such form and manner as the Secretary shall specify) 
                which specifies--
                          ``(i) the number of medical savings accounts 
                      established before such July 1 (for taxable years 
                      beginning in such calendar year) of which such 
                      person is the trustee,
                          ``(ii) the name and TIN of the account holder 
                      of each such account, and
                          ``(iii) the number of such accounts which are 
                      accounts of previously uninsured individuals.
                    ``(B) Additional report for 1997.--Not later than 
                June 1, 1997, each person who is the trustee of a 
                medical savings account established before May 1, 1997, 
                shall make an additional report described in 
                subparagraph (A) but only with respect to accounts 
                established before May 1, 1997.
                    ``(C) Penalty for failure to file report.--The 
                penalty provided in section 6693(a) shall apply to any 
                report required by this paragraph, except that--
                          ``(i) such section shall be applied by 
                      substituting `$25' for `$50', and
                          ``(ii) the maximum penalty imposed on any 
                      trustee shall not exceed $5,000.
                    ``(D) Aggregation of accounts.--To the extent 
                practicable, in determining the number of medical 
                savings accounts on the basis of the reports under this 
                paragraph, all medical savings accounts of an individual 
                shall be 
                treated as 1 account and all accounts of individuals who 
                are married to each other shall be treated as 1 account.
            ``(5) Date of making determinations.--Any determination 
        under this subsection that a calendar year is a cut-off year 
        shall be made by the Secretary and shall be published not later 
        than October 1 of such year.''.

    (b) Deduction Allowed Whether or Not Individual 
Itemizes Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (15) the following new paragraph:
            ``(16) Medical savings accounts.--The deduction allowed by 
        section 220.''.

    (c) Exclusions for Employer Contributions to Medical Savings 
Accounts.--
            (1) Exclusion from income tax.--The text of section 106 
        (relating to contributions by employer to accident and health 
        plans) is amended to read as follows:

    ``(a) General Rule.--Except as otherwise provided in this section, 
gross income of an employee does not include employer-provided coverage 
under an accident or health plan.
    ``(b) Contributions to Medical Savings Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, amounts contributed by such employee's 
        employer to any medical savings account of such employee shall 
        be treated as employer-provided coverage for medical expenses 
        under an accident or health plan to the extent such amounts do 
        not exceed the limitation under section 220(b)(1) (determined 
        without regard to this subsection) which is applicable to such 
        employee for such taxable year.
            ``(2) No constructive receipt.--No amount shall be included 
        in the gross income of any employee solely because the employee 
        may choose between the contributions referred to in paragraph 
        (1) and employer contributions to another health plan of the 
        employer.
            ``(3) Special rule for deduction of employer 
        contributions.--Any employer contribution to a medical savings 
        account, if otherwise allowable as a deduction under this 
        chapter, shall be allowed only for the taxable year in which 
        paid.
            ``(4) Employer msa contributions required to be shown on 
        return.--Every individual required to file a return under 
        section 6012 for the taxable year shall include on such return 
        the aggregate amount contributed by employers to the medical 
        savings accounts of such individual or such individual's spouse 
        for such taxable year.
            ``(5) MSA contributions not part of cobra coverage.--
        Paragraph (1) shall not apply for purposes of section 4980B.
            ``(6) Definitions.--For purposes of this subsection, the 
        terms `eligible individual' and `medical savings account' have 
        the respective meanings given to such terms by section 220.
            ``(7) Cross reference.--
                  ``For penalty on failure by employer to make 
                comparable contributions to the medical savings accounts 
                of comparable employees, see section 4980E.''.

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

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

    ``(e) Controlled Groups.--For purposes of this section, all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 employer.
    ``(f) Definitions.--Terms used in this section which are also used 
in section 220 have the respective meanings given such terms in section 
220.''.
                    (B) Clerical amendment.--The table of sections for 
                chapter 43 is amended by adding after the item relating 
                to section 4980D the following new item:
``Sec. 4980E. Failure of employer to make comparable medical savings 
                          account contributions.''.

    (d) Medical Savings Account Contributions Not Available Under 
Cafeteria Plans.--Subsection (f) of section 125 of such Code is amended 
by inserting ``106(b),'' before ``117''.
    (e) Tax on Excess Contributions.--Section 4973 (relating to tax on 
excess contributions to individual retirement accounts, certain section 
403(b) contracts, and certain individual retirement annuities) is 
amended--
            (1) by inserting ``medical savings accounts,'' after 
        ``accounts,'' in the heading of such section,
            (2) by striking ``or'' at the end of paragraph (1) of sub-
        section (a),
            (3) by redesignating paragraph (2) of subsection (a) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following:
            ``(2) a medical savings account (within the meaning of 
        section 220(d)), or'', and
            (4) by adding at the end the following new subsection:

    ``(d) Excess Contributions to Medical Savings Accounts.--For 
purposes of this section, in the case of medical savings accounts 
(within the meaning of section 220(d)), the term `excess contributions' 
means the sum of--
            ``(1) the aggregate amount contributed for the taxable year 
        to the accounts (other than rollover contributions described in 
        section 220(f)(5)) which is neither excludable from gross income 
        under section 106(b) nor allowable as a deduction under section 
        220 for such year, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts which 
                were included in gross income under section 220(f)(2), 
                and
                    ``(B) the excess (if any) of--
                          ``(i) the maximum amount allowable as a 
                      deduction under section 220(b)(1) (determined 
                      without regard to section 106(b)) for the taxable 
                      year, over
                          ``(ii) the amount contributed to the accounts 
                      for the taxable year.

For purposes of this subsection, any contribution which is distributed 
out of the medical savings account in a distribution to which section 
220(f)(3) applies shall be treated as an amount not contributed.''.
    (f) Tax on Prohibited Transactions.--
            (1) Section 4975 (relating to tax on prohibited 
        transactions) is amended by adding at the end of subsection (c) 
        the following new paragraph:
            ``(4) Special rule for medical savings accounts.--An 
        individual for whose benefit a medical savings account (within 
        the meaning of section 220(d)) is established shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a medical savings account 
        by reason of the application of section 220(e)(2) to such 
        account.''.
            (2) Paragraph (1) of section 4975(e) is amended to read as 
        follows:
            ``(1) Plan.--For purposes of this section, the term `plan' 
        means--
                    ``(A) a trust described in section 401(a) which 
                forms a part of a plan, or a plan described in section 
                403(a), which trust or plan is exempt from tax under 
                section 501(a),
                    ``(B) an individual retirement account described in 
                section 408(a),
                    ``(C) an individual retirement annuity described in 
                section 408(b),
                    ``(D) a medical savings account described in section 
                220(d), or
                    ``(E) a trust, plan, account, or annuity which, at 
                any time, has been determined by the Secretary to be 
                described in any preceding subparagraph of this 
                paragraph.''.

    (g) Failure To Provide Reports on Medical Savings Accounts.--
            (1) Subsection (a) of section 6693 (relating to failure to 
        provide reports on individual retirement accounts or annuities) 
        is amended to read as follows:

    ``(a) Reports.--
            ``(1) In general.--If a person required to file a report 
        under a provision referred to in paragraph (2) fails to file 
        such report at the time and in the manner required by such 
        provision, such person shall pay a penalty of $50 for each 
        failure unless it is shown that such failure is due to 
        reasonable cause.
            ``(2) Provisions.--The provisions referred to in this 
        paragraph are--
                    ``(A) subsections (i) and (l) of section 408 
                (relating to individual retirement plans), and
                    ``(B) section 220(h) (relating to medical savings 
                accounts).''.

    (h) Exception From Capitalization of Policy Acquisition Expenses.--
Subparagraph (B) of section 848(e)(1) (defining specified insurance 
contract) is amended by striking ``and'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting ``, and'', 
and by adding at the end the following new clause:
                          ``(iv) any contract which is a medical savings 
                      account (as defined in section 220(d)).''.

    (i) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the last item and 
inserting the following:

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

    (j) Effective <<NOTE: 26 USC 62 note.>>  Date.--The amendments made 
by this section shall apply to taxable years beginning after December 
31, 1996.

    (k) Monitoring <<NOTE: 26 USC 220 note.>>  of Participation in 
Medical Savings Accounts.--The Secretary of the Treasury or his delegate 
shall--
            (1) during 1997, 1998, 1999, and 2000, regularly evaluate 
        the number of individuals who are maintaining medical savings 
        accounts and the reduction in revenues to the United States by 
        reason of such accounts, and
            (2) provide such reports of such evaluations to Congress as 
        such Secretary determines appropriate.

    (l) Study <<NOTE: 26 USC 220 note.>>  of Effects of Medical Savings 
Accounts on Small Group Market.--The Comptroller General of the United 
States shall enter into a contract with an organization with expertise 
in health economics, health insurance markets, and actuarial science to 
conduct a comprehensive study regarding the effects of medical savings 
accounts in the small group market on--
            (1) selection, including adverse selection,
            (2) health costs, including any impact on premiums of 
        individuals with comprehensive coverage,
            (3) use of preventive care,
            (4) consumer choice,
            (5) the scope of coverage of high deductible plans purchased 
        in conjunction with such accounts, and
            (6) other relevant items.

A report <<NOTE: Reports.>>  on the results of the study conducted under 
this subsection shall be submitted to the Congress no later than January 
1, 1999.

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

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

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

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

    (b) Exclusion for Amounts Received Under Certain Self-Insured 
Plans.--Paragraph (3) of section 104(a) is amended by inserting ``(or 
through an arrangement having the effect of accident or health 
insurance)'' after ``health insurance''.
    (c) Effective Date <<NOTE:  26 USC 104 note.>> .--The amendments 
made by this section shall apply to taxable years beginning after 
December 31, 1996.

            Subtitle C--Long-Term Care Services and Contracts

                       PART I--GENERAL PROVISIONS

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

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

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

    ``(a) In General.--For purposes of this title--
            ``(1) a qualified long-term care insurance contract shall be 
        treated as an accident and health insurance contract,
            ``(2) amounts (other than policyholder dividends, as defined 
        in section 808, or premium refunds) received under a qualified 
        long-term care insurance contract shall be treated as amounts 
        received for personal injuries and sickness and shall be treated 
        as reimbursement for expenses actually incurred for medical care 
        (as defined in section 213(d)),
            ``(3) any plan of an employer providing coverage under a 
        qualified long-term care insurance contract shall be treated as 
        an accident and health plan with respect to such coverage,
            ``(4) except as provided in subsection (e)(3), amounts paid 
        for a qualified long-term care insurance contract providing the 
        benefits described in subsection (b)(2)(A) shall be treated as 
        payments made for insurance for purposes of section 
        213(d)(1)(D), and
            ``(5) a qualified long-term care insurance contract shall be 
        treated as a guaranteed renewable contract subject to the rules 
        of section 816(e).

    ``(b) Qualified Long-Term Care Insurance Contract.--For purposes of 
this title--
            ``(1) In general.--The term `qualified long-term care 
        insurance contract' means any insurance contract if--
                    ``(A) the only insurance protection provided under 
                such contract is coverage of qualified long-term care 
                services,
                    ``(B) such contract does not pay or reimburse 
                expenses incurred for services or items to the extent 
                that such expenses are reimbursable under title XVIII of 
                the Social Security Act or would be so reimbursable but 
                for the application of a deductible or coinsurance 
                amount,
                    ``(C) such contract is guaranteed renewable,
                    ``(D) such contract does not provide for a cash 
                surrender value or other money that can be--
                          ``(i) paid, assigned, or pledged as collateral 
                      for a loan, or
                          ``(ii) borrowed,
                other than as provided in subparagraph (E) or paragraph 
                (2)(C),
                    ``(E) all refunds of premiums, and all policyholder 
                dividends or similar amounts, under such contract are to 
                be applied as a reduction in future premiums or to 
                increase future benefits, and
                    ``(F) such contract meets the requirements of 
                subsection (g).
            ``(2) Special rules.--
                    ``(A) Per diem, etc. payments permitted.--A contract 
                shall not fail to be described in subparagraph (A) or 
                (B) of paragraph (1) by reason of payments being made on 
                a per diem or other periodic basis without regard to the 
                expenses incurred during the period to which the 
                payments relate.
                    ``(B) Special rules relating to medicare.--
                          ``(i) Paragraph (1)(B) shall not apply to 
                      expenses which are reimbursable under title XVIII 
                      of the Social Security Act only as a secondary 
                      payor.
                          ``(ii) No provision of law shall be construed 
                      or applied so as to prohibit the offering of a 
                      qualified long-term care insurance contract on the 
                      basis that the contract coordinates its benefits 
                      with those provided under such title.
                    ``(C) Refunds of premiums.--Paragraph (1)(E) shall 
                not apply to any refund on the death of the insured, or 
                on a complete surrender or cancellation of the contract, 
                which cannot exceed the aggregate premiums paid under 
                the contract. Any refund on a complete surrender or 
                cancellation of the contract shall be includible in 
                gross income to the extent that any deduction or 
                exclusion was allowable with respect to the premiums.

    ``(c) Qualified Long-Term Care Services.--For purposes of this 
section--
            ``(1) In general.--The term `qualified long-term care 
        services' means necessary diagnostic, preventive, therapeutic, 
        curing, treating, mitigating, and rehabilitative services, and 
        maintenance or personal care services, which--
                    ``(A) are required by a chronically ill individual, 
                and
                    ``(B) are provided pursuant to a plan of care 
                prescribed by a licensed health care practitioner.
            ``(2) Chronically ill individual.--
                    ``(A) In general.--The term `chronically ill 
                individual' means any individual who has been certified 
                by a licensed health care practitioner as--
                          ``(i) being unable to perform (without 
                      substantial assistance from another individual) at 
                      least 2 activities of daily living for a period of 
                      at least 90 days due to a loss of functional 
                      capacity,
                          ``(ii) having a level of disability similar 
                      (as determined under regulations prescribed by the 
                      Secretary in consultation with the Secretary of 
                      Health and Human Services) to the level of 
                      disability described in clause (i), or
                          ``(iii) requiring substantial supervision to 
                      protect such individual from threats to health and 
                      safety due to severe cognitive impairment.
                Such term shall not include any individual otherwise 
                meeting the requirements of the preceding sentence 
                unless within the preceding 12-month period a licensed 
                health care practitioner has certified that such 
                individual meets such requirements.
                    ``(B) Activities of daily living.--For purposes of 
                subparagraph (A), each of the following is an activity 
                of daily living:
                          ``(i) Eating.
                          ``(ii) Toileting.
                          ``(iii) Transferring.
                          ``(iv) Bathing.
                          ``(v) Dressing.
                          ``(vi) Continence.
                A contract shall not be treated as a qualified long-term 
                care insurance contract unless the determination of 
                whether an individual is a chronically ill individual 
                takes into account at least 5 of such activities.
            ``(3) Maintenance or personal care services.--The term 
        `maintenance or personal care services' means any care the 
        primary purpose of which is the provision of needed assistance 
        with any of the disabilities as a result of which the individual 
        is a chronically ill individual (including the protection from 
        threats to health and safety due to severe cognitive 
        impairment).
            ``(4) Licensed health care practitioner.--The term `licensed 
        health care practitioner' means any physician (as defined in 
        section 1861(r)(1) of the Social Security Act) and any 
        registered professional nurse, licensed social worker, or other 
        individual who meets such requirements as may be prescribed by 
        the Secretary.

    ``(d) Aggregate Payments in Excess of Limits.--
            ``(1) In general.--If the aggregate of--
                    ``(A) the periodic payments received for any period 
                under all qualified long-term care insurance contracts 
                which are treated as made for qualified long-term care 
                services for an insured, and
                    ``(B) the periodic payments received for such period 
                which are treated under section 101(g) as paid by reason 
                of the death of such insured,
        exceeds the per diem limitation for such period, such excess 
        shall be includible in gross income without regard to section 
        72. A payment shall not be taken into account under subparagraph 
        (B) if the insured is a terminally ill individual (as defined in 
        section 101(g)) at the time the payment is received.
            ``(2) Per diem limitation.--For purposes of paragraph (1), 
        the per diem limitation for any period is an amount equal to the 
        excess (if any) of--
                    ``(A) the greater of--
                          ``(i) the dollar amount in effect for such 
                      period under paragraph (4), or
                          ``(ii) the costs incurred for qualified long-
                      term care services provided for the insured for 
                      such period, over
                    ``(B) the aggregate payments received as 
                reimbursements (through insurance or otherwise) for 
                qualified long-term care services provided for the 
                insured during such period.
            ``(3) Aggregation rules.--For purposes of this subsection--
                    ``(A) all persons receiving periodic payments 
                described in paragraph (1) with respect to the same 
                insured shall be treated as 1 person, and
                    ``(B) the per diem limitation determined under 
                paragraph (2) shall be allocated first to the insured 
                and any remaining limitation shall be allocated among 
                the other such persons in such manner as the Secretary 
                shall prescribe.
            ``(4) Dollar amount.--The dollar amount in effect under this 
        subsection shall be $175 per day (or the equivalent amount in 
        the case of payments on another periodic basis).
            ``(5) Inflation adjustment.--In the case of a calendar year 
        after 1997, the dollar amount contained in paragraph (4) shall 
        be increased at the same time and in the same manner as amounts 
        are increased pursuant to section 213(d)(10).
            ``(6) Periodic payments.--For purposes of this subsection, 
        the term `periodic payment' means any payment (whether on a 
        periodic basis or otherwise) made without regard to the extent 
        of the costs incurred by the payee for qualified long-term care 
        services.

    ``(e) Treatment of Coverage Provided as Part of a Life Insurance 
Contract.--Except as otherwise provided in regulations prescribed by the 
Secretary, in the case of any long-term care insurance coverage (whether 
or not qualified) provided by a rider on or as part of a life insurance 
contract--
            ``(1) In general.--This section shall apply as if the 
        portion of the contract providing such coverage is a separate 
        contract.
            ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
        the guideline premium limitation) shall be applied by increasing 
        the guideline premium limitation with respect to a life 
        insurance contract, as of any date--
                    ``(A) by the sum of any charges (but not premium 
                payments) against the life insurance contract's cash 
                surrender value (within the meaning of section 
                7702(f)(2)(A)) for such coverage made to that date under 
                the contract, less
                    ``(B) any such charges the imposition of which 
                reduces the premiums paid for the contract (within the 
                meaning of section 7702(f)(1)).
            ``(3) Application of section 213.--No deduction shall be 
        allowed under section 213(a) for charges against the life 
        insurance contract's cash surrender value described in paragraph 
        (2), unless such charges are includible in income as a result of 
        the application of section 72(e)(10) and the rider is a 
        qualified long-term care insurance contract under subsection 
        (b).
            ``(4) Portion defined.--For purposes of this subsection, the 
        term `portion' means only the terms and benefits under a life 
        insurance contract that are in addition to the terms and 
        benefits under the contract without regard to long-term care 
        insurance coverage.

    ``(f) Treatment of Certain State-Maintained Plans.--
            ``(1) In general.--If--
                    ``(A) an individual receives coverage for qualified 
                long-term care services under a State long-term care 
                plan, and
                    ``(B) the terms of such plan would satisfy the 
                requirements of subsection (b) were such plan an 
                insurance contract,
        such plan shall be treated as a qualified long-term care 
        insurance contract for purposes of this title.
            ``(2) State long-term care plan.--For purposes of paragraph 
        (1), the term `State long-term care plan' means any plan--
                    ``(A) which is established and maintained by a State 
                or an instrumentality of a State,
                    ``(B) which provides coverage only for qualified 
                long-term care services, and
                    ``(C) under which such coverage is provided only 
                to--
                          ``(i) employees and former employees of a 
                      State (or any political subdivision or 
                      instrumentality of a State),
                          ``(ii) the spouses of such employees, and
                          ``(iii) individuals bearing a relationship to 
                      such employees or spouses which is described in 
                      any of paragraphs (1) through (8) of section 
                      152(a).''.

    (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) is amended 
by inserting ``(other than a qualified long-term care insurance 
contract, as defined in section 7702B(b))'' after ``insurance 
contract''.
    (c) Long-Term Care Insurance Not Permitted Under Cafeteria Plans or 
Flexible Spending Arrangements.--
            (1) Cafeteria plans.--Section 125(f) is amended by adding at 
        the end the following new sentence: ``Such term shall not 
        include any product which is advertised, marketed, or offered as 
        long-term care insurance.''.
            (2) Flexible spending arrangements.--Section 106 (relating 
        to contributions by employer to accident and health plans), as 
        amended by section 301(c), is amended by adding at the end the 
        following new subsection:

    ``(c) Inclusion of Long-Term Care Benefits Provided Through Flexible 
Spending Arrangements.--
            ``(1) In general.--Effective on and after January 1, 1997, 
        gross income of an employee shall include employer-provided 
        coverage for qualified long-term care services (as defined in 
        section 7702B(c)) to the extent that such coverage is provided 
        through a flexible spending or similar arrangement.
            ``(2) Flexible spending arrangement.--For purposes of this 
        subsection, a flexible spending arrangement is a benefit program 
        which provides employees with coverage under which--
                    ``(A) specified incurred expenses may be reimbursed 
                (subject to reimbursement maximums and other reasonable 
                conditions), and
                    ``(B) the maximum amount of reimbursement which is 
                reasonably available to a participant for such coverage 
                is less than 500 percent of the value of such coverage.
        In the case of an insured plan, the maximum amount reasonably 
        available shall be determined on the basis of the underlying 
        coverage.''

    (d) Continuation Coverage Rules Not To Apply.--
            (1) Paragraph (2) of section 4980B(g) is amended by adding 
        at the end the following new sentence: ``Such term shall not 
        include any plan substantially all of the coverage under which 
        is for qualified long-term care services (as defined in section 
        7702B(c)).''
            (2) Paragraph (1) of section 607 of the Employee Retirement 
        Income Security Act of 1974 <<NOTE: 29 USC 1167.>>  is amended 
        by adding at the end the following new sentence: ``Such term 
        shall not include any plan substantially all of the coverage 
        under which is for qualified long-term care services (as defined 
        in section 7702B(c) of such Code).''
            (3) Paragraph (1) of section 2208 of the Public Health 
        Service Act <<NOTE: 42 USC 300bb-8.>>  is amended by adding at 
        the end the following new sentence: ``Such term shall not 
        include any plan substantially all of the coverage under which 
        is for qualified long-term care services (as defined in section 
        7702B(c) of such Code).''

    (e) Clerical Amendment.--The table of sections for chapter 79 is 
amended by inserting after the item relating to section 7702A the 
following new item:

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

    (f) Effective <<NOTE: 26 USC 1702B note.>>  Dates.--
            (1) General effective date.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the amendments made by this section shall apply to 
                contracts issued after December 31, 1996.
                    (B) Reserve method.--The amendment made by 
                subsection (b) shall apply to contracts issued after 
                December 31, 1997.
            (2) Continuation of existing policies.--In the case of any 
        contract issued before January 1, 1997, which met the long-term 
        care insurance requirements of the State in which the contract 
        was sitused at the time the contract was issued--
                    (A) such contract shall be treated for purposes of 
                the Internal Revenue Code of 1986 as a qualified long-
                term care insurance contract (as defined in section 
                7702B(b) of such Code), and
                    (B) services provided under, or reimbursed by, such 
                contract shall be treated for such purposes as qualified 
                long-term care services (as defined in section 7702B(c) 
                of such Code).
        In the case of an individual who is covered on December 31, 
        1996, under a State long-term care plan (as defined in section 
        7702B(f)(2) of such Code), the terms of such plan on such date 
        shall be treated for purposes of the preceding sentence as a 
        contract issued on such date which met the long-term care 
        insurance requirements of such State.
            (3) Exchanges of existing policies.--If, after the date of 
        enactment of this Act and before January 1, 1998, a contract 
        providing for long-term care insurance coverage is exchanged 
        solely for a qualified long-term care insurance
contract (as defined in section 7702B(b) of such Code), no gain or loss 
shall be recognized on the exchange. If, in addition to a qualified 
long-term care insurance contract, money or other property is received 
in the exchange, then any gain shall be recognized to the extent of the 
sum of the money and the fair market value of the other property 
received. For purposes of this paragraph, the cancellation of a contract 
providing for long-term care insurance coverage and reinvestment of the 
cancellation proceeds in a qualified long-term care insurance contract 
within 60 days thereafter shall be treated as an exchange.
            (4) Issuance of certain riders permitted.--For purposes of 
        applying sections 101(f), 7702, and 7702A of the Internal 
        Revenue Code of 1986 to any contract--
                    (A) the issuance of a rider which is treated as a 
                qualified long-term care insurance contract under 
                section 7702B, and
                    (B) the addition of any provision required to 
                conform any other long-term care rider to be so treated,
        shall not be treated as a modification or material change of 
        such contract.
            (5) Application of per diem limitation to existing 
        contracts.--The amount of per diem payments made under a 
        contract issued on or before July 31, 1996, with respect to an 
        insured which are excludable from gross income by reason of 
        section 7702B of the Internal Revenue Code of 1986 (as added by 
        this section) shall not be reduced under subsection (d)(2)(B) 
        thereof by reason of reimbursements received under a contract 
        issued on or before such date. The preceding sentence shall 
        cease to apply as of the date (after July 31, 1996) such 
        contract is exchanged or there is any contract modification 
        which results in an increase in the amount of such per diem 
        payments or the amount of such reimbursements.

    (g) Long-Term <<NOTE: 26 USC 7702B note.>>  Care Study Request.--The 
Chairman of the Committee on Ways and Means of the House of 
Representatives and the Chairman of the Committee on Finance of the 
Senate shall jointly request the National Association of Insurance 
Commissioners, in consultation with representatives of the insurance 
industry and consumer organizations, to formulate, develop, and conduct 
a study to determine the marketing and other effects of per diem limits 
on certain types of long-term care policies. <<NOTE: Reports.>>  If the 
National Association of Insurance Commissioners agrees to the study 
request, the National Association of Insurance Commissioners shall 
report the results of its study to such committees not later than 2 
years after accepting the request.
SEC. 322. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL 
                          CARE.

    (a) General Rule.--Paragraph (1) of section 213(d) (defining medical 
care) is amended by striking ``or'' at the end of subparagraph (B), by 
redesignating subparagraph (C) as subparagraph (D), and by inserting 
after subparagraph (B) the following new subparagraph:
                    ``(C) for qualified long-term care services (as 
                defined in section 7702B(c)), or''.

    (b) Technical Amendments.--
            (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
        by subsection (a)) is amended by inserting before the period 
        ``or for any qualified long-term care insurance contract (as 
        defined in section 7702B(b))''.
            (2)(A) Paragraph (1) of section 213(d) is amended by adding 
        at the end the following new flush sentence:
        ``In the case of a qualified long-term care insurance contract 
        (as defined in section 7702B(b)), only eligible long-term care 
        premiums (as defined in paragraph (10)) shall be taken into 
        account under subparagraph (D).''
            (B) Paragraph (2) of section 162(l) is amended by adding at 
        the end the following new subparagraph:
                    ``(C) Long-term care premiums.--In the case of a 
                qualified long-term care insurance contract (as defined 
                in section 7702B(b)), only eligible long-term care 
                premiums (as defined in section 213(d)(10)) shall be 
                taken into account under paragraph (1).''
            (C) Subsection (d) of section 213 is amended by adding at 
        the end the following new paragraphs:
            ``(10) Eligible long-term care premiums.--
                    ``(A) In general.--For purposes of this section, the 
                term `eligible long-term care premiums' means the amount 
                paid during a taxable year for any qualified long-term 
                care insurance contract (as defined in section 7702B(b)) 
                covering an individual, to the extent such amount does 
                not exceed the limitation determined under the following 
                table:
                    ``In the case of an individual                      
                      with an attained age before the     The limitation
                      close of the taxable year of:            is:      
                            40 or less........................ $  200   
                            More than 40 but not more than 50.    375   
                            More than 50 but not more than 60.    750   
                            More than 60 but not more than 70.  2,000   
                            More than 70......................  2,500  .

                    ``(B) Indexing.--
                          ``(i) In general.--In the case of any taxable 
                      year beginning in a calendar year after 1997, each 
                      dollar amount contained in subparagraph (A) shall 
                      be increased by the medical care cost adjustment 
                      of such amount for such calendar year. If any 
                      increase determined under the preceding sentence 
                      is not a multiple of $10, such increase shall be 
                      rounded to the nearest multiple of $10.
                          ``(ii) Medical care cost adjust-
                      ment.--For purposes of clause (i), the medical 
                      care cost adjustment for any calendar year is the 
                      percentage (if any) by which--
                                    ``(I) the medical care component of 
                                the Consumer Price Index (as defined in 
                                section 1(f)(5)) for August of the 
                                preceding calendar year, exceeds
                                    ``(II) such component for August of 
                                1996.
                      The Secretary shall, in consultation with the 
                      Secre-
                      tary of Health and Human Services, prescribe an 
                      adjustment which the Secretary determines is more 
                      appropriate for purposes of this paragraph than 
                      the adjustment described in the preceding 
                      sentence, and the adjustment so prescribed shall 
                      apply in lieu of the adjustment described in the 
                      preceding sentence.
            ``(11) Certain payments to relatives treated as not paid for 
        medical care.--An amount paid for a qualified long-term care 
        service (as defined in section 7702B(c)) provided to an 
        individual shall be treated as not paid for medical care if such 
        service is provided--
                    ``(A) by the spouse of the individual or by a 
                relative (directly or through a partnership, 
                corporation, or other entity) unless the service is 
                provided by a licensed professional with respect to such 
                service, or
                    ``(B) by a corporation or partnership which is 
                related (within the meaning of section 267(b) or 707(b)) 
                to the individual.
        For purposes of this paragraph, the term `relative' means an 
        individual bearing a relationship to the individual which is 
        described in any of paragraphs (1) through (8) of section 
        152(a). This paragraph shall not apply for purposes of section 
        105(b) with respect to reimbursements through insurance.''.
            (3) Paragraph (6) of section 213(d) is amended--
                    (A) by striking ``subparagraphs (A) and (B)'' and 
                inserting ``subparagraphs (A), (B), and (C)'', and
                    (B) by striking ``paragraph (1)(C)'' in subparagraph 
                (A) and inserting ``paragraph (1)(D)''.
            (4) Paragraph (7) of section 213(d) is amended by striking 
        ``subparagraphs (A) and (B)'' and inserting ``subparagraphs (A), 
        (B), and (C)''.

    (c) Effective <<NOTE: 26 USC 162 note.>>  Date.--The amendments made 
by this section shall apply to taxable years beginning after December 
31, 1996.

SEC. 323. REPORTING REQUIREMENTS.

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

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

    ``(a) Requirement of Reporting.--Any person who pays long-term care 
benefits shall make a return, according to the forms or regulations 
prescribed by the Secretary, setting forth--
            ``(1) the aggregate amount of such benefits paid by such 
        person to any individual during any calendar year,
            ``(2) whether or not such benefits are paid in whole or in 
        part on a per diem or other periodic basis without regard to the 
        expenses incurred during the period to which the payments 
        relate,
            ``(3) the name, address, and TIN of such individual, and
            ``(4) the name, address, and TIN of the chronically ill or 
        terminally ill individual on account of whose condition such 
        benefits are paid.

    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each individual whose name is required 
to be set forth in such return a written statement showing--
            ``(1) the name of the person making the payments, and
            ``(2) the aggregate amount of long-term care benefits paid 
        to the individual which are required to be shown on such return.

The written statement required under the preceding sentence shall be 
furnished to the individual on or before January 31 of the year 
following the calendar year for which the return under subsection (a) 
was required to be made.
    ``(c) Long-Term Care Benefits.--For purposes of this section, the 
term `long-term care benefit' means--
            ``(1) any payment under a product which is advertised, 
        marketed, or offered as long-term care insurance, and
            ``(2) any payment which is excludable from gross income by 
        reason of section 101(g).''.

    (b) Penalties.--
            (1) Subparagraph (B) of section 6724(d)(1) is amended by 
        redesignating clauses (ix) through (xiv) as clauses (x) through 
        (xv), respectively, and by inserting after clause (viii) the 
        following new clause:
                          ``(ix) section 6050Q (relating to certain 
                      long-term care benefits),''.
            (2) Paragraph (2) of section 6724(d) is amended by 
        redesignating subparagraphs (Q) through (T) as subparagraphs (R) 
        through (U), respectively, and by inserting after subparagraph 
        (P) the following new subparagraph:
                    ``(Q) section 6050Q(b) (relating to certain long-
                term care benefits),''.

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

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

    (d) Effective <<NOTE: 26 USC 6050Q note.>>  Date.--The amendments 
made by this section shall apply to benefits paid after December 31, 
1996.

                 PART II--CONSUMER PROTECTION PROVISIONS

SEC. 325. POLICY REQUIREMENTS.

    Section 7702B (as added by section 321) is amended by adding at the 
end the following new subsection:
    ``(g) Consumer Protection Provisions.--
            ``(1) In general.--The requirements of this subsection are 
        met with respect to any contract if the contract meets--
                    ``(A) the requirements of the model regulation and 
                model Act described in paragraph (2),
                    ``(B) the disclosure requirement of paragraph (3), 
                and
                    ``(C) the requirements relating to nonforfeitability 
                under paragraph (4).
            ``(2) Requirements of model regulation and act.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any contract if such 
                contract meets--
                          ``(i) Model regulation.--The following 
                      requirements of the model regulation:
                                    ``(I) Section 7A (relating to 
                                guaranteed renewal or 
                                noncancellability), and the requirements 
                                of 
                                section 6B of the model Act relating to 
                                such section 7A.
                                    ``(II) Section 7B (relating to 
                                prohibitions on limitations and 
                                exclusions).
                                    ``(III) Section 7C (relating to 
                                extension of benefits).
                                    ``(IV) Section 7D (relating to 
                                continuation or conversion of coverage).
                                    ``(V) Section 7E (relating to 
                                discontinuance and replacement of 
                                policies).
                                    ``(VI) Section 8 (relating to 
                                unintentional lapse).
                                    ``(VII) Section 9 (relating to 
                                disclosure), other than section 9F 
                                thereof.
                                    ``(VIII) Section 10 (relating to 
                                prohibitions against post-claims 
                                underwriting).
                                    ``(IX) Section 11 (relating to 
                                minimum standards).
                                    ``(X) Section 12 (relating to 
                                requirement to offer inflation 
                                protection), except that any requirement 
                                for a signature on a rejection of 
                                inflation protection shall permit the 
                                signature to be on an application or on 
                                a separate form.
                                    ``(XI) Section 23 (relating to 
                                prohibition against preexisting 
                                conditions and probationary periods in 
                                replacement policies or certificates).
                          ``(ii) Model act.--The following requirements 
                      of the model Act:
                                    ``(I) Section 6C (relating to 
                                preexisting conditions).
                                    ``(II) Section 6D (relating to prior 
                                hospitalization).
                    ``(B) Definitions.--For purposes of this paragraph--
                          ``(i) Model provisions.--The terms `model 
                      regulation' and `model Act' mean the long-term 
                      care insur-
                      ance model regulation, and the long-term care 
                      insurance model Act, respectively, promulgated by 
                      the National Association of Insurance 
                      Commissioners (as adopted as of January 1993).
                          ``(ii) Coordination.--Any provision of the 
                      model regulation or model Act listed under clause 
                      (i) or (ii) of subparagraph (A) shall be treated 
                      as including any other provision of such 
                      regulation or Act necessary to implement the 
                      provision.
                          ``(iii) Determination.--For purposes of this 
                      section and section 4980C, the determination of 
                      whether any requirement of a model regulation or 
                      the model Act has been met shall be made by the 
                      Secretary.
            ``(3) Disclosure requirement.--The requirement of this 
        paragraph is met with respect to any contract if such contract 
        meets the requirements of section 4980C(d).
            ``(4) Nonforfeiture requirements.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any level premium 
                contract, 
                if the issuer of such contract offers to the 
                policyholder, including any group policyholder, a 
                nonforfeiture provision meeting the requirements of 
                subparagraph (B).
                    ``(B) Requirements of provision.--The nonforfeiture 
                provision required under subparagraph (A) shall meet the 
                following requirements:
                          ``(i) The nonforfeiture provision shall be 
                      appropriately captioned.
                          ``(ii) The nonforfeiture provision shall 
                      provide for a benefit available in the event of a 
                      default in the payment of any premiums and the 
                      amount of the benefit may be adjusted subsequent 
                      to being initially granted only as necessary to 
                      reflect changes in claims, persistency, and 
                      interest as reflected in changes in rates for 
                      premium paying contracts approved by the Secretary 
                      for the same contract form.
                          ``(iii) The nonforfeiture provision shall 
                      provide at least one of the following:
                                    ``(I) Reduced paid-up insurance.
                                    ``(II) Extended term insurance.
                                    ``(III) Shortened benefit period.
                                    ``(IV) Other similar offerings 
                                approved by the Secretary.
            ``(5) Cross reference.--
                  ``For coordination of the requirements of this 
                subsection with State requirements, see section 
                4980C(f).''.
SEC. 326. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE 
                        INSURANCE CONTRACTS.

    (a) In General.--Chapter 43 is amended by adding at the end the 
following new section:
``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF QUALIFIED LONG-TERM CARE 
                      INSURANCE CONTRACTS.

    ``(a) General Rule.--There is hereby imposed on any person failing 
to meet the requirements of subsection (c) or (d) a tax in the amount 
determined under subsection (b).
    ``(b) Amount.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be $100 per insured for each day any 
        requirement of subsection (c) or (d) is not met with respect to 
        each qualified long-term care insurance contract.
            ``(2) Waiver.--In the case of a failure which is due to 
        reasonable cause and not to willful neglect, the Secretary may 
        waive part or all of the tax imposed by subsection (a) to the 
        extent that payment of the tax would be excessive relative to 
        the failure involved.

    ``(c) Responsibilities.--The requirements of this subsection are as 
follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following requirements 
                of the model regulation must be met:
                          ``(i) Section 13 (relating to application 
                      forms and replacement coverage).
                          ``(ii) Section 14 (relating to reporting 
                      requirements), except that the issuer shall also 
                      report at least annually the number of claims 
                      denied during the reporting period for each class 
                      of business (expressed as a percentage of claims 
                      denied), other than claims denied for failure to 
                      meet the waiting period or because of any 
                      applicable preexisting condition.
                          ``(iii) Section 20 (relating to filing 
                      requirements for marketing).
                          ``(iv) Section 21 (relating to standards for 
                      marketing), including inaccurate completion of 
                      medical histories, other than sections 21C(1) and 
                      21C(6) thereof, except that--
                                    ``(I) in addition to such 
                                requirements, no person shall, in 
                                selling or offering to sell a qualified 
                                long-term care insurance contract, 
                                misrepresent a material fact; and
                                    ``(II) no such requirements shall 
                                include a requirement to inquire or 
                                identify whether a prospective applicant 
                                or enrollee for long-term care insurance 
                                has accident and sickness insurance.
                          ``(v) Section 22 (relating to appropriateness 
                      of 
                      recommended purchase).
                          ``(vi) Section 24 (relating to standard format 
                      outline of coverage).
                          ``(vii) Section 25 (relating to requirement to 
                      deliver shopper's guide).
                    ``(B) Model act.--The following requirements of the 
                model Act must be met:
                          ``(i) Section 6F (relating to right to 
                      return), except that such section shall also apply 
                      to denials of applications and any refund shall be 
                      made within 30 days of the return or denial.
                          ``(ii) Section 6G (relating to outline of 
                      coverage).
                          ``(iii) Section 6H (relating to requirements 
                      for certificates under group plans).
                          ``(iv) Section 6I (relating to policy 
                      summary).
                          ``(v) Section 6J (relating to monthly reports 
                      on accelerated death benefits).
                          ``(vi) Section 7 (relating to incontestability 
                      period).
                    ``(C) Definitions.--For purposes of this paragraph, 
                the terms `model regulation' and `model Act' have the 
                meanings given such terms by section 7702B(g)(2)(B).
            ``(2) Delivery of policy.--If an application for a qualified 
        long-term care insurance contract (or for a certificate under 
        such a contract for a group) is approved, the issuer shall 
        deliver to the applicant (or policyholder or certificateholder) 
        the contract (or certificate) of insurance not later than 30 
        days after the date of the approval.
            ``(3) Information on denials of claims.--If a claim under a 
        qualified long-term care insurance contract is denied, the 
        issuer shall, within 60 days of the date of a written request by 
        the policyholder or certificateholder (or representative)--
                    ``(A) provide a written explanation of the reasons 
                for the denial, and
                    ``(B) make available all information directly 
                relating to such denial.

    ``(d) Disclosure.--The requirements of this subsection are met if 
the issuer of a long-term care insurance policy discloses in such policy 
and in the outline of coverage required under subsection (c)(1)(B)(ii) 
that the policy is intended to be a qualified long-term care insurance 
contract under section 7702B(b).
    ``(e) Qualified Long-Term Care Insurance Contract Defined.--For 
purposes of this section, the term `qualified long-term care insurance 
contract' has the meaning given such term by section 7702B.
    ``(f) Coordination With State Requirements.--If a State imposes any 
requirement which is more stringent than the analogous requirement 
imposed by this section or section 7702B(g), the requirement imposed by 
this section or section 7702B(g) shall be treated as met if the more 
stringent State requirement is met.''.
    (b) Conforming Amendment.--The table of sections for chapter 43 is 
amended by adding at the end the following new item:

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

SEC. 327. EFFECTIVE <<NOTE: 26 USC 4980C note.>>  DATES.

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

           Subtitle D--Treatment of Accelerated Death Benefits

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

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

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

    (b) Effective <<NOTE: 26 USC 101 note.>>  Date.--The amendment made 
by subsection (a) shall apply to amounts received after December 31, 
1996.
SEC. 332. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED ACCELERATED 
                        DEATH BENEFIT RIDERS.

    (a) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--Section 818 (relating to other definitions and special 
rules) is amended by adding at the end the following new subsection:
    ``(g) Qualified Accelerated Death Benefit Riders Treated as Life 
Insurance.--For purposes of this part--
            ``(1) In general.--Any reference to a life insurance 
        contract shall be treated as including a reference to a 
        qualified accelerated death benefit rider on such contract.
            ``(2) Qualified accelerated death benefit riders.--For 
        purposes of this subsection, the term `qualified accelerated 
        death benefit rider' means any rider on a life insurance 
        contract if the only payments under the rider are payments 
        meeting the requirements of section 101(g).
            ``(3) Exception for long-term care riders.--Paragraph (1) 
        shall not apply to any rider which is treated as a long-term 
        care insurance contract under section 7702B.''.

    (b) Effective <<NOTE: 26 USC 818 note.>>  Date.--
            (1) In general.--The amendment made by this section shall 
        take effect on January 1, 1997.
            (2) Issuance of rider not treated as material change.--For 
        purposes of applying sections 101(f), 7702, and 7702A of the 
        Internal Revenue Code of 1986 to any contract--
                    (A) the issuance of a qualified accelerated death 
                benefit rider (as defined in section 818(g) of such Code 
                (as added by this Act)), and
                    (B) the addition of any provision required to 
                conform an accelerated death benefit rider to the 
                requirements of such section 818(g),
        shall not be treated as a modification or material change of 
        such contract.

                    Subtitle E--State Insurance Pools

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

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

    (b) Effective <<NOTE: 26 USC 501 note.>>  Date.--The amendment made 
by this section shall apply to taxable years beginning after December 
31, 1996.
SEC. 342. EXEMPTION FROM INCOME TAX FOR STATE-SPONSORED WORKMEN'S 
                        COMPENSATION REINSURANCE ORGANIZATIONS.

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

    (b) Effective <<NOTE: 26 USC 501 note.>>  Date.--The amendment made 
by this section shall apply to taxable years ending after the date of 
the enactment of this Act.

            Subtitle F--Organizations Subject to Section 833

SEC. 351. ORGANIZATIONS SUBJECT TO SECTION 833.

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

    (b) Effective <<NOTE: 26 USC 833 note.>>  Date.--The amendment made 
by this section shall apply to taxable years ending after December 31, 
1996.

             Subtitle G--IRA Distributions to the Unemployed

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

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

    (c) Conforming Amendment.--Subparagraph (B) of section 72(t)(2) is 
amended by striking ``or (C)'' and inserting ``, (C), or (D)''.
    (d) Effective <<NOTE: 26 USC 72 note.>>  Date.--The amendments made 
by this section shall apply to distributions after December 31, 1996.

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

SEC. 371. ORGAN AND <<NOTE: 26 USC 6042 note.>>  TISSUE DONATION 
            INFORMATION INCLUDED WITH INCOME TAXREFUND PAYMENTS.

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

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

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

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

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

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

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

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

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

    ``(a) Limitation on Preexisting Condition Exclusion Period; 
Crediting for Periods of Previous Coverage.--Subject to subsection (d), 
a group health plan may, with respect to a participant or beneficiary, 
impose a preexisting condition exclusion only if--
            ``(1) such exclusion relates to a condition (whether 
        physical or mental), regardless of the cause of the condition, 
        for which medical advice, diagnosis, care, or treatment was 
        recommended or received within the 6-month period ending on the 
        enrollment date;
            ``(2) such exclusion extends for a period of not more than 
        12 months (or 18 months in the case of a late enrollee) after 
        the enrollment date; and
            ``(3) the period of any such preexisting condition exclusion 
        is reduced by the length of the aggregate of the periods of 
        creditable coverage (if any) applicable to the participant or 
        beneficiary as of the enrollment date.

    ``(b) Definitions.--For purposes of this section--
            ``(1) Preexisting condition exclusion.--
                    ``(A) In general.--The term `preexisting condition 
                exclusion' means, with respect to coverage, a limitation 
                or exclusion of benefits relating to a condition based 
                on the fact that the condition was present before the 
                date of enrollment for such coverage, whether or not any 
                medical advice, diagnosis, care, or treatment was 
                recommended or received before such date.
                    ``(B) Treatment of genetic information.--For 
                purposes of this section, genetic information shall not 
                be 
                treated as a condition described in subsection (a)(1) in 
                the absence of a diagnosis of the condition related to 
                such information.
            ``(2) Enrollment date.--The term `enrollment date' means, 
        with respect to an individual covered under a group health plan, 
        the date of enrollment of the individual in the plan or, if 
        earlier, the first day of the waiting period for such 
        enrollment.
            ``(3) Late enrollee.--The term `late enrollee' means, with 
        respect to coverage under a group health plan, a participant or 
        beneficiary who enrolls under the plan other than during--
                    ``(A) the first period in which the individual is 
                eligible to enroll under the plan, or
                    ``(B) a special enrollment period under subsection 
                (f).
            ``(4) Waiting period.--The term `waiting period' means, with 
        respect to a group health plan and an individual who is a 
        potential participant or beneficiary in the plan, the period 
        that must pass with respect to the individual before the 
        individual is eligible to be covered for benefits under the 
        terms of the plan.

    ``(c) Rules Relating to Crediting Previous Coverage.--
            ``(1) Creditable coverage defined.--For purposes of this 
        part, the term `creditable coverage' means, with respect to an 
        individual, coverage of the individual under any of the 
        following:
                    ``(A) A group health plan.
                    ``(B) Health insurance coverage.
                    ``(C) Part A or part B of title XVIII of the Social 
                Security Act.
                    ``(D) Title XIX of the Social Security Act, other 
                than coverage consisting solely of benefits under 
                section 1928.
                    ``(E) Chapter 55 of title 10, United States Code.
                    ``(F) A medical care program of the Indian Health 
                Service or of a tribal organization.
                    ``(G) A State health benefits risk pool.
                    ``(H) A health plan offered under chapter 89 of 
                title 5, United States Code.
                    ``(I) A public health plan (as defined in 
                regulations).
                    ``(J) A health benefit plan under section 5(e) of 
                the Peace Corps Act (22 U.S.C. 2504(e)).
        Such term does not include coverage consisting solely of 
        coverage of excepted benefits (as defined in section 9805(c)).
            ``(2) Not counting periods before significant breaks in 
        coverage.--
                    ``(A) In general.--A period of creditable coverage 
                shall not be counted, with respect to enrollment of an 
                individual under a group health plan, if, after such 
                period and before the enrollment date, there was a 63-
                day period during all of which the individual was not 
                covered under any creditable coverage.
                    ``(B) Waiting period not treated as a break in 
                coverage.--For purposes of subparagraph (A) and 
                subsection (d)(4), any period that an individual is in a 
                waiting period for any coverage under a group health 
                plan or is in an affiliation period shall not be taken 
                into account in determining the continuous period under 
                subpara-
                graph (A).
                    ``(C) Affiliation period.--
                          ``(i) In general.--For purposes of this 
                      section, the term `affiliation period' means a 
                      period which, under the terms of the health 
                      insurance coverage offered by the health 
                      maintenance organization, must expire before the 
                      health insurance coverage becomes effective. 
                      During such an affiliation period, the 
                      organization is not required to provide health 
                      care services or benefits and no premium shall be 
                      charged to the participant or beneficiary.
                          ``(ii) Beginning.--Such period shall begin on 
                      the enrollment date.
                          ``(iii) Runs concurrently with waiting 
                      periods.--Any such affiliation period shall run 
                      concurrently with any waiting period under the 
                      plan.
            ``(3) Method of crediting coverage.--
                    ``(A) Standard method.--Except as otherwise provided 
                under subparagraph (B), for purposes of applying 
                subsection (a)(3), a group health plan shall count a 
                period of creditable coverage without regard to the 
                specific benefits for which coverage is offered during 
                the period.
                    ``(B) Election of alternative method.--A group 
                health plan may elect to apply subsection (a)(3) based 
                on coverage of any benefits within each of several 
                classes or categories of benefits specified in 
                regulations rather than as provided under subparagraph 
                (A). Such election shall be made on a uniform basis for 
                all participants and beneficiaries. Under such election 
                a group health plan shall count a period of creditable 
                coverage with respect to any class or category of 
                benefits if any level of benefits is covered within such 
                class or category.
                    ``(C) Plan notice.--In the case of an election with 
                respect to a group health plan under subparagraph (B), 
                the plan shall--
                          ``(i) prominently state in any disclosure 
                      statements concerning the plan, and state to each 
                      enrollee at the time of enrollment under the plan, 
                      that the plan has made such election, and
                          ``(ii) include in such statements a 
                      description of the effect of this election.
            ``(4) Establishment of period.--Periods of creditable 
        coverage with respect to an individual shall be established 
        through presentation of certifications described in subsection 
        (e) or in such other manner as may be specified in regulations.

    ``(d) Exceptions.--
            ``(1) Exclusion not applicable to certain newborns.--Subject 
        to paragraph (4), a group health plan may not impose any 
        preexisting condition exclusion in the case of an individual 
        who, as of the last day of the 30-day period beginning with the 
        date of birth, is covered under creditable coverage.
            ``(2) Exclusion not applicable to certain adopted 
        children.--Subject to paragraph (4), a group health plan may not 
        impose any preexisting condition exclusion in the case of a 
        child who is adopted or placed for adoption before attaining 18 
        years of age and who, as of the last day of the 30-day period 
        beginning on the date of the adoption or placement for adoption, 
        is covered under creditable coverage. The previous sentence 
        shall not apply to coverage before the date of such adoption or 
        placement for adoption.
            ``(3) Exclusion not applicable to pregnancy.--For purposes 
        of this section, a group health plan may not impose any 
        preexisting condition exclusion relating to pregnancy as a 
        preexisting condition.
            ``(4) Loss if break in coverage.--Paragraphs (1) and (2) 
        shall no longer apply to an individual after the end of the 
        first 63-day period during all of which the individual was not 
        covered under any creditable coverage.

    ``(e) Certifications and Disclosure of Coverage.--
            ``(1) Requirement for certification of period of 
        creditable coverage.--
                    ``(A) In general.--A group health plan shall provide 
                the certification described in subparagraph (B)--
                          ``(i) at the time an individual ceases to be 
                      covered under the plan or otherwise becomes 
                      covered under a COBRA continuation provision,
                          ``(ii) in the case of an individual becoming 
                      covered under such a provision, at the time the 
                      individual ceases to be covered under such 
                      provision, and
                          ``(iii) on the request on behalf of an 
                      individual made not later than 24 months after the 
                      date of cessation of the coverage described in 
                      clause (i) or (ii), whichever is later.
                The certification under clause (i) may be provided, to 
                the extent practicable, at a time consistent with 
                notices required under any applicable COBRA continuation 

                provision.
                    ``(B) Certification.--The certification described in 
                this subparagraph is a written certification of--
                          ``(i) the period of creditable coverage of the 
                      individual under such plan and the coverage under 
                      such COBRA continuation provision, and
                          ``(ii) the waiting period (if any) (and 
                      affiliation period, if applicable) imposed with 
                      respect to the individual for any coverage under 
                      such plan.
                    ``(C) Issuer compliance.--To the extent that medical 
                care under a group health plan consists of health 
                insurance coverage offered in connection with the plan, 
                the plan is deemed to have satisfied the certification 
                requirement under this paragraph if the issuer provides 
                for such certification in accordance with this 
                paragraph.
            ``(2) Disclosure of information on previous benefits.--
                    ``(A) In general.--In the case of an election 
                described in subsection (c)(3)(B) by a group health 
                plan, if the plan enrolls an individual for coverage 
                under the plan and the individual provides a 
                certification of coverage of the individual under 
                paragraph (1)--
                          ``(i) upon request of such plan, the entity 
                      which issued the certification provided by the 
                      individual shall promptly disclose to such 
                      requesting plan information on coverage of classes 
                      and categories of health benefits available under 
                      such entity's plan, and
                          ``(ii) such entity may charge the requesting 
                      plan or issuer for the reasonable cost of 
                      disclosing such information.
            ``(3) Regulations.--The Secretary shall establish rules to 
        prevent an entity's failure to provide information under 
        paragraph (1) or (2) with respect to previous coverage of an 
        individual from adversely affecting any subsequent coverage of 
        the individual under another group health plan or health 
        insurance coverage.

    ``(f) Special Enrollment Periods.--
            ``(1) Individuals losing other coverage.--A group health 
        plan shall permit an employee who is eligible, but not enrolled, 
        for coverage under the terms of the plan (or a dependent of such 
        an employee if the dependent is eligible, but not enrolled, for 
        coverage under such terms) to enroll for coverage under the 
        terms of the plan if each of the following conditions is met:
                    ``(A) The employee or dependent was covered under a 
                group health plan or had health insurance coverage at 
                the time coverage was previously offered to the employee 
                or individual.
                    ``(B) The employee stated in writing at such time 
                that coverage under a group health plan or health 
                insurance coverage was the reason for declining 
                enrollment, but only if the plan sponsor (or the health 
                insurance issuer offering health insurance coverage in 
                connection with the plan) required such a statement at 
                such time and provided the employee with notice of such 
                requirement (and the consequences of such requirement) 
                at such time.
                    ``(C) The employee's or dependent's coverage 
                described in subparagraph (A)--
                          ``(i) was under a COBRA continuation provi-
                      sion and the coverage under such provision was 
                      exhausted; or
                          ``(ii) was not under such a provision and 
                      either the coverage was terminated as a result of 
                      loss of eligibility for the coverage (including as 
                      a result of legal separation, divorce, death, 
                      termination of employment, or reduction in the 
                      number of hours of employment) or employer 
                      contributions toward such coverage were 
                      terminated.
                    ``(D) Under the terms of the plan, the employee 
                requests such enrollment not later than 30 days after 
                the date of exhaustion of coverage described in 
                subparagraph (C)(i) or termination of coverage or 
                employer contribution described in subparagraph (C)(ii).
            ``(2) For dependent beneficiaries.--
                    ``(A) In general.--If--
                          ``(i) a group health plan makes coverage 
                      available with respect to a dependent of an 
                      individual,
                          ``(ii) the individual is a participant under 
                      the plan (or has met any waiting period applicable 
                      to becoming a participant under the plan and is 
                      eligible to be enrolled under the plan but for a 
                      failure to enroll during a previous enrollment 
                      period), and
                          ``(iii) a person becomes such a dependent of 
                      the individual through marriage, birth, or 
                      adoption or placement for adoption,
                the group health plan shall provide for a dependent 
                special enrollment period described in subparagraph (B) 
                during which the person (or, if not otherwise enrolled, 
                the individual) may be enrolled under the plan as a 
                dependent of the individual, and in the case of the 
                birth or adoption of a child, the spouse of the 
                individual may be enrolled as a dependent of the 
                individual if such spouse is otherwise eligible for 
                coverage.
                    ``(B) Dependent special enrollment period.--The 
                dependent special enrollment period under this 
                subparagraph shall be a period of not less than 30 days 
                and shall begin on the later of--
                          ``(i) the date dependent coverage is made 
                      avail-
                      able, or
                          ``(ii) the date of the marriage, birth, or 
                      adoption or placement for adoption (as the case 
                      may be) described in subparagraph (A)(iii).
                    ``(C) No waiting period.--If an individual seeks 
                coverage of a dependent during the first 30 days of such 
                a dependent special enrollment period, the coverage of 
                the dependent shall become effective--
                          ``(i) in the case of marriage, not later than 
                      the first day of the first month beginning after 
                      the date the completed request for enrollment is 
                      received;
                          ``(ii) in the case of a dependent's birth, as 
                      of the date of such birth; or
                          ``(iii) in the case of a dependent's adoption 
                      or placement for adoption, the date of such 
                      adoption or 
                      placement for adoption.
``SEC. 9802. PROHIBITING DISCRIMINATION AGAINST INDIVIDUAL 
                            PARTICIPANTS AND BENEFICIARIES BASED 
                            ON HEALTH STATUS.

    ``(a) In Eligibility to Enroll.--
            ``(1) In general.--Subject to paragraph (2), a group health 
        plan may not establish rules for eligibility (including 
        continued eligibility) of any individual to enroll under the 
        terms of the plan based on any of the following factors in 
        relation to the individual or a dependent of the individual:
                    ``(A) Health status.
                    ``(B) Medical condition (including both physical and 
                mental illnesses).
                    ``(C) Claims experience.
                    ``(D) Receipt of health care.
                    ``(E) Medical history.
                    ``(F) Genetic information.
                    ``(G) Evidence of insurability (including conditions 
                arising out of acts of domestic violence).
                    ``(H) Disability.
            ``(2) No application to benefits or exclusions.--To the 
        extent consistent with section 9801, paragraph (1) shall not be 
        construed--
                    ``(A) to require a group health plan to provide 
                particular benefits (or benefits with respect to a 
                specific procedure, treatment, or service) other than 
                those provided under the terms of such plan; or
                    ``(B) to prevent such a plan from establishing 
                limitations or restrictions on the amount, level, 
                extent, or nature of the benefits or coverage for 
                similarly situated individuals enrolled in the plan or 
                coverage.
            ``(3) Construction.--For purposes of paragraph (1), rules 
        for eligibility to enroll under a plan include rules defining 
        any applicable waiting periods for such enrollment.

    ``(b) In Premium Contributions.--
            ``(1) In general.--A group health plan may not require any 
        individual (as a condition of enrollment or continued enrollment 
        under the plan) to pay a premium or contribution which is 
        greater than such premium or contribution for a similarly 
        situated individual enrolled in the plan on the basis of any 
        factor described in subsection (a)(1) in relation to the 
        individual or to an individual enrolled under the plan as a 
        dependent of the individual.
            ``(2) Construction.--Nothing in paragraph (1) shall be 
        construed--
                    ``(A) to restrict the amount that an employer may be 
                charged for coverage under a group health plan; or
                    ``(B) to prevent a group health plan from 
                establishing premium discounts or rebates or modifying 
                otherwise applicable copayments or deductibles in return 
                for adherence to programs of health promotion and 
                disease prevention.
``SEC. 9803. GUARANTEED RENEWABILITY IN MULTIEMPLOYER PLANS AND 
                            CERTAIN MULTIPLE EMPLOYER WELFARE 
                            ARRANGEMENTS.

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

    ``(b) Multiple Employer Welfare Arrangement.--For purposes of 
subsection (a), the term `multiple employer welfare arrangement' has the 
meaning given such term by section 3(40) of the Employee Retirement 
Income Security Act of 1974, as in effect on the date of the enactment 
of this section.
``SEC. 9804. GENERAL EXCEPTIONS.

    ``(a) Exception for Certain Plans.--The requirements of this chapter 
shall not apply to--
            ``(1) any governmental plan, and
            ``(2) any group health plan for any plan year if, on the 
        first day of such plan year, such plan has less than 2 
        participants who are current employees.

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

    ``(a) Group Health Plan.--For purposes of this chapter, the term 
`group health plan' has the meaning given to such term by section 
5000(b)(1).
    ``(b) Definitions Relating to Health Insurance.--For purposes of 
this chapter--
            ``(1) Health insurance coverage.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `health insurance coverage' 
                means benefits consisting of medical care (provided 
                directly, through insurance or reimbursement, or 
                otherwise) under any hospital or medical service policy 
                or certificate, hospital or medical service plan 
                contract, or health maintenance organization contract 
                offered by a health insurance issuer.
                    ``(B) No application to certain excepted benefits.--
                In applying subparagraph (A), excepted benefits 
                described in subsection (c)(1) shall not be treated as 
                benefits consisting of medical care.
            ``(2) Health insurance issuer.--The term `health insurance 
        issuer' means an insurance company, insurance service, or 
        insurance organization (including a health maintenance 
        organization, as defined in paragraph (3)) which is licensed to 
        engage in the business of insurance in a State and which is 
        subject to State law which regulates insurance (within the 
        meaning of section 514(b)(2) of the Employee Retirement Income 
        Security Act of 1974, as in effect on the date of the enactment 
        of this section). Such term does not include a group health 
        plan.
            ``(3) Health maintenance organization.--The term `health 
        maintenance organization' means--
                    ``(A) a federally qualified health maintenance 
                organization (as defined in section 1301(a) of the 
                Public Health Service Act (42 U.S.C. 300e(a))),
                    ``(B) an organization recognized under State law as 
                a health maintenance organization, or
                    ``(C) a similar organization regulated under State 
                law for solvency in the same manner and to the same 
                extent as such a health maintenance organization.

    ``(c) Excepted Benefits.--For purposes of this chapter, the term 
`excepted benefits' means benefits under one or more (or any combination 
thereof) of the following:
            ``(1) Benefits not subject to requirements.--
                    ``(A) Coverage only for accident, or disability 
                income insurance, or any combination thereof.
                    ``(B) Coverage issued as a supplement to liability 
                in-
                surance.
                    ``(C) Liability insurance, including general 
                liability insurance and automobile liability insurance.
                    ``(D) Workers' compensation or similar insurance.
                    ``(E) Automobile medical payment insurance.
                    ``(F) Credit-only insurance.
                    ``(G) Coverage for on-site medical clinics.
                    ``(H) Other similar insurance coverage, specified in 
                regulations, under which benefits for medical care are 
                secondary or incidental to other insurance benefits.
            ``(2) Benefits not subject to requirements if offered 
        separately.--
                    ``(A) Limited scope dental or vision benefits.
                    ``(B) Benefits for long-term care, nursing home 
                care, home health care, community-based care, or any 
                combination thereof.
                    ``(C) Such other similar, limited benefits as are 
                specified in regulations.
            ``(3) Benefits not subject to requirements if offered as 
        independent, noncoordinated benefits.--
                    ``(A) Coverage only for a specified disease or 
                illness.
                    ``(B) Hospital indemnity or other fixed indemnity 
                in-
                surance.
            ``(4) Benefits not subject to requirements if offered as 
        separate insurance policy.--Medicare supplemental health 
        insurance (as defined under section 1882(g)(1) of the Social 
        Security Act), coverage supplemental to the coverage provided 
        under chapter 55 of title 10, United States Code, and similar 
        supplemental coverage provided to coverage under a group health 
        plan.

    ``(d) Other Definitions.--For purposes of this chapter--
            ``(1) COBRA continuation provision.--The term `COBRA 
        continuation provision' means any of the following:
                    ``(A) Section 4980B, other than subsection (f)(1) 
                thereof insofar as it relates to pediatric vaccines.
                    ``(B) Part 6 of subtitle B of title I of the 
                Employee Retirement Income Security Act of 1974 (29 
                U.S.C. 1161 et seq.), other than section 609 of such 
                Act.
                    ``(C) Title XXII of the Public Health Service Act.
            ``(2) Governmental plan.--The term `governmental plan' has 
        the meaning given such term by section 414(d).
            ``(3) Medical care.--The term `medical care' has the meaning 
        given such term by section 213(d) determined without regard to--
                    ``(A) paragraph (1)(C) thereof, and
                    ``(B) so much of paragraph (1)(D) thereof as relates 
                to qualified long-term care insurance.
            ``(4) Network plan.--The term `network plan' means health 
        insurance coverage of a health insurance issuer under which the 
        financing and delivery of medical care are provided, in whole or 
        in part, through a defined set of providers under contract with 
        the issuer.
            ``(5) Placed for adoption defined.--The term `placement', or 
        being `placed', for adoption, in connection with any placement 
        for adoption of a child with any person, means the assumption 
        and retention by such person of a legal obligation for total or 
        partial support of such child in anticipation of adoption of 
        such child. The child's placement with such person terminates 
        upon the termination of such legal obligation.
``SEC. 9806. REGULATIONS.

    ``The Secretary, consistent with section 104 of the Health Care 
Portability and Accountability Act of 1996, may promulgate such 
regulations as may be necessary or appropriate to carry out the 
provisions of this chapter. The Secretary may promulgate any interim 
final rules as the Secretary determines are appropriate to carry out 
this chapter.''.

    (b) Clerical Amendment.--The table of subtitles of such Code is 
amended by adding at the end the following new item:

``Subtitle K. Group health plan portability, access, and renewability 
           requirements.''.

    (c) Effective <<NOTE: 26 USC 9801 note.>>  Date.--
            (1) In general.--The amendments made by this section shall 
        apply to plan years beginning after June 30, 1997.
            (2) Determination of creditable coverage.--
                    (A) Period of coverage.--
                          (i) In general.--Subject to clause (ii), no 
                      period before July 1, 1996, shall be taken into 
                      account under chapter 100 of the Internal Revenue 
                      Code of 1986 (as added by this section) in 
                      determining creditable coverage.
                          (ii) Special rule for certain periods.--The 
                      Secretary of the Treasury, consistent with section 
                      104, shall provide for a process whereby 
                      individuals who need to establish creditable 
                      coverage for periods before July 1, 1996, and who 
                      would have such coverage credited but for clause 
                      (i) may be given credit for creditable coverage 
                      for such periods through the presentation of 
                      documents or other means.
                    (B) Certifications, etc.--
                          (i) In general.--Subject to clauses (ii) and 
                      (iii), subsection (e) of section 9801 of the 
                      Internal Revenue Code of 1986 (as added by this 
                      section) shall apply to events occurring after 
                      June 30, 1996.
                          (ii) No certification required to be provided 
                      before june 1, 1997.--In no case is a 
                      certification required to be provided under such 
                      subsection before June 1, 1997.
                          (iii) Certification only on written request 
                      for events occurring before october 1, 1996.--In 
                      the case of an event occurring after June 30, 
                      1996, and before October 1, 1996, a certification 
                      is not required to be provided under such 
                      subsection unless an individual (with respect to 
                      whom the certification is otherwise required to be 
                      made) requests such certification in writing.
                    (C) Transitional rule.--In the case of an individual 
                who seeks to establish creditable coverage for any 
                period for which certification is not required because 
                it relates to an event occurring before June 30, 1996--
                          (i) the individual may present other credible 
                      evidence of such coverage in order to establish 
                      the period of creditable coverage; and
                          (ii) a group health plan and a health 
                      insurance issuer shall not be subject to any 
                      penalty or enforcement action with respect to the 
                      plan's or issuer's crediting (or not crediting) 
                      such coverage if the plan or issuer has sought to 
                      comply in good faith with the applicable 
                      requirements under the amendments made by this 
                      section.
            (3) Special rule for collective bargaining agreements.--
        Except as provided in paragraph (2), in the case of a group 
        health plan maintained pursuant to 1 or more collective 
        bargaining agreements between employee representatives and one 
        or more employers ratified before the date of the enactment of 
        this Act, the amendments made by this section shall not apply to 
        plan years beginning before the later of--
                    (A) the date on which the last of the collective 
                bargaining agreements relating to the plan terminates 
                (determined without regard to any extension thereof 
                agreed to after the date of the enactment of this Act), 
                or
                    (B) July 1, 1997.
        For purposes of subparagraph (A), any plan amendment made 
        pursuant to a collective bargaining agreement relating to the 
        plan which amends the plan solely to conform to any requirement 
        added by this section shall not be treated as a termination of 
        such collective bargaining agreement.
            (4) Timely regulations.--The Secretary of the Treasury, 
        consistent with section 104, shall first issue by not later than 
        April 1, 1997, such regulations as may be necessary to carry out 
        the amendments made by this section.
            (5) Limitation on actions.--No enforcement action shall be 
        taken, pursuant to the amendments made by this section, against 
        a group health plan or health insurance issuer with respect to a 
        violation of a requirement imposed by such amendments before 
        January 1, 1998, or, if later, the date of issuance of 
        regulations referred to in paragraph (4), if the plan or issuer 
        has sought to comply in good faith with such requirements.
SEC. 402. PENALTY ON FAILURE TO MEET CERTAIN GROUP HEALTH PLAN 
                        REQUIREMENTS.

    (a) In General.--Chapter 43 of the Internal Revenue Code of 1986 
(relating to qualified pension, etc., plans) is amended by adding after 
section 4980C the following new section:
``SEC. 4980D. FAILURE TO MEET CERTAIN GROUP HEALTH PLAN 
                              REQUIREMENTS.

    ``(a) General Rule.--There is hereby imposed a tax on any failure of 
a group health plan to meet the requirements of chapter 100 (relating to 
group health plan portability, access, and renewability requirements).
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure shall be $100 for each day in the 
        noncompliance period with respect to each individual to whom 
        such failure relates.
            ``(2) Noncompliance period.--For purposes of this section, 
        the term `noncompliance period' means, with respect to any 
        failure, the period--
                    ``(A) beginning on the date such failure first 
                occurs, and
                    ``(B) ending on the date such failure is corrected.
            ``(3) Minimum tax for noncompliance period where 
        failure discovered after notice of examination.--Notwithstanding 
        paragraphs (1) and (2) of subsection (c)--
                    ``(A) In general.--In the case of 1 or more failures 
                with respect to an individual--
                          ``(i) which are not corrected before the date 
                      a notice of examination of income tax liability is 
                      sent to the employer, and
                          ``(ii) which occurred or continued during the 
                      period under examination,
                the amount of tax imposed by subsection (a) by reason of 
                such failures with respect to such individual shall not 
                be less than the lesser of $2,500 or the amount of tax 
                which would be imposed by subsection (a) without regard 
                to such paragraphs.
                    ``(B) Higher minimum tax where violations are more 
                than de minimis.--To the extent violations for which any 
                person is liable under subsection (e) for any year are 
                more than de minimis, subparagraph (A) shall be applied 
                by substituting `$15,000' for `$2,500' with respect to 
                such person.
                    ``(C) Exception for church plans.--This paragraph 
                shall not apply to any failure under a church plan (as 
                defined in section 414(e)).

    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered 
        exercising reasonable diligence.--No tax shall be imposed by 
        subsection (a) on any failure during any period for which it is 
        established to the satisfaction of the Secretary that the person 
        otherwise liable for such tax did not know, and exercising 
        reasonable diligence would not have known, that such failure 
        existed.
            ``(2) Tax not to apply to failures corrected within certain 
        periods.--No tax shall be imposed by subsection (a) on any 
        failure if--
                    ``(A) such failure was due to reasonable cause and 
                not to willful neglect, and
                    ``(B)(i) in the case of a plan other than a church 
                plan (as defined in section 414(e)), such failure is 
                corrected during the 30-day period beginning on the 
                first date the person otherwise liable for such tax 
                knew, or exercising reasonable diligence would have 
                known, that such failure existed, and
                    ``(ii) in the case of a church plan (as so defined), 
                such failure is corrected before the close of the 
                correction period (determined under the rules of section 
                414(e)(4)(C)).
            ``(3) Overall limitation for unintentional failures.--In the 
        case of failures which are due to reasonable cause and not to 
        willful neglect--
                    ``(A) Single employer plans.--
                          ``(i) In general.--In the case of failures 
                      with respect to plans other than specified 
                      multiple employer health plans, the tax imposed by 
                      subsection (a) for failures during the taxable 
                      year of the employer shall not exceed the amount 
                      equal to the lesser of--
                                    ``(I) 10 percent of the aggregate 
                                amount paid or incurred by the employer 
                                (or predecessor employer) during the 
                                preceding taxable year for group health 
                                plans, or
                                    ``(II) $500,000.
                          ``(ii) Taxable years in the case of certain 
                      controlled groups.--For purposes of this 
                      subparagraph, if not all persons who are treated 
                      as a single employer for purposes of this section 
                      have the same taxable year, the taxable years 
                      taken into account shall be determined under 
                      principles similar to the principles of section 
                      1561.
                    ``(B) Specified multiple employer health plans.--
                          ``(i) In general.--In the case of failures 
                      with respect to a specified multiple employer 
                      health plan, the tax imposed by subsection (a) for 
                      failures during the taxable year of the trust 
                      forming part of such plan shall not exceed the 
                      amount equal to the 
                      lesser of--
                                    ``(I) 10 percent of the amount paid 
                                or incurred by such trust during such 
                                taxable year to provide medical care (as 
                                defined in section 9805(d)(3)) directly 
                                or through insurance, reimbursement, or 
                                otherwise, or
                                    ``(II) $500,000.
                      For purposes of the preceding sentence, all plans 
                      of which the same trust forms a part shall be 
                      treated as one plan.
                          ``(ii) Special rule for employers required to 
                      pay tax.--If an employer is assessed a tax imposed 
                      by subsection (a) by reason of a failure with 
                      respect to a specified multiple employer health 
                      plan, the limit shall be determined under 
                      subparagraph (A) (and not under this subparagraph) 
                      and as if such plan were not a specified multiple 
                      employer health plan.
            ``(4) Waiver by secretary.--In the case of a failure which 
        is due to reasonable cause and not to willful neglect, the 
        Secretary may waive part or all of the tax imposed by subsection 
        (a) to the extent that the payment of such tax would be 
        excessive relative to the failure involved.

    ``(d) Tax Not To Apply to Certain Insured Small Employer Plans.--
            ``(1) In general.--In the case of a group health plan of a 
        small employer which provides health insurance coverage solely 
        through a contract with a health insurance issuer, no tax shall 
        be imposed by this section on the employer on any failure which 
        is solely because of the health insurance coverage offered by 
        such issuer.
            ``(2) Small employer.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `small employer' means, with respect to a 
                calendar year and a plan year, an employer who employed 
                an average of at least 2 but not more than 50 employees 
                on business days during the preceding calendar year and 
                who employs at least 2 employees on the first day of the 
                plan year. For purposes of the preceding sentence, all 
                persons treated as a single employer under subsection 
                (b), (c), (m), or (o) of section 414 shall be treated as 
                one employer.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the preceding calendar year, the 
                determination of whether such employer is a small 
                employer shall be based on the average number of 
                employees that it is reasonably expected such employer 
                will employ on business days in the current calendar 
                year.
                    ``(C) Predecessors.--Any reference in this paragraph 
                to an employer shall include a reference to any 
                predecessor of such employer.
            ``(3) Health insurance coverage; health insurance issuer.--
        For purposes of paragraph (1), the terms `health insurance 
        coverage' and `health insurance issuer' have the respective 
        meanings given such terms by section 9805.

    ``(e) Liability for Tax.--The following shall be liable for the tax 
imposed by subsection (a) on a failure:
            ``(1) Except as otherwise provided in this subsection, the 
        employer.
            ``(2) In the case of a multiemployer plan, the plan.
            ``(3) In the case of a failure under section 9803 (relating 
        to guaranteed renewability) with respect to a plan described in 
        subsection (f)(2)(B), the plan.

    ``(f) Definitions.--For purposes of this section--
            ``(1) Group health plan.--The term `group health plan' has 
        the meaning given such term by section 9805(a).
            ``(2) Specified multiple employer health plan.--The term 
        `specified multiple employer health plan' means a group health 
        plan which is--
                    ``(A) any multiemployer plan, or
                    ``(B) any multiple employer welfare arrangement (as 
                defined in section 3(40) of the Employee Retirement 
                Income Security Act of 1974, as in effect on the date of 
                the enactment of this section).
            ``(3) Correction.--A failure of a group health plan shall be 
        treated as corrected if--
                    ``(A) such failure is retroactively undone to the 
                extent possible, and
                    ``(B) the person to whom the failure relates is 
                placed in a financial position which is as good as such 
                person would have been in had such failure not 
                occurred.''.

    (b) Clerical Amendment.--The table of sections for chapter 43 of 
such Code is amended by adding after the item relating to section 4980C 
the following new item:

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

    (c) Effective <<NOTE: 26 USC 4980D note.>>  Date.--The amendments 
made by this section shall apply to failures under chapter 100 of the 
Internal Revenue Code of 1986 (as added by section 401 of this Act).

 Subtitle B--Clarification of Certain Continuation Coverage Requirements

SEC. 421. COBRA CLARIFICATIONS.

    (a) Public Health Service Act.--
            (1) Period of coverage.--Section 2202(2) of the Public 
        Health Service Act (42 U.S.C. 300bb-2(2)) is amended--
                    (A) in subparagraph (A)--
                          (i) by transferring the sentence immediately 
                      preceding clause (iv) so as to appear immediately 
                      following such clause (iv); and
                          (ii) in the last sentence (as so 
                      transferred)--
                                    (I) by striking ``an individual'' 
                                and inserting ``a qualified 
                                beneficiary'';
                                    (II) by striking ``at the time of a 
                                qualifying event described in section 
                                2203(2)'' and inserting ``at any time 
                                during the first 60 days of continuation 
                                coverage under this title'';
                                    (III) by striking ``with respect to 
                                such event,''; and
                                    (IV) by inserting ``(with respect to 
                                all qualified beneficiaries)'' after 
                                ``29 months'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``(other than such an exclusion or 
                limitation which does not apply to (or is satisfied by) 
                such beneficiary by reason of chapter 100 of the 
                Internal Revenue Code of 1986, part 7 of subtitle B of 
                title I of the Employee Retirement Income Security Act 
                of 1974, or title XXVII of this Act)''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 2203(2)'' and 
                inserting ``at any time during the first 60 days of 
                continuation coverage under this title''.
            (2) Notices.--Section 2206(3) of the Public Health Service 
        Act (42 U.S.C. 300bb-6(3)) is amended by striking ``at the time 
        of a qualifying event described in section 2203(2)'' and 
        inserting ``at any time during the first 60 days of continuation 
        coverage under this title''.
            (3) Birth or adoption of a child.--Section 2208(3)(A) of the 
        Public Health Service Act (42 U.S.C. 300bb-8(3)(A)) is amended 
        by adding at the end thereof the following new flush sentence:

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

    (b) Employee Retirement Income Security Act of 1974.--
            (1) Period of coverage.--Section 602(2) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1162(2)) is 
        amended--
                    (A) in the last sentence of subparagraph (A)--
                          (i) by striking ``an individual'' and 
                      inserting ``a qualified beneficiary'';
                          (ii) by striking ``at the time of a qualifying 
                      event described in section 603(2)'' and inserting 
                      ``at any time during the first 60 days of 
                      continuation coverage under this part'';
                          (iii) by striking ``with respect to such 
                      event''; and
                          (iv) by inserting ``(with respect to all 
                      qualified beneficiaries)'' after ``29 months'';
                    (B) in subparagraph (D)(i), by inserting before ``, 
                or'' the following: ``(other than such an exclusion or 
                limitation which does not apply to (or is satisfied by) 
                such beneficiary by reason of chapter 100 of the 
                Internal Revenue Code of 1986, part 7 of this subtitle, 
                or title XXVII of the Public Health Service Act)''; and
                    (C) in subparagraph (E), by striking ``at the time 
                of a qualifying event described in section 603(2)'' and 
                inserting ``at any time during the first 60 days of 
                continuation coverage under this part''.
            (2) Notices.--Section 606(a)(3) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1166(a)(3)) is amended by 
        striking ``at the time of a qualifying event described in 
        section 603(2)'' and inserting ``at any time during the first 60 
        days of continuation coverage under this part''.
            (3) Birth or adoption of a child.--Section 607(3)(A) of the 
        Employee Retirement Income Security Act of 1974 (29 U.S.C. 
        1167(3)) is amended by adding at the end thereof the following 
        new flush sentence:

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

    (c) Internal Revenue Code of 1986.--
            (1) Period of coverage.--Section 4980B(f)(2)(B) of the 
        Internal Revenue Code of 1986 is amended--
                    (A) in the last sentence of clause (i)--
                          (i) by striking ``at the time of a qualifying 
                      event described in paragraph (3)(B)'' and 
                      inserting ``at any time during the first 60 days 
                      of continuation coverage under this section'';
                          (ii) by striking ``with respect to such 
                      event''; and
                          (iii) by inserting ``(with respect to all 
                      qualified beneficiaries)'' after ``29 months'';
                    (B) in clause (iv)(I), by inserting before ``, or'' 
                the following: ``(other than such an exclusion or 
                limitation which does not apply to (or is satisfied by) 
                such beneficiary by reason of chapter 100 of this title, 
                part 7 of subtitle B of title I of the Employee 
                Retirement Income Security 
                Act of 1974, or title XXVII of the Public Health Service 
                Act)''; and
                    (C) in clause (v), by striking ``at the time of a 
                qualifying event described in paragraph (3)(B)'' and 
                inserting ``at any time during the first 60 days of 
                continuation coverage under this section''.
            (2) Notices.--Section 4980B(f)(6)(C) of the Internal 
        Revenue Code of 1986 is amended by striking ``at the time of a 
        qualifying event described in paragraph (3)(B)'' and inserting 
        ``at any time during the first 60 days of continuation coverage 
        under this section''.
            (3) Birth or adoption of a child.--Section 4980B(g)(1)(A) of 
        the Internal Revenue Code of 1986 is amended by adding at the 
        end thereof the following new flush sentence:
                      ``Such term shall also include a child who is born 
                      to or placed for adoption with the covered 
                      employee during the period of continuation 
                      coverage under this section.''.

    (d) Effective <<NOTE: 26 USC 4980B note.>>  Date.--The amendments 
made by this section shall become effective on January 1, 1997, 
regardless of whether the qualifying event occurred before, on, or after 
such date.

    (e) Notification <<NOTE: 26 USC 4980B note.>>  of Changes.--Not 
later than November 1, 1996, each group health plan (covered under title 
XXII of the Public Health Service Act, part 6 of subtitle B of title I 
of the Employee Retirement Income Security Act of 1974, and section 
4980B(f) of the Internal Revenue Code of 1986) shall notify each 
qualified beneficiary who has elected continuation coverage under such 
title, part or section of the amendments made by this section.

                        TITLE V--REVENUE OFFSETS

SEC. 500. AMENDMENT OF 1986 CODE.

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

                Subtitle A--Company-Owned Life Insurance

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

    (a) In General.--Paragraph (4) of section 264(a) is amended--
            (1) by inserting ``, or any endowment or annuity contracts 
        owned by the taxpayer covering any individual,'' after ``the 
        life of any individual'', and
            (2) by striking all that follows ``carried on by the 
        taxpayer'' and inserting a period.

    (b) Exception for Contracts Relating to Key Persons; Permissible 
Interest Rates.--Section 264 is amended--
            (1) by striking ``Any'' in subsection (a)(4) and inserting 
        ``Except as provided in subsection (d), any'', and
            (2) by adding at the end the following new subsection:

    ``(d) Special Rules For Application of Subsection (a)(4).--
            ``(1) Exception for key persons.--Subsection (a)(4) shall 
        not apply to any interest paid or accrued on any indebtedness 
        with respect to policies or contracts covering an individual who 
        is a key person to the extent that the aggregate amount of such 
        indebtedness with respect to policies and contracts covering 
        such individual does not exceed $50,000.
            ``(2) Interest rate cap on key persons and pre-1986 
        contracts.--
                    ``(A) In general.--No deduction shall be allowed by 
                reason of paragraph (1) or the last sentence of 
                subsection (a) with respect to interest paid or accrued 
                for any month beginning after December 31, 1995, to the 
                extent the amount of such interest exceeds the amount 
                which would have been determined if the applicable rate 
                of interest were used for such month.
                    ``(B) Applicable rate of interest.--For purposes of 
                subparagraph (A)--
                          ``(i) In general.--The applicable rate of 
                      interest for any month is the rate of interest 
                      described as Moody's Corporate Bond Yield Average-
                      Monthly Average Corporates as published by Moody's 
                      Investors 
                      Service, Inc., or any successor thereto, for such 
                      month.
                          ``(ii) Pre-1986 contracts.--In the case of 
                      indebtedness on a contract purchased on or before 
                      June 20, 1986--
                                    ``(I) which is a contract providing 
                                a fixed rate of interest, the applicable 
                                rate of interest for any month shall be 
                                the Moody's rate described in clause (i) 
                                for the month in which the contract was 
                                purchased, or
                                    ``(II) which is a contract providing 
                                a variable rate of interest, the 
                                applicable rate of interest for any 
                                month in an applicable period shall be 
                                such Moody's rate for the third month 
                                preceding the first month in such 
                                period.
                      For purposes of subclause (II), the taxpayer shall 
                      elect an applicable period for such contract on 
                      its return of tax imposed by this chapter for its 
                      first taxable year ending on or after October 13, 
                      1995. Such applicable period shall be for any 
                      number of months (not greater than 12) specified 
                      in the election and may not be changed by the 
                      taxpayer without the consent of the Secretary.
            ``(3) Key person.--For purposes of paragraph (1), the term 
        `key person' means an officer or 20-percent owner, except that 
        the number of individuals who may be treated as key persons with 
        respect to any taxpayer shall not exceed the greater of--
                    ``(A) 5 individuals, or
                    ``(B) the lesser of 5 percent of the total officers 
                and employees of the taxpayer or 20 individuals.
            ``(4) 20-percent owner.--For purposes of this subsection, 
        the term `20-percent owner' means--
                    ``(A) if the taxpayer is a corporation, any person 
                who owns directly 20 percent or more of the outstanding 
                stock of the corporation or stock possessing 20 percent 
                or more of the total combined voting power of all stock 
                of the corporation, or
                    ``(B) if the taxpayer is not a corporation, any 
                person who owns 20 percent or more of the capital or 
                profits interest in the employer.
            ``(5) Aggregation rules.--
                    ``(A) In general.--For purposes of paragraph (4)(A) 
                and applying the $50,000 limitation in paragraph (1)--
                          ``(i) all members of a controlled group shall 
                      be treated as one taxpayer, and
                          ``(ii) such limitation shall be allocated 
                      among the members of such group in such manner as 
                      the Secretary may prescribe.
                    ``(B) Controlled group.--For purposes of this 
                paragraph, all persons treated as a single employer 
                under subsection (a) or (b) of section 52 or subsection 
                (m) or (o) of section 414 shall be treated as members of 
                a controlled group.''.

    (c) Effective <<NOTE: 26 USC 264 note.>>  Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to interest paid or accrued after October 13, 1995.
            (2) Transition rule for existing indebtedness.--
                    (A) In general.--In the case of--
                          (i) indebtedness incurred before January 1, 
                      1996, or
                          (ii) indebtedness incurred before January 1, 
                      1997 with respect to any contract or policy 
                      entered into in 1994 or 1995,
                the amendments made by this section shall not apply to 
                qualified interest paid or accrued on such indebtedness 
                after October 13, 1995, and before January 1, 1999.
                    (B) Qualified interest.--For purposes of 
                subparagraph (A), the qualified interest with respect to 
                any indebtedness for any month is the amount of interest 
                (otherwise deductible) which would be paid or accrued 
                for such month on such indebtedness if--
                          (i) in the case of any interest paid or 
                      accrued after December 31, 1995, indebtedness with 
                      respect to no more than 20,000 insured individuals 
                      were taken into account, and
                          (ii) the lesser of the following rates of 
                      interest were used for such month:
                                    (I) The rate of interest specified 
                                under the terms of the indebtedness as 
                                in effect on October 13, 1995 (and 
                                without regard to modification of such 
                                terms after such date).
                                    (II) The applicable percentage of 
                                the rate of interest described as 
                                Moody's Corporate Bond Yield Average-
                                Monthly Average Corporates as published 
                                by Moody's Investors Service, Inc., or 
                                any successor thereto, for such month.
                For purposes of clause (i), all persons treated as a 
                single employer under subsection (a) or (b) of section 
                52 of the Internal Revenue Code of 1986 or subsection 
                (m) or (o) of section 414 of such Code shall be treated 
                as 1 person. Subclause (II) of clause (ii) shall not 
                apply to any month before January 1, 1996.
                    (C) Applicable percentage.--For purposes of sub-
                paragraph (B), the applicable percentage is as follows:

        For calendar year:                            The percentage is:
                1996........................................100 percent 
                1997.........................................90 percent 
                1998.........................................80 percent.

            (3) Special rule for grandfathered contracts.--This section 
        shall not apply to any contract purchased on or before June 20, 
        1986, except that section 264(d)(2) of the Internal Revenue Code 
        of 1986 shall apply to interest paid or accrued after October 
        13, 1995.

    (d) Spread of <<NOTE: 26 USC 264 note.>>  Income Inclusion on 
Surrender, Etc. of Contracts.--
            (1) In general.--If any amount is received under any life 
        insurance policy or endowment or annuity contract described in 
        paragraph (4) of section 264(a) of the Internal Revenue Code of 
        1986--
                    (A) on the complete surrender, redemption, or 
                maturity of such policy or contract during calendar year 
                1996, 1997, or 1998, or
                    (B) in full discharge during any such calendar year 
                of the obligation under the policy or contract which is 
                in the nature of a refund of the consideration paid for 
                the policy or contract,
        then (in lieu of any other inclusion in gross income) such 
        amount shall be includible in gross income ratably over the 4-
        taxable year period beginning with the taxable year such amount 
        would (but for this paragraph) be includible. The preceding 
        sentence shall only apply to the extent the amount is includible 
        in gross income for the taxable year in which the event 
        described in subparagraph (A) or (B) occurs.
            (2) Special rules for applying section 264.--A contract 
        shall not be treated as--
                    (A) failing to meet the requirement of section 
                264(c)(1) of the Internal Revenue Code of 1986, or
                    (B) a single premium contract under section 
                264(b)(1) of such Code,
        solely by reason of an occurrence described in subparagraph (A) 
        or (B) of paragraph (1) of this subsection or solely by reason 
        of no additional premiums being received under the contract by 
        reason of a lapse occurring after October 13, 1995.
            (3) Special rule for deferred acquisition costs.--In the 
        case of the occurrence of any event described in subparagraph 
        (A) or (B) of paragraph (1) of this subsection with respect to 
        any policy or contract--
                    (A) section 848 of the Internal Revenue Code of 1986 
                shall not apply to the unamortized balance (if any) of 
                the specified policy acquisition expenses attributable 
                to such policy or contract immediately before the 
                insurance company's taxable year in which such event 
                occurs, and
                    (B) there shall be allowed as a deduction to such 
                company for such taxable year under chapter 1 of such 
                Code an amount equal to such unamortized balance.

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

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

    (a) In General.--Subsection (a) of section 877 is amended to read as 
follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien individual who, 
        within the 10-year period immediately preceding the close of the 
        taxable year, lost United States citizenship, unless such loss 
        did not have for one of its principal purposes the avoidance of 
        taxes under this subtitle or subtitle B, shall be taxable for 
        such taxable year in the manner provided in subsection (b) if 
        the tax imposed pursuant to such subsection exceeds the tax 
        which, without regard to this section, is imposed pursuant to 
        section 871.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--For purposes of paragraph (1), an individual shall be 
        treated as having a principal purpose to avoid such taxes if--
                    ``(A) the average annual net income tax (as defined 
                in section 38(c)(1)) of such individual for the period 
                of 5 taxable years ending before the date of the loss of 
                United States citizenship is greater than $100,000, or
                    ``(B) the net worth of the individual as of such 
                date is $500,000 or more.
        In the case of the loss of United States citizenship in any 
        calendar year after 1996, such $100,000 and $500,000 amounts 
        shall be increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting `1994' 
        for `1992' in subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest multiple of 
        $1,000.''.

    (b) Exceptions.--
            (1) In general.--Section 877 is amended by striking 
        subsection (d), by redesignating subsection (c) as subsection 
        (d), and by inserting after subsection (b) the following new 
        subsection:

    ``(c) Tax Avoidance Not Presumed in Certain Cases.--
            ``(1) In general.--Subsection (a)(2) shall not apply to an 
        individual if--
                    ``(A) such individual is described in a subparagraph 
                of paragraph (2) of this subsection, and
                    ``(B) within the 1-year period beginning on the date 
                of the loss of United States citizenship, such 
                individual submits a ruling request for the Secretary's 
                determination as to whether such loss has for one of its 
                principal purposes the avoidance of taxes under this 
                subtitle or subtitle B.
            ``(2) Individuals described.--
                    ``(A) Dual citizenship, etc.--An individual is 
                described in this subparagraph if--
                          ``(i) the individual became at birth a citizen 

                      of the United States and a citizen of another 
                      country and continues to be a citizen of such 
                      other country, or
                          ``(ii) the individual becomes (not later than 
                      the close of a reasonable period after loss of 
                      United States citizenship) a citizen of the 
                      country in which--
                                    ``(I) such individual was born,
                                    ``(II) if such individual is 
                                married, such indi-
                                vidual's spouse was born, or
                                    ``(III) either of such individual's 
                                parents were born.
                    ``(B) Long-term foreign residents.--An individual is 
                described in this subparagraph if, for each year in the 
                10-year period ending on the date of loss of United 
                States citizenship, the individual was present in the 
                United States for 30 days or less. The rule of section 
                7701(b)(3)(D)(ii) shall apply for purposes of this 
                subparagraph.
                    ``(C) Renunciation upon reaching age of majority.--
                An individual is described in this subparagraph if the 
                individual's loss of United States citizenship occurs 
                before such individual attains age 18\1/2\.
                    ``(D) Individuals specified in regulations.--An 
                individual is described in this subparagraph if the 
                indi-
                vidual is described in a category of individuals 
                prescribed by regulation by the Secretary.''.
            (2) Technical amendment.--Paragraph (1) of section 877(b) of 
        such Code is amended by striking ``subsection (c)'' and 
        inserting ``subsection (d)''.

    (c) Treatment of Property Disposed of in Nonrecognition 
Transactions; Treatment of Distributions From Certain Controlled Foreign 
Corporations.--Subsection (d) of section 877, as redesignated by 
subsection (b), is amended to read as follows:
    ``(d) Special Rules for Source, Etc.--For purposes of subsection 
(b)--
            ``(1) Source rules.--The following items of gross income 
        shall be treated as income from sources within the United 
        States:
                    ``(A) Sale of property.--Gains on the sale or 
                exchange of property (other than stock or debt 
                obligations) located in the United States.
                    ``(B) Stock or debt obligations.--Gains on the sale 
                or exchange of stock issued by a domestic corporation or 
                debt obligations of United States persons or of the 
                United States, a State or political subdivision thereof, 
                or the District of Columbia.
                    ``(C) Income or gain derived from controlled 
                foreign corporation.--Any income or gain derived from 
                stock in a foreign corporation but only--
                          ``(i) if the individual losing United States 
                      citizenship owned (within the meaning of section 
                      958(a)), or is considered as owning (by applying 
                      the ownership rules of section 958(b)), at any 
                      time during the 2-year period ending on the date 
                      of the loss of United States citizenship, more 
                      than 50 percent of--
                                    ``(I) the total combined voting 
                                power of all classes of stock entitled 
                                to vote of such corpora-
                                tion, or
                                    ``(II) the total value of the stock 
                                of such corporation, and
                          ``(ii) to the extent such income or gain does 
                      not exceed the earnings and profits attributable 
                      to such stock which were earned or accumulated 
                      before the loss of citizenship and during periods 
                      that the ownership requirements of clause (i) are 
                      met.
            ``(2) Gain recognition on certain exchanges.--
                    ``(A) In general.--In the case of any exchange of 
                property to which this paragraph applies, 
                notwithstanding any other provision of this title, such 
                property shall be treated as sold for its fair market 
                value on the date of such exchange, and any gain shall 
                be recognized for the taxable year which includes such 
                date.
                    ``(B) Exchanges to which paragraph applies.--This 
                paragraph shall apply to any exchange during the 10-year 
                period described in subsection (a) if--
                          ``(i) gain would not (but for this paragraph) 
                      be recognized on such exchange in whole or in part 
                      for purposes of this subtitle,
                          ``(ii) income derived from such property was 
                      from sources within the United States (or, if no 
                      income was so derived, would have been from such 
                      sources), and
                          ``(iii) income derived from the property 
                      acquired in the exchange would be from sources 
                      outside the United States.
                    ``(C) Exception.--Subparagraph (A) shall not apply 
                if the individual enters into an agreement with the 
                Secretary which specifies that any income or gain 
                derived from the property acquired in the exchange (or 
                any other property which has a basis determined in whole 
                or part by reference to such property) during such 10-
                year period shall be treated as from sources within the 
                United States. If the property transferred in the 
                exchange is disposed of by the person acquiring such 
                property, such agreement shall terminate and any gain 
                which was not recognized by reason of such agreement 
                shall be recognized as of the date of such disposition.
                    ``(D) Secretary may extend period.--To the extent 
                provided in regulations prescribed by the Secretary, 
                subparagraph (B) shall be applied by substituting the 
                15-year period beginning 5 years before the loss of 
                United States citizenship for the 10-year period 
                referred to therein.
                    ``(E) Secretary may require recognition of gain in 
                certain cases.--To the extent provided in regulations 
                prescribed by the Secretary--
                          ``(i) the removal of appreciated tangible 
                      personal property from the United States, and
                          ``(ii) any other occurrence which (without 
                      recognition of gain) results in a change in the 
                      source of the income or gain from property from 
                      sources within the United States to sources 
                      outside the United States,
                shall be treated as an exchange to which this paragraph 
                applies.
            ``(3) Substantial diminishing of risks of ownership.--For 
        purposes of determining whether this section applies to any gain 
        on the sale or exchange of any property, the running of the 10-
        year period described in subsection (a) shall be 
        suspended for any period during which the individual's risk of 
        loss with respect to the property is substantially diminished 
        by--
                    ``(A) the holding of a put with respect to such 
                property (or similar property),
                    ``(B) the holding by another person of a right to 
                acquire the property, or
                    ``(C) a short sale or any other transaction.
            ``(4) Treatment of property contributed to controlled 
        foreign corporations.--
                    ``(A) In general.--If--
                          ``(i) an individual losing United States 
                      citizenship contributes property to any 
                      corporation which, at the time of the 
                      contribution, is described in subparagraph (B), 
                      and
                          ``(ii) income derived from such property was 
                      from sources within the United States (or, if no 
                      income was so derived, would have been from such 
                      sources),
                during the 10-year period referred to in subsection (a), 
                any income or gain on such property (or any other 
                property which has a basis determined in whole or part 
                by reference to such property) received or accrued by 
                the corporation shall be treated as received or accrued 
                directly by such individual and not by such corporation. 
                The preceding sentence shall not apply to the extent the 
                property has been treated under subparagraph (C) as 
                having been sold by such corporation.
                    ``(B) Corporation described.--A corporation is 
                described in this subparagraph with respect to an 
                individual if, were such individual a United States 
                citizen--
                          ``(i) such corporation would be a controlled 
                      foreign corporation (as defined in 957), and
                          ``(ii) such individual would be a United 
                      States shareholder (as defined in section 951(b)) 
                      with respect to such corporation.
                    ``(C) Disposition of stock in corporation.--If stock 
                in the corporation referred to in subparagraph (A) (or 
                any other stock which has a basis determined in whole or 
                part by reference to such stock) is disposed of during 
                the 10-year period referred to in subsection (a) and 
                while the property referred to in subparagraph (A) is 
                held by such corporation, a pro rata share of such 
                property (determined on the basis of the value of such 
                stock) shall be treated as sold by the corporation 
                immediately before such disposition.
                    ``(D) Anti-abuse rules.--The Secretary shall 
                prescribe such regulations as may be necessary to 
                prevent the avoidance of the purposes of this paragraph, 
                including where--
                          ``(i) the property is sold to the corporation, 
                      and
                          ``(ii) the property taken into account under 
                      subparagraph (A) is sold by the corporation.
                    ``(E) Information reporting.--The Secretary shall 
                require such information reporting as is necessary to 
                carry out the purposes of this paragraph.''.

    (d) Credit for Foreign Taxes Imposed on United States Source 
Income.--
            (1) Subsection (b) of section 877 is amended by adding at 
        the end the following new sentence: ``The tax imposed solely by 
        reason of this section shall be reduced (but not below zero) by 
        the amount of any income, war profits, and excess profits taxes 
        (within the meaning of section 903) paid to any foreign country 
        or possession of the United States on any income of the taxpayer 
        on which tax is imposed solely by reason of this section.''
            (2) Subsection (a) of section 877, as amended by subsection 
        (a), is amended by inserting ``(after any reduction in such tax 
        under the last sentence of such subsection)'' after ``such 
        subsection''.

    (e) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 2107 is 
                amended to read as follows:

    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance with the 
        table contained in section 2001 is hereby imposed
on the transfer of the taxable estate, determined as provided in section 
2106, of every decedent nonresident not a citizen of the United States 
if, within the 10-year period ending with the date of death, such 
decedent lost United States citizenship, unless such loss did not have 
for one of its principal purposes the avoidance of taxes under this 
subtitle or subtitle A.
            ``(2) Certain individuals treated as having tax 
        avoidance purpose.--
                    ``(A) In general.--For purposes of paragraph (1), an 
                individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a decedent meeting the requirements of section 
                877(c)(1).''.
                    (B) Credit for foreign death taxes.--Subsection (c) 
                of section 2107 is amended by redesignating paragraph 
                (2) as paragraph (3) and by inserting after paragraph 
                (1) the following new paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by subsection (a) 
                shall be credited with the amount of any estate, 
                inheritance, legacy, or succession taxes actually paid 
                to any foreign country in respect of any property which 
                is included in the gross estate solely by reason of 
                subsection (b).
                    ``(B) Limitation on credit.--The credit allowed by 
                subparagraph (A) for such taxes paid to a foreign 
                country shall not exceed the lesser of--
                          ``(i) the amount which bears the same ratio to 
                      the amount of such taxes actually paid to such 
                      foreign country in respect of property included in 
                      the gross estate as the value of the property 
                      included in the gross estate solely by reason of 
                      subsection (b) bears to the value of all property 
                      subjected to such taxes by such foreign country, 
                      or
                          ``(ii) such property's proportionate share of 
                      the excess of--
                                    ``(I) the tax imposed by subsection 
                                (a), over
                                    ``(II) the tax which would be 
                                imposed by section 2101 but for this 
                                section.
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate share is 
                the percentage of the value of the property which is 
                included in the gross estate solely by reason of 
                subsection (b) bears to the total value of the gross 
                estate.''.
                    (C) Expansion of inclusion in gross estate of stock 
                of foreign corporations.--Paragraph (2) of section 
                2107(b) is amended by striking ``more than 50 per-
                cent of'' and all that follows and inserting ``more than 
                50 percent of--
                    ``(A) the total combined voting power of all classes 
                of stock entitled to vote of such corporation, or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 2501(a) is 
                amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) shall not 
                apply in the case of a donor who, within the 10-year 
                period ending with the date of transfer, lost United 
                States citizenship, unless such loss did not have for 
                one of its principal purposes the avoidance of taxes 
                under this subtitle or subtitle A.
                    ``(B) Certain individuals treated as having tax 
                avoidance purpose.--For purposes of subparagraph (A), an 
                individual shall be treated as having a
principal purpose to avoid such taxes if such individual is so treated 
under section 877(a)(2).
                    ``(C) Exception for certain individuals.--
                Subparagraph (B) shall not apply to a decedent meeting 
                the requirements of section 877(c)(1).
                    ``(D) Credit for foreign gift taxes.--The tax 
                imposed by this section solely by reason of this 
                paragraph shall be credited with the amount of any gift 
                tax actually paid to any foreign country in respect of 
                any gift which is taxable under this section solely by 
                reason of this paragraph.''.

    (f) Comparable Treatment of Lawful Permanent Residents Who Cease To 
Be Taxed as Residents.--
            (1) In general.--Section 877 is amended by redesignating 
        subsection (e) as subsection (f) and by inserting after 
        subsection (d) the following new subsection:

    ``(e) Comparable Treatment of Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--
            ``(1) In general.--Any long-term resident of the United 
        States who--
                    ``(A) ceases to be a lawful permanent resident of 
                the United States (within the meaning of section 
                7701(b)(6)), or
                    ``(B) commences to be treated as a resident of a 
                foreign country under the provisions of a tax treaty 
                between the United States and the foreign country and 
                who does not waive the benefits of such treaty 
                applicable to residents of the foreign country,
        shall be treated for purposes of this section and sections 2107, 
        2501, and 6039F in the same manner as if such resident were a 
        citizen of the United States who lost United States citizenship 
        on the date of such cessation or commencement.
            ``(2) Long-term resident.--For purposes of this subsection, 
        the term `long-term resident' means any individual (other than a 
        citizen of the United States) who is a lawful permanent resident 
        of the United States in at least 8 taxable years during the 
        period of 15 taxable years ending with the taxable year during 
        which the event described in subparagraph (A) or (B) of 
        paragraph (1) occurs. For purposes of the preceding sentence, an 
        individual shall not be treated as a lawful permanent resident 
        for any taxable year if such individual is treated as a resident 
        of a foreign country for the taxable year under the provisions 
        of a tax treaty between the United States and the foreign 
        country and does not waive the benefits of such treaty 
        applicable to residents of the foreign country.
            ``(3) Special rules.--
                    ``(A) Exceptions not to apply.--Subsection (c) shall 
                not apply to an individual who is treated as provided in 
                paragraph (1).
                    ``(B) Step-up in basis.--Solely for purposes of 
                determining any tax imposed by reason of this 
                subsection, property which was held by the long-term 
                resident on the date the individual first became a 
                resident of the United States shall be treated as having 
                a basis on such date of not less than the fair market 
                value of such property on such date. The preceding 
                sentence shall not apply if the individual elects not to 
                have such sentence apply. Such an election, once made, 
                shall be irrevocable.
            ``(4) Authority to exempt individuals.--This subsection 
        shall not apply to an individual who is described in a category 
        of individuals prescribed by regulation by the Secretary.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection, 
        including regulations providing for the application of this 
        subsection in cases where an alien individual becomes a resident 
        of the United States during the 10-year period after being 
        treated as provided in paragraph (1).''.
            (2) Conforming amendments.--
                    (A) Section 2107 is amended by striking subsection 
                (d), by redesignating subsection (e) as subsection (d), 
                and by inserting after subsection (d) (as so 
                redesignated) the following new subsection:

    ``(e) Cross Reference.--
 ``For comparable treatment of long-term lawful permanent 
                    residents who ceased to be taxed as residents, 
                    see section 877(e).''.

                    (B) Paragraph (3) of section 2501(a) (as amended by 
                subsection (e)) is amended by adding at the end the 
                following new subparagraph:
                    ``(E) Cross reference.--
 ``For comparable treatment of long-term lawful permanent 
                    residents who ceased to be taxed as residents, 
                    see section 877(e).''.

    (g) Effective <<NOTE: 26 USC 877 note.>>  Date.--
            (1) In general.--The amendments made by this section shall 
        apply to--
                    (A) individuals losing United States citizenship 
                (within the meaning of section 877 of the Internal 
                Revenue Code of 1986) on or after February 6, 1995, and
                    (B) long-term residents of the United States with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) of such Code occurs on or 
                after February 6, 1995.
            (2) Ruling requests.--In no event shall the 1-year period 
        referred to in section 877(c)(1)(B) of such Code, as amended by 
        this section, expire before the date which is 90 days after the 
        date of the enactment of this Act.
            (3) Special rule.--
                    (A) In general.--In the case of an individual who 
                performed an act of expatriation specified in paragraph 
                (1), (2), (3), or (4) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-
                (4)) before February 6, 1995, but who did not, on or 
                before such date, furnish to the United States 
                Department of State a signed statement of voluntary 
                relinquishment of United States nationality confirming 
                the performance of such act, the amendments made by this 
                section and section 512 shall apply to such individual 
                except that the 10-year period described in section 
                877(a) of such Code shall not expire before the end of 
                the 10-year period beginning on the date such statement 
                is so furnished.
                    (B) Exception.--Subparagraph (A) shall not apply if 
                the individual establishes to the satisfaction of the 
                Secretary of the Treasury that such loss of United 
                States citizenship occurred before February 6, 1994.
SEC. 512. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                        CITIZENSHIP.

    (a) In General.--Subpart A of part III of subchapter A of chapter 61 
is amended by inserting after section 6039E the following new section:
``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                              CITIZENSHIP.

    ``(a) In General.--Notwithstanding any other provision of law, any 
individual who loses United States citizenship (within 
the meaning of section 877(a)) shall provide a statement which includes 
the information described in subsection (b). Such statement shall be--
            ``(1) provided not later than the earliest date of any act 
        referred to in subsection (c), and
            ``(2) provided to the person or court referred to in 
        subsection (c) with respect to such act.

    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877(a)(2)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may prescribe.

    ``(c) Acts Described.--For purposes of this section, the acts 
referred to in this subsection are--
            ``(1) the individual's renunciation of his United States 
        nationality before a diplomatic or consular officer of the 
        United States pursuant to paragraph (5) of section 349(a) of the 
        Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
            ``(2) the individual's furnishing to the United States 
        Department of State a signed statement of voluntary 
        relinquishment of United States nationality confirming the 
        performance of an act of expatriation specified in paragraph 
        (1), (2), (3), or (4) of section 349(a) of the Immigration and 
        Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
            ``(3) the issuance by the United States Department of State 
        of a certificate of loss of nationality to the individual, or
            ``(4) the cancellation by a court of the United States of a 
        naturalized citizen's certificate of naturalization.

    ``(d) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year (of the 10-year period beginning on the date of loss of United 
States citizenship) during any portion of which such failure continues 
in an amount equal to the greater of--
            ``(1) 5 percent of the tax required to be paid under section 
        877 for the taxable year ending during such year, or
            ``(2) $1,000,

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

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

``Sec. 6039F. Information on individuals losing United States 
           citizenship.''.

    (c) Effective <<NOTE: 26 USC 6039F note.>>  Date.--The amendments 
made by this section shall apply to--
            (1) individuals losing United States citizenship (within the 
        meaning of section 877 of the Internal Revenue Code of 1986) on 
        or after February 6, 1995, and
            (2) long-term residents of the United States with respect to 
        whom an event described in subparagraph (A) or (B) of section 
        877(e)(1) of such Code occurs on or after such date.

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

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

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

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

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

    (a) In General.--Paragraph (5) of section 1215(c) of the Tax Reform 
Act of 1986 (Public Law 99-514, 100 Stat. 2548) <<NOTE: 26 USC 864 
note.>>  is hereby repealed.

    (b) Effective <<NOTE: 26 USC 864 note.>>  Date.--
            (1) In general.--The amendment made by this section shall 
        apply to taxable years beginning after December 31, 1995.
            (2) Special rule.--In the case of the first taxable year 
        beginning after December 31, 1995, the pre-effective date 
        portion of the interest expense of the corporation referred to 
        in such paragraph (5) of such section 1215(c) for such taxable 
        year shall be allocated and apportioned without regard to such 
        amendment. For purposes of the preceding sentence, the pre-
        effective date portion is the amount which bears the same ratio 
        to the interest expense for such taxable year as the number of 
        days during such taxable year before the date of the enactment 
        of this Act bears to 366.

    Approved August 21, 1996.

LEGISLATIVE HISTORY--H.R. 3103 (S. 1028) (S. 1698):
---------------------------------------------------------------------------

HOUSE REPORTS: Nos. 104-496, Pt. 1 (Comm. on Ways and Means) and 104-736 
(Comm. of Conference).
SENATE REPORTS: No. 104-156 accompanying S. 1028 (Comm. on Labor and 
Human Resources).
CONGRESSIONAL RECORD, Vol. 142 (1996):
            Mar. 28, considered and passed House.
            Apr. 18, 23, considered and passed Senate, amended, in lieu 
                of S. 1028.
            Aug. 1, House agreed to conference report.
            Aug. 2, Senate agreed to conference report.
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 32 (1996):
            Aug. 21, Presidential remarks and statement.

                                  <all>
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