To amend the Internal Revenue Code of 1986 to allow individuals a deduction for qualified long-term care insurance premiums, use of such insurance under cafeteria plans and flexible spending arrangements, and a credit for individuals with long-term care needs.

June 16, 2005

Mrs. DAVIS of California introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to allow individuals a deduction for qualified long-term care insurance premiums, use of such insurance under cafeteria plans and flexible spending arrangements, and a credit for individuals with long-term care needs.

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

SECTION 1. SHORT TITLE.

This Act may be cited as the `Long-Term Care Support and Incentive Act of 2005'.

SEC. 2. TREATMENT OF PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

(a) In General- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions) is amended by redesignating section 224 as section 225 and by inserting after section 223 the following new section:

`SEC. 224. PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS.

`(a) In General- In the case of an individual, there shall be allowed as a deduction an amount equal to the applicable percentage of the amount of eligible long-term care premiums (as defined in section 213(d)(10)) paid during the taxable year for coverage for the taxpayer and the spouse and dependents of the taxpayer under a qualified long-term care insurance contract (as defined in section 7702B(b)).

`(b) Applicable Percentage- For purposes of subsection (a)--

`(1) AGE 65 OR OLDER- In the case of an individual who has attained age 65 as of the close of the taxable year, the applicable percentage shall be 75 percent.

`(2) UNDER AGE 65- In the case of an individual who has not attained age 65 as of the close of the taxable year, the applicable percentage shall be 50 percent.

`(c) Coordination With Other Provisions- Any amount paid by a taxpayer for any qualified long-term care insurance contract to which subsection (a) applies shall not be taken into account in computing the amount allowable to the taxpayer as a deduction under section 162(l) or 213(a). Premiums paid by the taxpayer shall not be taken into account under subsection (a) to the extent that an amount is not includible in gross income under section 220(f) or 223(f) with respect to such payment.'.

(b) Long-Term Care Insurance Permitted to Be Offered Under Cafeteria Plans and Flexible Spending Arrangements-

(1) CAFETERIA PLANS- Section 125(f) of the Internal Revenue Code of 1986 (defining qualified benefits) is amended by inserting before the period at the end `; except that such term shall include the payment of premiums for any qualified long-term care insurance contract (as defined in section 7702B) to the extent the amount of such payment does not exceed the eligible long-term care premiums (as defined in section 213(d)(10)) for such contract'.

(2) FLEXIBLE SPENDING ARRANGEMENTS- Section 106 of such Code (relating to contributions by an employer to accident and health plans) is amended by striking subsection (c).

(c) Conforming Amendments-

(1) Section 62(a) of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

`(21) PREMIUMS ON QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS- The deduction allowed by section 224.'.

(2) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following new items:

`224. Premiums on qualified long-term care insurance contracts.

`225. Cross reference.'.

(d) Effective Date- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 3. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

(a) In General- Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to nonrefundable personal credits) is amended by inserting after section 25B the following new section:

`SEC. 25C. CREDIT FOR TAXPAYERS WITH LONG-TERM CARE NEEDS.

`(a) Allowance of Credit- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to $4,000 multiplied by the number of applicable individuals with respect to whom the taxpayer is an eligible caregiver for the taxable year.

`(b) Limitations and Adjustments-

`(1) IN GENERAL- The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $100 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds $75,000 (twice such amount in the case of a joint return). For purposes of the preceding sentence, the term `modified adjusted gross income' means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

`(2) INDEXING- In the case of any taxable year beginning in a calendar year after 2005, the $75,000 amount contained in paragraph (1) shall be increased by an amount equal to the product of--

`(A) such dollar amount, and

`(B) the medical care cost adjustment determined under section 213(d)(10)(B)(ii) for the calendar year in which the taxable year begins, determined by substituting `August of 2004' for `August of 1996' in subclause (II) thereof.

If any increase determined under the preceding sentence is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.

`(3) APPLICATION WITH OTHER CREDITS- The credit allowed by subsection (a) for any taxable year shall not exceed the excess of--

`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

`(B) the sum of the credits allowable under this subpart (other than this section) and section 27 for the taxable year.

`(c) Definitions- For purposes of this section--

`(1) APPLICABLE INDIVIDUAL-

`(A) IN GENERAL- The term `applicable individual' means, with respect to any taxable year, any individual--

`(i) who has attained age 65, and

`(ii) who has been certified, before the due date for filing the return of tax for the taxable year (without extensions), by a physician (as defined in section 1861(r)(1) of the Social Security Act) as being an individual with long-term care needs described in subparagraph (B) for a period--

`(I) which is at least 180 consecutive days, and

`(II) a portion of which occurs within the taxable year.

Such term shall not include any individual otherwise meeting the requirements of the preceding sentence unless within the 39 1/2 month period ending on such due date (or such other period as the Secretary prescribes) a physician (as so defined) has certified that such individual meets such requirements.

`(B) INDIVIDUALS WITH LONG-TERM CARE NEEDS- An individual is described in this subparagraph if the individual is unable to perform (without substantial assistance from another individual) at least 2 activities of daily living (as defined in section 7702B(c)(2)(B)) due to a loss of functional capacity.

`(2) ELIGIBLE CAREGIVER- A taxpayer shall be treated as an eligible caregiver for any taxable year with respect to the taxpayer and the taxpayer's spouse and dependents. A taxpayer shall not be treated as an eligible caregiver with respect to himself for any taxable year beginning in any calendar year if any other person is an eligible caregiver with respect to the taxpayer for a taxable year which begins in such calendar year.

`(d) Identification Requirement- No credit shall be allowed under this section to a taxpayer with respect to any applicable individual unless the taxpayer includes the name and taxpayer identification number of such individual, and the identification number of the physician certifying such individual, on the return of tax for the taxable year.

`(e) Taxable Year Must Be Full Taxable Year- Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

`(f) Carryforward of Unused Credit- If the credit allowable under subsection (a) exceeds the limitation imposed by subsection (b)(4) for the taxable year, such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.'.

(b) Conforming Amendments-

(1) Section 6213(g)(2) of the Internal Revenue Code of 1986 is amended by striking `and' at the end of subparagraph (L), by striking the period at the end of subparagraph (M) and inserting `, and', and by inserting after subparagraph (M) the following new subparagraph:

`(N) an omission of a correct TIN or physician identification required under section 25C(d) (relating to credit for taxpayers with long-term care needs) to be included on a return.'.

(2) Section 23(b)(4) is amended by striking `this section' and inserting `this section and section 25C'.

(3) Section 24(b)(3)(B) is amended by striking `23 and 25B' and inserting `23, 25B, and 25C'.

(4) Section 25(e)(1)(C) is amended by inserting `25C,' after `25B,'.

(5) Section 26(a)(1) is amended by striking `and 25B' and inserting `, 25B, and 25C'.

(6) Section 904(h) is amended by striking `and 25B' and inserting `, 25B, and 25C'.

(7) Section 1400C(d) is amended by striking `and 25B' and inserting `, 25B, and 25C'.

(8) The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 25B the following new item:

`25C. Credit for taxpayers with long-term care needs.'.

(c) Effective Date- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 4. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.

(a) Additional Protections Applicable to Long-Term Care Insurance- Subparagraphs (A) and (B) of section 7702B(g)(2) of the Internal Revenue Code of 1986 (relating to requirements of model regulation and Act) are amended to read as follows:

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

`(II) Section 6B (relating to prohibitions on limitations and exclusions).

`(III) Section 6C (relating to extension of benefits).

`(IV) Section 6D (relating to continuation or conversion of coverage).

`(V) Section 6E (relating to discontinuance and replacement of policies).

`(VI) Section 7 (relating to unintentional lapse).

`(VII) Section 8 (relating to disclosure), other than section 8F thereof.

`(VIII) Section 11 (relating to prohibitions against post-claims underwriting).

`(IX) Section 12 (relating to minimum standards).

`(X) Section 25 (relating to prohibition against preexisting conditions and probationary periods in replacement policies or certificates).

`(XI) The provisions of section 26 relating to contingent nonforfeiture benefits, if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).

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

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

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

`(III) The provisions of section 8 relating to contingent nonforfeiture benefits, if the policyholder declines the offer of a nonforfeiture provision described in paragraph (4).

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

`(i) MODEL PROVISIONS- The terms `model regulation' and `model Act' mean the long-term care insurance model regulation, and the long-term care insurance model Act, respectively, promulgated by the National Association of Insurance Commissioners (as adopted as of October 2000).

`(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.'.

(b) Excise Tax- Paragraph (1) of section 4980C(c) of such Code (relating to requirements of model provisions) is amended to read as follows:

`(1) REQUIREMENTS OF MODEL PROVISIONS-

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

`(i) Section 9 (relating to required disclosure of rating practices to consumer).'

`(ii) Section 14 (relating to application forms and replacement coverage).

`(iii) Section 15 (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.

`(iv) Section 22 (relating to filing requirements for advertising).

`(v) Section 23 (relating to standards for marketing), including inaccurate completion of medical histories, other than paragraphs (1), (6), and (9) of section 23C, 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.

`(vi) Section 24 (relating to suitability).

`(vii) Section 29 (relating to standard format outline of coverage).

`(viii) Section 30 (relating to requirement to deliver shopper's guide).

The requirements referred to in clause (vi) shall not include those portions of the personal worksheet described in Appendix B relating to consumer protection requirements not imposed by section 4980C or 7702B.

`(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 6J (relating to policy summary).

`(v) Section 6K (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).'.

(c) Additional Protections-

(1) IN GENERAL- Paragraph (1) of section 7702B(g) of such Code (relating to consumer protection provisions) is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting a comma, and by adding at the end the following new subparagraphs:

`(D) the inflation protection requirement of paragraph (5),

`(E) the lifetime deductible requirement of paragraph (6),

`(F) the interchangeability requirement of paragraph (7), and

`(G) the care management/care coordination requirement of paragraph (8).'

(2) REQUIREMENTS- Subsection (g) of section 7702B of such Code is amended by redesignating paragraph (5) as paragraph (9) and by inserting after paragraph (4) the following new paragraphs:

`(5) INFLATION PROTECTION REQUIREMENT- The requirement of this paragraph is met if the contract provides for benefit levels to rise at a rate which is meaningful to account for reasonably anticipated increases in the cost of long-term care services covered by the contract.

`(6) LIFETIME DEDUCTIBLE REQUIREMENT- The requirement of this paragraph is met if the contract requires that no more than 1 deductible amount applies for all benefits provided during the entire lifetime of the covered individual.

`(7) INTERCHANGEABILITY REQUIREMENT- The requirement of this paragraph is met if the policyholder has the sole discretion to designate how any maximum benefit amount under the contract is allocated among the benefits provided under the contract.

`(8) CARE MANAGEMENT/CARE COORDINATION REQUIREMENT-

`(A) IN GENERAL- The requirement of this paragraph is met if the contract requires that the covered individual is assigned a care manager/coordinator.

`(B) CARE MANAGER/COORDINATOR- For purposes of subparagraph (A), the term `care manager/coordinator' means an individual who, either alone or as part of a team, is responsible for performing assessments and reassessments, developing plans of care, coordinating the provision of care, and monitoring the delivery of services.'

(d) Effective Date- The amendments made by this section shall apply to policies issued more than 1 year after the date of the enactment of this Act.

END