
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC7702B]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                Subtitle F--Procedure and Administration
 
                         CHAPTER 79--DEFINITIONS
 
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 described in 
        subparagraph (A)(i) 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 section 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).

(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 insurance model regulation, and the long-
            term care insurance model Act, respectively, promulgated by 
            the National Association of Insurance Commissioners (as 
            adopted as of January 1993).
            (ii) Coordination

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

                         (5) Cross reference

            For coordination of the requirements of this subsection with 
        State requirements, see section 4980C(f).

(Added and amended Pub. L. 104-191, title III, Secs. 321(a), 325, Aug. 
21, 1996, 110 Stat. 2054, 2063; Pub. L. 105-34, title XVI, Sec. 1602(b), 
(e), Aug. 5, 1997, 111 Stat. 1094; Pub. L. 105-206, title VI, 
Sec. 6023(28), July 22, 1998, 112 Stat. 826.)

 Adjustment of Dollar Amount of Per Diem Limitation Regarding Periodic 
                     Payments for Calendar Year 2001

        For adjustment of dollar amount of per diem limitation on 
    periodic payments received under qualified long-term care or certain 
    life insurance contracts under subsection (d)(4) of this section for 
    calendar year 2001, see section 3.27 of Revenue Procedure 2001-13, 
    set out as a note under section 1 of this title.

                       References in Text

    The Social Security Act, referred to in subsec. (b)(1)(B), 
(2)(B)(i), is act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. 
Title XVIII of the Act is classified generally to subchapter XVIII 
(Sec. 1395 et seq.) of chapter 7 of Title 42, The Public Health and 
Welfare. Section 1861(r)(1) of the Act is classified to section 
1395x(r)(1) of Title 42. For complete classification of this Act to the 
Code, see section 1305 of Title 42 and Tables.


                               Amendments

    1998--Subsec. (e)(2). Pub. L. 105-206 inserted ``section'' after 
``Application of'' in heading.
    1997--Subsec. (c)(2)(B). Pub. L. 105-34, Sec. 1602(b), inserted 
``described in subparagraph (A)(i)'' after ``chronically ill 
individual'' in concluding provisions.
    Subsec. (g)(4)(B)(ii), (iii)(IV). Pub. L. 105-34, Sec. 1602(e), 
substituted ``appropriate State regulatory agency'' for ``Secretary''.
    1996--Subsec. (g). Pub. L. 104-191, Sec. 325, added subsec. (g).


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 effective as if included in the 
provisions of the Health Insurance Portability and Accountability Act of 
1996, Pub. L. 104-191, to which such amendment relates, see section 
1602(i) of Pub. L. 105-34, set out as a note under section 26 of this 
title.


                    Effective Date of 1996 Amendment

    Amendment by section 325 of Pub. L. 104-191 applicable to contracts 
issued after Dec. 31, 1996, with provisions of section 321(f) of Pub. L. 
104-191, set out as an Effective Date note below, applicable to such 
contracts, see section 327 of Pub. L. 104-191, set out as an Effective 
Date note under section 4980C of this title.


                             Effective Date

    Section 321(f) of Pub. L. 104-191 provided that:
    ``(1) General effective date.--
        ``(A) In general.--Except as provided in subparagraph (B), the 
    amendments made by this section [enacting this section and amending 
    sections 106, 125, 807, and 4980B of this title, section 1167 of 
    Title 29, Labor, and section 300bb-8 of Title 42, The Public Health 
    and Welfare] shall apply to contracts issued after December 31, 
    1996.
        ``(B) Reserve method.--The amendment made by subsection (b) 
    [amending section 807 of this title] 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 
[sic] 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 [Aug. 21, 1996] 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.''


                      Long-Term Care Study Request

    Section 321(g) of Pub. L. 104-191 provided that: ``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. 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.''

                  Section Referred to in Other Sections

    This section is referred to in sections 101, 106, 162, 213, 220, 
807, 818, 4980B, 4980C of this title; title 5 sections 9001, 9002; title 
12 section 1715z-20; title 29 section 1167; title 42 section 300bb-8.
