26 U.S.C. § 7702B — Treatment of qualified long-term care insurance

(a) General rule. For this title, a qualified long-term care insurance contract is treated as accident and health insurance. Except for policyholder dividends defined in section 808 and premium refunds, money received under such a contract is treated as money received for personal injury and sickness and as reimbursement for medical-care expenses actually incurred, as section 213(d) defines that term. An employer plan that provides this coverage is treated as an accident and health plan for that coverage. Except for subsection (e)(3), amounts paid for a contract that provides the benefits described in subsection (b)(2)(A) are treated as payments made for insurance for section 213(d)(1)(D). A qualified contract is also treated as guaranteed renewable under section 816(e).

(b) Qualified long-term care insurance contract. (1) In general. The term "qualified long-term care insurance contract" means an insurance contract if: (A) its only insurance protection is coverage for qualified long-term care services; (B) it does not pay or reimburse expenses to the extent those expenses are reimbursable under title XVIII of the Social Security Act, or would be reimbursable but for a deductible or coinsurance amount; (C) it is guaranteed renewable; (D) it has no cash-surrender value or other money that can be paid, assigned, or pledged as collateral for a loan, or borrowed, except as allowed by subparagraph (E) or paragraph (2)(C); (E) all premium refunds, policyholder dividends, and similar amounts are applied to reduce future premiums or increase future benefits; and (F) it meets subsection (g). This section does not define "qualified long-term care services," "guaranteed renewable," or the other quoted terms unless it does so below.

(2) Special rules. (A) A contract does not fail the requirements in paragraph (1)(A) or (B) merely because it pays a daily amount or other periodic amount without regard to the expenses incurred during the period. (B)(i) Paragraph (1)(B) does not apply to expenses reimbursable under title XVIII only as a secondary payer. (ii) No law may be read to prohibit offering a qualified contract because it coordinates benefits with title XVIII benefits. (C) Paragraph (1)(E) does not apply to a refund at the insured person's death, or on complete surrender or cancellation, if the refund cannot exceed total premiums paid. A refund on complete surrender or cancellation is included in gross income to the extent a deduction or exclusion was allowed for the premiums.

(c) Qualified long-term care services. (1) The term "qualified long-term care services" means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal-care services, that (A) a chronically ill individual needs and (B) a licensed health care practitioner prescribes in a plan of care. This section does not otherwise define "necessary" or "plan of care.

(2) Chronically ill individual. (A) The term means an individual whom a licensed health care practitioner certifies as: (i) unable, without substantial help from another person, to perform at least two activities of daily living for at least 90 days because of lost functional capacity; (ii) having a similar level of disability, as regulations prescribed by the Secretary^* in consultation with the Secretary of Health and Human Services determine; or (iii) needing substantial supervision to protect the individual from health and safety threats caused by severe cognitive impairment. The term does not include a person who otherwise meets the requirements unless, during the preceding 12 months, a licensed health care practitioner certified that the person met them. (B) The activities of daily living are eating, toileting, transferring, bathing, dressing, and continence. A contract is not qualified unless the determination under subparagraph (A)(i) considers at least five of these activities.

(3) Maintenance or personal-care services means care whose main purpose is to give needed help with a disability that makes the individual chronically ill, including protection from health and safety threats caused by severe cognitive impairment. (4) Licensed health care practitioner means a physician as defined in section 1861(r)(1) of the Social Security Act, a registered professional nurse, a licensed social worker, or another person meeting requirements prescribed by the Secretary.

(d) Aggregate payments above limits. (1) If the total of (A) periodic payments received for a period under all qualified contracts and treated as payment for qualified long-term care services for an insured person and (B) periodic payments received for that period and treated under section 101(g) as paid because the insured died is greater than the per-day limit for that period, the excess is included in gross income without applying section 72. A payment is not counted under (B) if the insured was terminally ill, as section 101(g) defines that term, when the payment was received.

(2) The per-day limit is the greater of (A)(i) the dollar amount in paragraph (4), or (ii) the costs of qualified long-term care services provided to the insured during the period, minus (B) all insurance or other reimbursement payments received for those services during the period. If the result is negative, the limit is zero. (3) All people receiving the described payments for the same insured are treated as one person. The limit is assigned first to the insured, and any remainder is assigned among the other people as the Secretary prescribes. (4) The dollar amount is $175 per day, or the equivalent for another payment period. (5) For a calendar year after 1997, this amount increases at the same time and in the same way as amounts under section 213(d)(10). (6) A "periodic payment" is any payment made periodically or otherwise without regard to the payee's actual qualified long-term-care costs.

(e) Coverage in life or annuity contracts. Unless regulations provide otherwise, long-term-care coverage, qualified or not, provided by a rider on or as part of a life-insurance or annuity contract is treated as a separate contract. (1) This title applies as if the coverage portion were separate. (2) Section 213(a) allows no deduction for qualified-contract coverage paid as a charge against a life policy's cash-surrender value or an annuity's cash value. (3) "Portion" means only the terms and benefits added to the life or annuity contract because of the long-term-care coverage. (4) For this subsection, an annuity contract does not include: (A) a tax-exempt section 401(a) trust; (B) a contract purchased by such a trust, purchased as part of a section 403(a) plan, described in section 403(b), provided to life-insurance-company employees under section 818(a)(3), or from an individual retirement account or annuity; or (C) an employer-purchased contract benefiting an employee^* or the employee's spouse. A section 404(k) dividend received by a participant or beneficiary is treated as paid under a separate contract to which (B)(i) applies.

(f) State-maintained plans. (1) If a person receives qualified long-term-care coverage under a State long-term-care plan, and the plan's terms would satisfy subsection (b) if it were an insurance contract, the plan is treated as a qualified contract for this title. (2) A State long-term-care plan is a plan established and maintained by a State or its instrumentality, covering only qualified long-term-care services, and covering only (A) State employees and former employees, including employees of a State political subdivision or instrumentality, (B) their spouses, and (C) people related to those employees or spouses in a way described in section 152(d)(2)(A) through (G).

(g) Consumer protections. (1) A contract satisfies this subsection if it meets (A) the model-regulation and model-Act requirements in paragraph (2), (B) paragraph (3)'s disclosure requirement, and (C) paragraph (4)'s nonforfeiture requirements. (2)(A) The contract must meet these model-regulation provisions: section 7A and related section 6B requirements on guaranteed renewal or noncancellability; 7B on limits and exclusions; 7C on extending benefits; 7D on continuing or converting coverage; 7E on discontinuing and replacing policies; 8 on unintentional lapse; 9, except 9F, on disclosure; 10 on post-claims underwriting; 11 on minimum standards; 12 on offering inflation protection, with a signature rejecting inflation protection allowed on an application or separate form; and 23 on preexisting conditions and probationary periods in replacement policies or certificates. It must also meet model-Act sections 6C on preexisting conditions and 6D on prior hospitalization. (B) Here, "model regulation" and "model Act" mean the long-term care insurance model regulation and model Act promulgated by the National Association of Insurance Commissioners as adopted in January 1993. Each listed provision includes other provisions needed to implement it. The Secretary decides whether a requirement has been met for this section and section 4980C. (3) The disclosure requirement is met if the contract satisfies section 4980C(d). (4)(A) For a level-premium contract, the issuer must offer the policyholder, including a group policyholder, a nonforfeiture provision meeting subparagraph (B). (B) The provision must have an appropriate caption; provide a benefit if premiums are not paid, with later adjustments allowed only as needed to reflect claims, persistency, and interest shown in approved rate changes for the same contract form; and provide at least one of reduced paid-up insurance, extended-term insurance, a shortened benefit period, or another similar offering approved by the proper State regulator. (5) Section 4980C(f) addresses coordination with State requirements.