26 USC 7702B - Treatment of qualified long-term care insurance

U.S Code last checked for updates: Nov 22, 2024

§ 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

(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

(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

(4)

Licensed health care practitioner

(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

(5)

Inflation adjustment

(6)

Periodic payments

(e)

Treatment of coverage provided as part of a life insurance or annuity 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 or an annuity contract—

(1)

In general

(2)

Denial of deduction under section 213

(3)

Portion defined

(4)

Annuity contracts to which paragraph (1) does not apply

For purposes of this subsection, none of the following shall be treated as an annuity contract:

(A)

A trust described in section 401(a) which is exempt from tax under section 501(a).

(B)

A contract—

(i)

purchased by a trust described in subparagraph (A),

(ii)

purchased as part of a plan described in section 403(a),

(iii)

described in section 403(b),

(iv)

provided for employees of a life insurance company under a plan described in section 818(a)(3), or

(v)

from an individual retirement account or an individual retirement annuity.

(C)

A contract purchased by an employer for the benefit of the employee (or the employee’s spouse).

Any dividend described in section 404(k) which is received by a participant or beneficiary shall, for purposes of this paragraph, be treated as paid under a separate contract to which subparagraph (B)(i) applies.

(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 subparagraphs (A) through (G) of section 152(d)(2).

(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

(ii)

Coordination

(iii)

Determination

(3)

Disclosure requirement

(4)

Nonforfeiture requirements

(A)

In general

(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

(Added and amended Pub. L. 104–191, title III, §§ 321(a), 325, Aug. 21, 1996, 110 Stat. 2054, 2063; Pub. L. 105–34, title XVI, § 1602(b), (e), Aug. 5, 1997, 111 Stat. 1094; Pub. L. 105–206, title VI, § 6023(28), July 22, 1998, 112 Stat. 826; Pub. L. 108–311, title II, § 207(25), Oct. 4, 2004, 118 Stat. 1178; Pub. L. 109–280, title VIII, § 844(c), (f), Aug. 17, 2006, 120 Stat. 1011, 1013.)

cite as: 26 USC 7702B