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107th Congress
1st Session SENATE Report
107-128
_______________________________________________________________________
AMENDING CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO
FEDERAL LONG-TERM CARE INSURANCE
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
H.R. 2559
TO AMEND CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO FEDERAL
LONG-TERM CARE INSURANCE
December 18, 2001.--Ordered to be printed
COMMITTEE ON GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota JIM BUNNING, Kentucky
Joyce A. Rechtschaffen, Staff Director and Counsel
Lawrence B. Novey, Counsel
Nanci E. Langley, Deputy Staff Director, International Security,
Proliferation and Federal Services Subcommittee
Hannah S. Sistare, Minority Staff Director and Counsel
Alison E. Bean, Minority Professional Staff Member
Brooke L. Brewer, Minority Detailee, Office of Personel Management,
International Security, Proliferation and Federal Services Subcommittee
Darla D. Cassell, Chief Clerk
C O N T E N T S
Page
I. Purpose and Summary..............................................1
II. Background and Need for the Legislation..........................1
III. Section-by-Section Analysis......................................3
IV. Legislative History.............................................3
V. Regulatory Impact Statement......................................4
VI. Congressional Budget Office Cost Estimate........................4
VII. Changes in Existing Law..........................................6
107th Congress Report
SENATE
1st Session 107-128
======================================================================
AMENDING CHAPTER 90 OF TITLE 5, UNITED STATES CODE, RELATING TO FEDERAL
LONG-TERM CARE INSURANCE
_______
December 18, 2001.--Ordered to be printed
_______
Mr. Lieberman, from the Committee on Governmental Affairs, submitted
the following
R E P O R T
[To accompany H.R. 2559]
The Committee on Governmental Affairs, to which was
referred the bill (H.R. 2559) to amend chapter 90 of title 5,
United States Code, relating to Federal long-term care
insurance, having considered the same, reports favorably
thereon without amendment and recommends that the bill do pass.
I. Purpose and Summary
The Long-Term Care Security Act (LTCSA) (Public Law 106-
265) establishes a program under which qualified Federal
personnel (including postal and other civilian employees and
military personnel), retirees receiving an annuity, and certain
family members may purchase long-term care insurance from one
or more private insurance carriers. While the legislation
contained broad preemption language, it did not explicitly
prohibit States and localities from taxing LTCSA insurance
premiums. H.R. 2559 makes the LTCSA more consistent with
analogous programs under which insurance is offered to federal
employees, and makes enrollment in the LTCSA program more
affordable to potential enrollees, by amending the LTCSA to
exempt premiums under the program from State and local taxes.
The bill also expands coverage to include retired government
personnel who are not yet receiving annuity payments but are
entitled to a deferred annuity under Federal retirement
programs.
II. Background and Need for the Legislation
A. The Long-Term Care Security Act
Bills to provide a long-term care insurance benefit for
federal employees were introduced in both Houses of Congress in
the 106th Congress. In the Senate, the Governmental Affairs
Committee ordered such legislation, S. 2420, reported on June
14, 2000.\1\ The Senate incorporated the language of the
Committee bill into the companion House bill, H.R. 4040, and
passed the House bill, which, as amended by the Senate, then
passed the House with further amendment and again passed the
Senate. The LTCSA was signed into law on September 19, 2000, as
title I of Public Law 106-265, adding a new chapter 90 to title
5, United States Code (5 U.S.C. Sec. Sec. 9001-9009).
---------------------------------------------------------------------------
\1\ The Committee included in the legislation the provisions of the
Federal Retirement Coverage Corrections Act, which provides for the
correction of certain retirement coverage errors affecting federal
employees.
---------------------------------------------------------------------------
The LTCSA requires the Office of Personnel Management (OPM)
to establish and administer a program under which federal
civilian (including postal) employees, military personnel and
other members of the uniformed services, civilian and uniformed
retirees receiving an annuity, and certain relatives will be
able to purchase long-term care insurance at full cost to the
policyholder. OPM will contract with one or more carriers to
provide the insurance. ``Long-term care'' refers to a broad
range of supportive, medical, personal, and social services
designed for individuals who are limited in their ability to
function independently on a daily basis. Long-term care needs
may arise at any time due to an injury, chronic illness, or the
effects of the natural aging process. Long-term care services
can be provided in a nursing home, an assisted living facility,
the community or in the home.
Competition among carriers for the opportunity to offer
long-term care insurance under this program, together with OPM
oversight, should result in affordable premiums and attractive
benefit packages. OPM estimates that the program will reduce
the cost of long-term care insurance premiums for covered
employees by up to 20 percent. According to OPM, about 20
million people will be eligible for coverage under the LTCSA
and from 300,000 to 600,000 civilian and military personnel and
other eligible individuals will enroll in the program.
B. H.R. 2559
The LTCSA contains broad Federal preemption language, under
which the terms of any contract under the Act will supersede
and preempt any State or local law or regulation. 5 U.S.C.
Sec. 9005. This provision does not explicitly prohibit States
and localities from taxing LTCSA insurance premiums. However,
analogous programs under which insurance is offered to federal
employees--the Federal Employees Health Benefits Program
(FEHBP) and the Federal Employees Group Life Insurance Program
(FEGLI)--do specifically prohibit the imposition ofState and
local premium taxes. 5 U.S.C. Sec. Sec. 8714(c), 8909(f). Under the
LTCSA, as under these other insurance programs for federal employees,
OPM assumes the consumer-protection responsibility of regulating and
overseeing the insurance product, which would ordinarily be the
responsibility of State insurance regulators. H.R. 2559 remedies this
inconsistency in the LTCSA by adding a provision, which tracks the
provisions in FEHBP and FEGLI, to exempt premiums from State and local
taxes.
OPM estimates that, unless H.R. 2559 is enacted, State and
local premium taxes would add up to three percent to the cost
of enrollment in the LTCSA program. This added cost would arise
from both the direct cost of taxes and the administrative cost
of complying with tax laws that vary from jurisdiction to
jurisdiction across the country.
The LTCSA will not be fully implemented until late 2002.
Final long-term care insurance proposals were submitted on
October 15, 2001. Submitted proposals reflected the assumption
that premiums would not be exempt from State and local taxes.
OPM announced the selection of the winning proposal on December
18, 2001. The open season for enrollment will be late summer or
early fall of 2002. Prompt passage of H.R. 2559 will help
ensure that LTCSA premiums will reflect the reduced
administrative costs that exemption from State and local tax
collection would place on the carriers that OPM selected.
H.R. 2559 would also extend coverage to Federal employees
who have left government service but are entitled to receive a
deferred annuity under existing Federal retirement programs
such as the Civil Service Retirement System (CSRS) or the
Federal Employees Retirement System (FERS). The LTCSA now
covers federal employees, members of the uniformed services,
and former federal personnel receiving retirement benefits.
However, deferred annuitants--individuals who leave federal
service before they are entitled to an immediate annuity, but
who have worked long enough to be entitled to an annuity at a
later date--are not covered by the Act. H.R. 2559 would fill
this gap in coverage by extending the Act to allow deferred
annuitants to participate in the program.
III. Section-by-Section Analysis
Section 1. This section amends 5 U.S.C. 9001(2) to allow
all individuals over the age of 18 who are entitled to an
annuity under the Civil Service Retirement System, the Federal
Employees Retirement System, or any other retirement system for
Federal employees to apply for group long-term care insurance
through the program established in the LTCSA. The Act now only
applies to retirees entitled to an immediate annuity, so the
bill would make individuals entitled to a deferred annuity (or
a survivor annuity based upon a deferred annuity) eligible to
participate.
Section 2. This section amends 5 U.S.C. 9005 to exempt
long-term care insurance policies issued through this program
from premium taxes imposed by States, local governments, or the
Commonwealth of Puerto Rico.
Section 3. This section makes these revisions effective
retroactively as if included in the enactment of the LTCSA.
IV. Legislative History
H.R. 2559 was introduced by Rep. Scarborough on July 18,
2001. The bill was referred to the Committee on Government
Reform, the Committee on the Judiciary, and the Committee on
Resources. No hearings were held. The Committees on Government
Reform and the Judiciary each ordered the bill reported by
voice vote. Under a suspension of the rules, the House of
Representatives passed H.R. 2559 on October 30, 2001 by a vote
of 406 to 1.
In the Senate, the bill was referred to the Committee on
Governmental Affairs on October 31, 2001, and then to the
Subcommittee on International Security, Proliferation, and
Federal Services on the same day. No hearings were held. The
Subcommittee voted by polling letter in favor of the bill and
reported it back to the full Committee. On November 14, 2001,
the Committee ordered the bill reported favorably by voice vote
with no member present dissenting. Committee Members present
were Senators Akaka, Durbin, Cleland, Carper, Carnahan,
Thompson, Voinovich, Cochran, Bunning, and Lieberman.
V. Regulatory Impact Statement
Paragraph 11(b)(1) of rule XXVI of the Standing Rules of
the Senate requires that each report accompanying a bill
evaluate the ``regulatory impact which would be incurred in
carrying out this bill.'' The Committee has determined that the
enactment of this legislation will not have significant
regulatory impact. The cost estimate supplied by the
Congressional Budget Office cost estimate, set forth below,
describes that the preemption of State and local taxes under
the bill is an intergovernmental mandate within the meaning of
the Unfunded Mandates Reform Act.
VI. Congressional Budget Office Cost Estimate
H.R. 2559--An act to amend chapter 90 of title 5, United States Code,
relating to federal long-term care insurance
Summary: H.R. 2559 would expand eligibility for long-term
care insurance authorized under the Long-Term Care Security Act
(Public Law 106-265) to persons who had deferred their
eligibility for a federal retirement annuity and who, under
current law, would not be able to participate when the
enrollment period opens in 2003. CBO estimates that enactment
of H.R. 2559 would not have a significant effect on federal
spending. Because the act would affect direct spending, pay-as-
you-go procedures would apply.
H.R. 2559 would also prohibit state premium taxes on long-
term care insurance offered to federal employees, members of
the uniformed services, civilian and military retirees, and a
number of their relatives. This preemption would be an
intergovernmental mandate as defined in the Unfunded Mandates
Reform Act (UMRA). CBO estimates that states would lose
revenues totaling about $8 million annually beginning in 2003;
thus, the threshold established in UMRA ($56 million in 2001,
adjusted annually for inflation) would not be exceeded. The act
contains no private-sector mandates as defined in UMRA.
Estimated Cost to the Federal Government: Under current
law, federal retirees who are receiving an annuity will be able
to participate in the long-term care insurance program for
federal employees, but retirees deferring their annuity will
not be eligible. H.R. 2559 would allow this group to
participate. CBO estimates that about 2,000 annuitants would be
newly eligible for the long-term care insurance program for
federal employees because of H.R. 2559, but that only a portion
would purchase coverage through the federal program. Because
the federal government does not contribute to enrollees'
premiums, and the insurer or insurers would be required to
reimburse the Office of Personnel Management (OPM) for its
expenses in setting up and administering the plan, net federal
outlays would be zero over the long run.
The expenses that OPM would incur before collecting
premiums from enrollees and reimbursement from the insurers
would be funded by outlays from the federal government's
Employees' Life Insurance Fund. H.R. 2559 would not affect the
administrative costs of designing the plan and negotiating
contracts with insurers. However, the federal government would
incur additional costs to inform the additional annuitants of
their eligibility (which would primarily consist of postage and
printing additional brochures about plan choices) and the costs
incurred by OPM in registering those who choose to participate.
CBO estimates that these additional costs would total less than
$500,000 in fiscal year 2002. The costs of this legislation
fall within budget function 600 (income security).
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. Although
the additional outlays from the Employees' Life Insurance Fund
would be direct spending, CBO estimates that they would total
less than $500,000.
Estimated impact on state, local, and tribal governments:
The Long-Term Care Security Act authorized a program through
the Office of Personnel Management to offer long-term care
insurance to federal employees, members of the uniformed
services, civilian and military retirees, and a number of their
relatives. That law preempted state laws requiring certain
levels of coverage or benefit requirements that would have
applied to long-term care insurance offered under the program.
This act would extend the preemption to cover insurance premium
taxes, prohibiting states from collecting tax revenues that
otherwise would apply to the policies. This preemption would be
an intergovernmental mandate as defined in UMRA. CBO estimates
that states would lose revenues totaling about $8 million
annually beginning in 2003; thus, the threshold established in
UMRA ($56 million in 2001, adjusted annually for inflation)
would not be exceeded.
Almost all states levy taxes on health care premiums, and
in most cases those taxes also would apply to policies
providing coverage for long-term care. Premium tax rates on
health insurance generally range from less than 1 percent to
about 2.75 percent, with a large number at about 2 percent. CBO
estimates that about 220,000 employees and retirees would
takeadvantage of the new long-term care insurance and that about half
of those individuals would have at least one eligible relative who also
would purchase the insurance. Assuming an average premium of about
$1,300 annually for such insurance, CBO estimates that states would
lose about $8 million annually in revenues from the preemption of their
premium taxes.
Estimated impact on the private sector: CBO estimates that
the act would have no private-sector mandates as defined in
UMRA.
Previous CBO estimate: On October 9, 2001, CBO provided an
identical estimate for the versions of this bill that were
ordered reported by the House Committee on the Judiciary and
the House Committee on Government Reform.
Estimate prepared by: Federal costs: Charles L. Betley;
Impact on state, local, and tribal governments: Leo Lex; impact
on the private sector: Stuart Hagen.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.
VII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
H.R. 2336, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in brackets, new matter is
printed in italic, existing law in which no change is proposed
is shown in roman):
UNITED STATES CODE
TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES
* * * * * * *
PART III--EMPLOYEES
* * * * * * *
Subpart G--Insurance and Annuities
* * * * * * *
CHAPTER 90--LONG-TERM CARE INSURANCE
* * * * * * *
Sec. 9001. Definitions
For purposes of this chapter:
(1) * * *
[(2) Annuitant.--The term ``annuitant'' has the
meaning such term would have under paragraph (3) of
section 8901 if, for purposes of such paragraph, the
term ``employee'' were considered to have the meaning
given to it under paragraph (1) of this subsection.]
(2) Annuitant.--The term ``annuitant'' means--
(A) any individual who would satisfy the
requirements of paragraph (3) of section 8901
if, for purposes of such paragraph, the term
``employee'' were considered to have the
meaning given to it under paragraph (1) of this
subsection; and
(B) any individual who--
(i) satisfies all requirements for
title to an annuity under subchapter
III of chapter 83, chapter 84, or any
other retirement system for employees
of the Government (whether based on the
service of such individual or
otherwise), and files application
therefor;
(ii) is at least 18 years of age; and
(iii) would not (but for this
subparagraph) otherwise satisfy the
requirements of this paragraph.
* * * * * * *
Sec. 9005. Preemption
(a) Contractual Provisions.--The terms of any contract
under this chapter which relate to the nature, provision, or
extent of coverage or benefits (including payments with respect
to benefits) shall supersede and preempt any State or local
law, or any regulation issued thereunder, which relates to
long-term care insurance or contracts.
(b) Premiums.--
(1) In general.--No tax, fee, or other monetary
payment may be imposed or collected, directly or
indirectly, by any State, the District of Columbia, or
the Commonwealth of Puerto Rico, or by any political
subdivision or other governmental authority thereof,
on, or with respect to, any premium paid for an
insurance policy under this chapter.
(2) Rule of construction.--Paragraph (1) shall not be
construed to exempt any company or other entity issuing
a policy of insurance under this chapter from the
imposition, payment, or collection of a tax, fee, or
other monetary payment on the net income or profit
accruing to or realized by such entity from business
conducted under this chapter, if that tax, fee, or
payment is applicable to a broad range of business
activity.
* * * * * * *
