110 STAT. 2058 PUBLIC LAW 104-191—AUG. 21, 1996 "(B) which provides coverage only for qualified longterm 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).". (b) RESERVE METHOD.— Clause (iii) of section 807(d)(3)(A) is amended by inserting "(other than a qualified long-term care insurance contract, as defined in section 7702B(b))" after "insurance contract". (c) LONG-TERM CARE INSURANCE NOT PERMITTED UNDER CAFE- TERIA PLANS OR FLEXIBLE SPENDING ARRANGEMENTS.— (1) CAFETERIA PLANS. —Section 125(f) is amended by adding at the end the following new sentence: "Such term shall not include any product which is advertised, marketed, or offered as long-term care insurance.". (2) FLEXIBLE SPENDING ARRANGEMENTS.—Section 106 (relating to contributions by employer to accident and health plans), as amended by section 301(c), is amended by adding at the end the following new subsection: " (c) INCLUSION OF LONG-TERM CARE BENEFITS PROVIDED THROUGH FLEXIBLE SPENDING ARRANGEMENTS.— "(1) IN GENERAL.— Effective on and after January 1, 1997, gross income of an employee shall include employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such coverage is provided through a flexible spending or similar arrangement. " (2) FLEXIBLE SPENDING ARRANGEMENT.—For purposes of this subsection, a flexible spending arrangement is a benefit progrsim which provides employees with coverage under which— "(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable conditions), and "(B) the maximum amount of reimbursement which is reasonably available to a participant for such coverage is less than 500 percent of the value of such coverage. In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underly- ing coverage." (d) CONTINUATION COVERAGE RULES NOT TO APPLY. — (1) Paragraph (2) of section 4980B(g) is amended by adding at the end the following new sentence: "Such term shall not include any plan substantially all of the coverage under which is for qualified long-term care services (as defined in section 7702B(c)). " (2) Paragraph (1) of section 607 of the Employee Retirement 29 USC 1167. Income Security Act of 1974 is amended by adding at the end the following new sentence: "Such term shall not include any plan substantially all of the coverage under which is for qualified long-term care services (as defined in section 7702B(c) of such Code)."
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