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109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-704

======================================================================



 
           HEALTH OPPORTUNITY PATIENT EMPOWERMENT ACT OF 2006

                                _______
                                

 September 29, 2006.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 6134]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6134) to amend the Internal Revenue Code of 1986 to 
expand health coverage through the use of high deductible 
health plans and to encourage the use of health savings 
accounts, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................5
          A. Purpose and Summary.................................     5
          B. Background and Need for Legislation.................     6
          C. Legislative History.................................     6
 II. Explanation of the Bill..........................................7
          A. Present Law.........................................     7
          B. Reasons for Change..................................    11
          C. Explanation of Provision............................    12
            1. Allow rollovers from health FSAs and HRAs into 
                HSAs for a limited time..........................    12
            2. Certain FSA coverage treated as disregarded 
                coverage.........................................    13
            3. Repeal of annual plan deductible limitation on HSA 
                contribution limitation..........................    14
            4. Earlier indexing of cost of living adjustments....    14
            5. Allow full contribution for months preceding month 
                that taxpayer is an eligible individual..........    14
            6. Modify employer comparable contribution 
                requirements for contributions made to nonhighly 
                compensated employees............................    15
            7. One-time rollovers from IRAs into HSAs............    16
III. Votes of the Committee..........................................16
 IV. Budget Effects of the Bill......................................17
  V. Other Matters To Be Discussed Under the Rules of the House......21
          A. Committee Oversight Findings and Recommendations....    21
          B. Statement of General Performance Goals and 
              Objectives.........................................    21
          C. Constitutional Authority Statement..................    21
          D. Information Relating to Unfunded Mandates...........    21
          E. Applicability of House Rule XXI 5(b)................    21
          F. Tax Complexity Analysis.............................    22
          G. Tax Earmarks........................................    22
 VI. Changes in Existing Law Made by the Bill, as Reported...........22
VII. Dissenting Views................................................29

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Health Opportunity Patient Empowerment 
Act of 2006''.

SEC. 2. FSA AND HRA TERMINATIONS TO FUND HSAS.

  (a) In General.--Section 106 of the Internal Revenue Code of 1986 
(relating to contributions by employer to accident and health plans) is 
amended by adding at the end the following new subsection:
  ``(e) FSA and HRA Terminations to Fund HSAs.--
          ``(1) In general.--A plan shall not fail to be treated as a 
        health flexible spending arrangement or health reimbursement 
        arrangement under this section or section 105 merely because 
        such plan provides for a qualified HSA distribution.
          ``(2) Qualified hsa distribution.--The term `qualified HSA 
        distribution' means a distribution from a health flexible 
        spending arrangement or health reimbursement arrangement to the 
        extent that such distribution--
                  ``(A) does not exceed the lesser of the balance in 
                such arrangement on September 21, 2006, or as of the 
                date of such distribution, and
                  ``(B) is contributed by the employer directly to the 
                health savings account of the employee before January 
                1, 2012.
        Such term shall not include more than 1 distribution with 
        respect to any arrangement.
          ``(3) Additional tax for failure to maintain high deductible 
        health plan coverage.--
                  ``(A) In general.--If, at any time during the testing 
                period, the employee is not an eligible individual, 
                then the amount of the qualified HSA distribution--
                          ``(i) shall be includible in the gross income 
                        of the employee for the taxable year in which 
                        occurs the first month in the testing period 
                        for which such employee is not an eligible 
                        individual, and
                          ``(ii) the tax imposed by this chapter for 
                        such taxable year on the employee shall be 
                        increased by 10 percent of the amount which is 
                        so includible.
                  ``(B) Exception for disability or death.--Clauses (i) 
                and (ii) of subparagraph (A) shall not apply if the 
                employee ceases to be an eligible individual by reason 
                of the death of the employee or the employee becoming 
                disabled (within the meaning of section 72(m)(7)).
          ``(4) Definitions and special rules.--For purposes of this 
        subsection--
                  ``(A) Testing period.--The term `testing period' 
                means the period beginning with the month in which the 
                qualified HSA distribution is contributed to the health 
                savings account and ending on the last day of the 12th 
                month following such month.
                  ``(B) Eligible individual.--The term `eligible 
                individual' has the meaning given such term by section 
                223(c)(1).
                  ``(C) Treatment as rollover contribution.--A 
                qualified HSA distribution shall be treated as a 
                rollover contribution described in section 223(f)(5).
          ``(5) Tax treatment relating to distributions.--For purposes 
        of this title--
                  ``(A) In general.--A qualified HSA distribution shall 
                be treated as a payment described in subsection (d).
                  ``(B) Comparability excise tax.--
                          ``(i) In general.--Except as provided in 
                        clause (ii), section 4980G shall not apply to 
                        qualified HSA distributions.
                          ``(ii) Failure to offer to all employees.--In 
                        the case of a qualified HSA distribution to any 
                        employee, the failure to offer such 
                        distribution to any eligible individual covered 
                        under a high deductible health plan of the 
                        employer shall (notwithstanding section 
                        4980G(d)) be treated for purposes of section 
                        4980G as a failure to meet the requirements of 
                        section 4980G(b).''
  (b) Certain FSA Coverage Disregarded Coverage.--Subparagraph (B) of 
section 223(c)(1) of such Code (relating to certain coverage 
disregarded) is amended by striking ``and'' at the end of clause (i), 
by striking the period at the end of clause (ii) and inserting ``, 
and'', and by inserting after clause (ii) the following new clause:
                          ``(iii) for taxable years beginning after 
                        December 31, 2006, coverage under a health 
                        flexible spending arrangement during any period 
                        immediately following the end of a plan year of 
                        such arrangement during which unused benefits 
                        or contributions remaining at the end of such 
                        plan year may be paid or reimbursed to plan 
                        participants for qualified benefit expenses 
                        incurred during such period if--
                                  ``(I) the balance in such arrangement 
                                at the end of such plan year is zero, 
                                or
                                  ``(II) the individual is making a 
                                qualified HSA distribution (as defined 
                                in section 106(e)) in an amount equal 
                                to the remaining balance in such 
                                arrangement as of the end of such plan 
                                year, in accordance with rules 
                                prescribed by the Secretary.''.
  (c) Application of Section.--
          (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to distributions on or after the date of the 
        enactment of this Act.
          (2) Subsection (b).--The amendment made by subsection (b) 
        shall take effect on the date of the enactment of this Act.

SEC. 3. REPEAL OF ANNUAL DEDUCTIBLE LIMITATION ON HSA CONTRIBUTIONS.

  (a) In General.--Paragraph (2) of section 223(b) of the Internal 
Revenue Code of 1986 (relating to monthly limitation) is amended--
          (1) in subparagraph (A) by striking ``the lesser of--'' and 
        all that follows and inserting ``$2,250.'', and
          (2) in subparagraph (B) by striking ``the lesser of--'' and 
        all that follows and inserting ``$4,500.''.
  (b) Conforming Amendment.--Section 223(d)(1)(A)(ii)(I) of such Code 
is amended by striking ``subsection (b)(2)(B)(ii)'' and inserting 
``subsection (b)(2)(B)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 4. MODIFICATION OF COST-OF-LIVING ADJUSTMENT.

  Paragraph (1) of section 223(g) of the Internal Revenue Code of 1986 
(relating to cost-of-living adjustment) is amended by adding at the end 
the following new flush sentence:
        ``In the case of adjustments made for any taxable year 
        beginning after 2007, section 1(f)(4) shall be applied for 
        purposes of this paragraph by substituting `March 31' for 
        `August 31', and the Secretary shall publish the adjusted 
        amounts under subsections (b)(2) and (c)(2)(A) for taxable 
        years beginning in any calendar year no later than June 1 of 
        the preceding calendar year.''.

SEC. 5. CONTRIBUTION LIMITATION NOT REDUCED FOR PART-YEAR COVERAGE.

  (a) Increase in Limit for Individuals Becoming Eligible Individuals 
After Beginning of the Year.--Subsection (b) of section 223 of the 
Internal Revenue Code of 1986 (relating to limitations) is amended by 
adding at the end the following new paragraph:
          ``(8) Increase in limit for individuals becoming eligible 
        individuals after the beginning of the year.--
                  ``(A) In general.--For purposes of computing the 
                limitation under paragraph (1) for any taxable year, an 
                individual who is an eligible individual during the 
                last month of such taxable year shall be treated--
                          ``(i) as having been an eligible individual 
                        during each of the months in such taxable year, 
                        and
                          ``(ii) as having been enrolled, during each 
                        of the months such individual is treated as an 
                        eligible individual solely by reason of clause 
                        (i), in the same high deductible health plan in 
                        which the individual was enrolled for the last 
                        month of such taxable year.
                  ``(B) Failure to maintain high deductible health plan 
                coverage.--
                          ``(i) In general.--If, at any time during the 
                        testing period, the individual is not an 
                        eligible individual, then--
                                  ``(I) gross income of the individual 
                                for the taxable year in which occurs 
                                the first month in the testing period 
                                for which such individual is not an 
                                eligible individual is increased by the 
                                aggregate amount of all contributions 
                                to the health savings account of the 
                                individual which could not have been 
                                made but for subparagraph (A), and
                                  ``(II) the tax imposed by this 
                                chapter for any taxable year on the 
                                individual shall be increased by 10 
                                percent of the amount of such increase.
                          ``(ii) Exception for disability or death.--
                        Subclauses (I) and (II) of clause (i) shall not 
                        apply if the individual ceased to be an 
                        eligible individual by reason of the death of 
                        the individual or the individual becoming 
                        disabled (within the meaning of section 
                        72(m)(7)).
                          ``(iii) Testing period.--The term `testing 
                        period' means the period beginning with the 
                        last month of the taxable year referred to in 
                        subparagraph (A) and ending on the last day of 
                        the 12th month following such month.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 6. EXCEPTION TO REQUIREMENT FOR EMPLOYERS TO MAKE COMPARABLE 
                    HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.

  (a) In General.--Section 4980G of the Internal Revenue Code of 1986 
(relating to failure of employer to make comparable health savings 
account contributions) is amended by adding at the end the following 
new subsection:
  ``(d) Exception.--For purposes of applying section 4980E to a 
contribution to a health savings account of an employee who is not a 
highly compensated employee (as defined in section 414(q)), highly 
compensated employees shall not be treated as comparable participating 
employees.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.

SEC. 7. ONE-TIME DISTRIBUTION FROM INDIVIDUAL RETIREMENT PLANS TO FUND 
                    HSAS.

  (a) In General.--Subsection (d) of section 408 of the Internal 
Revenue Code of 1986 (relating to taxability of beneficiary of 
employees' trust) is amended by adding at the end the following new 
paragraph:
          ``(9) Distribution for health savings account funding.--
                  ``(A) In general.--In the case of an individual who 
                is an eligible individual (as defined in section 
                223(c)) and who elects the application of this 
                paragraph for a taxable year, gross income of the 
                individual for the taxable year does not include a 
                qualified HSA funding distribution to the extent such 
                distribution is otherwise includible in gross income.
                  ``(B) Qualified hsa funding distribution.--For 
                purposes of this paragraph, the term `qualified HSA 
                funding distribution' means a distribution from an 
                individual retirement plan (other than a plan described 
                in subsection (k) or (p)) of the employee to the extent 
                that such distribution is contributed to the health 
                savings account of the individual in a direct trustee-
                to-trustee transfer.
                  ``(C) Limitations.--
                          ``(i) Maximum dollar limitation.--The amount 
                        excluded from gross income by subparagraph (A) 
                        shall not exceed the excess of--
                                  ``(I) the annual limitation under 
                                section 223(b) computed on the basis of 
                                the type of coverage under the high 
                                deductible health plan covering the 
                                individual at the time of the qualified 
                                HSA funding distribution, over
                                  ``(II) in the case of a distribution 
                                described in clause (ii)(II), the 
                                amount of the earlier qualified HSA 
                                funding distribution.
                          ``(ii) One-time transfer.--
                                  ``(I) In general.--Except as provided 
                                in subclause (II), an individual may 
                                make an election under subparagraph (A) 
                                only for one qualified HSA funding 
                                distribution during the lifetime of the 
                                individual. Such an election, once 
                                made, shall be irrevocable.
                                  ``(II) Conversion from self-only to 
                                family coverage.--If a qualified HSA 
                                funding distribution is made during a 
                                month in a taxable year during which an 
                                individual has self-only coverage under 
                                a high deductible health plan as of the 
                                first day of the month, the individual 
                                may elect to make an additional 
                                qualified HSA funding distribution 
                                during a subsequent month in such 
                                taxable year during which the 
                                individual has family coverage under a 
                                high deductible health plan as of the 
                                first day of the subsequent month.
                  ``(D) Failure to maintain high deductible health plan 
                coverage.--
                          ``(i) In general.--If, at any time during the 
                        testing period, the individual is not an 
                        eligible individual, then the aggregate amount 
                        of all contributions to the health savings 
                        account of the individual made under 
                        subparagraph (A)--
                                  ``(I) shall be includible in the 
                                gross income of the individual for the 
                                taxable year in which occurs the first 
                                month in the testing period for which 
                                such individual is not an eligible 
                                individual, and
                                  ``(II) the tax imposed by this 
                                chapter for any taxable year on the 
                                individual shall be increased by 10 
                                percent of the amount which is so 
                                includible.
                          ``(ii) Exception for disability or death.--
                        Subclauses (I) and (II) of clause (i) shall not 
                        apply if the individual ceased to be an 
                        eligible individual by reason of the death of 
                        the individual or the individual becoming 
                        disabled (within the meaning of section 
                        72(m)(7)).
                          ``(iii) Testing period.--The term `testing 
                        period' means the period beginning with the 
                        month in which the qualified HSA funding 
                        distribution is contributed to a health savings 
                        account and ending on the last day of the 12th 
                        month following such month.
                  ``(E) Application of section 72.--Notwithstanding 
                section 72, in determining the extent to which an 
                amount is treated as otherwise includible in gross 
                income for purposes of subparagraph (A), the aggregate 
                amount distributed from an individual retirement plan 
                shall be treated as includible in gross income to the 
                extent that such amount does not exceed the aggregate 
                amount which would have been so includible if all 
                amounts from all individual retirement plans were 
                distributed. Proper adjustments shall be made in 
                applying section 72 to other distributions in such 
                taxable year and subsequent taxable years.''.
  (b) Coordination With Limitation on Contributions to HSAs.--Section 
223(b)(4) of such Code (relating to coordination with other 
contributions) is amended by striking ``and'' at the end of 
subparagraph (A), by striking the period at the end of subparagraph (B) 
and inserting ``, and'', and by inserting after subparagraph (B) the 
following new subparagraph:
                  ``(C) the aggregate amount contributed to health 
                savings accounts of such individual for such taxable 
                year under section 408(d)(9) (and such amount shall not 
                be allowed as a deduction under subsection (a)).''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2006.

                       I. Summary and Background


                         A. PURPOSE AND SUMMARY

Purpose

    The bill, H.R. 6134, as amended, includes provisions for 
encouraging the use of high deductible health plans and health 
savings accounts.

Summary

    Effective for distributions after the date of enactment and 
before January 1, 2012, the bill allows certain amounts in a 
health FSA or HRA to be rolled over into an HSA without 
violating the otherwise applicable requirements for such 
arrangements. With respect to coverage for taxable years 
beginning after December 31, 2006, the bill allows certain FSA 
coverage during a grace period following the end of a plan year 
to be treated as disregarded coverage. Effective for taxable 
years beginning after December 31, 2006, the bill modifies the 
limit on the annual deductible contributions that can be made 
to an HSA so that the maximum deductible contribution is not 
limited to the annual deductible under the high deductible 
health plan. Effective for adjustments made for taxable years 
beginning after 2007, the bill requires an earlier indexing 
period to be used in making cost-of-living adjustments for the 
HSA dollar amounts that are indexed for inflation. Effective 
for taxable years beginning after December 31, 2006, the bill 
allows individuals who become covered under a high deductible 
plan in a month other than January to make the full deductible 
HSA contribution for the year if certain requirements are 
satisfied. Effective for taxable years beginning after December 
31, 2006, the bill provides an exception to the comparable 
contribution requirements which allows employers to make larger 
HSA contributions for nonhighly compensated employees than for 
highly compensated employees. Effective for taxable years 
beginning after December 31, 2006, the bill allows a one-time 
contribution to an HSA of amounts distributed from an 
individual retirement arrangement.

                 B. BACKGROUND AND NEED FOR LEGISLATION

    Millions of Americans have no health insurance coverage. 
Covering America's uninsured is a top priority for the 
Congress. High deductible health plans provide an opportunity 
for many uninsured individuals to afford health insurance. High 
deductible health plans also promote more cost conscious health 
decisions. Health savings accounts (HSAs) were effective 
beginning 2004 and are available to individuals with a high 
deductible health plan (and no other health plan). Health 
savings accounts allow individuals to pay current medical 
expenses on a tax-free basis and also to save for future 
medical expenses on a tax-free basis. While relatively new to 
the market, HSAs have been very popular with both individuals 
and employers. The bill includes provisions that will increase 
the attractiveness of HSAs.

                         C. LEGISLATIVE HISTORY

Background

    H.R. 6134 was introduced on September 21, 2006, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up the bill on 
September 27, 2006, and ordered the bill, as amended, favorably 
reported.

Committee hearings

    The Committee on Ways and Means held a full Committee 
hearing on June 28, 2006, on health savings accounts.
    The Committee held a full Committee hearing on February 15, 
2006, on the President's Fiscal Year 2007 Budget with 
Department of Treasury Secretary John Snow, including the 
President's proposals relating to high deductible health plans 
and health savings accounts.

                      II. Explanation of the Bill


                             A. PRESENT LAW

Health savings accounts

            In general
    Individuals with a high deductible health plan (and no 
other health plan other than a plan that provides certain 
permitted coverage) may establish a health savings account 
(``HSA''). In general, HSAs provide tax-favored treatment for 
current medical expenses as well as the ability to save on a 
tax-favored basis for future medical expenses. In general, HSAs 
are tax-exempt trusts or custodial accounts created exclusively 
to pay for the qualified medical expenses of the account holder 
and his or her spouse and dependents.
    Within limits, contributions to an HSA made by or on behalf 
of an eligible individual are deductible by the individual. 
Contributions to an HSA are excludable from income and 
employment taxes if made by the employer. Earnings on amounts 
in HSAs are not taxable. Distributions from an HSA for 
qualified medical expenses are not includible in gross income. 
Distributions from an HSA that are not used for qualified 
medical expenses are includible in gross income and are subject 
to an additional tax of 10 percent. The 10-percent additional 
tax does not apply if the distribution is made after death, 
disability, or the individual attains the age of Medicare 
eligibility (i.e., age 65).
            Eligible individuals
    Eligible individuals for HSAs are individuals who are 
covered by a high deductible health plan and no other health 
plan that is not a high deductible health plan and which 
provides coverage for any benefit which is covered under the 
high deductible health plan. After an individual has attained 
age 65 and becomes enrolled in Medicare benefits, contributions 
cannot be made to an HSA.\1\ Eligible individuals do not 
include individuals who may be claimed as a dependent on 
another person's tax return.
---------------------------------------------------------------------------
    \1\ Sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2 I.R.B. 
269, corrected by Announcement 2004-67, 2004-36 I.R.B. 459.
---------------------------------------------------------------------------
    An individual with other coverage in addition to a high 
deductible health plan is still eligible for an HSA if such 
other coverage is certain permitted insurance or permitted 
coverage. Permitted insurance is: (1) insurance if 
substantially all of the coverage provided under such insurance 
relates to (a) liabilities incurred under worker's compensation 
law, (b) tort liabilities, (c) liabilities relating to 
ownership or use of property (e.g., auto insurance), or (d) 
such other similar liabilities as the Secretary of Treasury may 
prescribe by regulations; (2) insurance for a specified disease 
or illness; and (3) insurance that provides a fixed payment for 
hospitalization. Permitted coverage is coverage (whether 
provided through insurance or otherwise) for accidents, 
disability, dental care, vision care, or long-term care.
    A high deductible health plan is a health plan that, for 
2006, has a deductible that is at least $1,050 for self-only 
coverage or $2,100 for family coverage and that has an out-of-
pocket expense limit that is no more than $5,250 in the case of 
self-only coverage and $10,500 in the case of family 
coverage.\2\ Out-of-pocket expenses include deductibles, co-
payments, and other amounts (other than premiums) that the 
individual must pay for covered benefits under the plan. A plan 
is not a high deductible health plan if substantially all of 
the coverage is for permitted coverage or coverage that may be 
provided by permitted insurance, as described above. A plan 
does not fail to be a high deductible health plan by reason of 
failing to have a deductible for preventive care.
---------------------------------------------------------------------------
    \2\ The limits are indexed for inflation. The family coverage 
limits always will be twice the self-only coverage limits (as indexed 
for inflation). In the case of the plan using a network of providers, 
the plan does not fail to be a high deductible health plan (if it would 
otherwise meet the requirements of a high deductible health plan) 
solely because the out-of-pocket expense limit for services provided 
outside of the network exceeds the out-of-pocket expense limits. In 
addition, such plan's deductible for out-of-network services is not 
taken into account in determining the annual contribution limit (i.e., 
the deductible for services within the network is used for such 
purpose).
---------------------------------------------------------------------------
    Health flexible spending arrangement (``FSAs'') and health 
reimbursement arrangements (``HRAs'') are health plans that 
constitute other coverage under the HSA rules. These 
arrangements are discussed in more detail, below. An individual 
who is covered by a high deductible health plan and a health 
FSA or HRA generally is not eligible to make contributions to 
an HSA. An individual is eligible to make contributions to an 
HSA if the health FSA or HRA is: (1) a limited purpose health 
FSA or HRA; (2) a suspended HRA; (3) a post-deductible health 
FSA or HRA; or (4) a retirement HRA.\3\
---------------------------------------------------------------------------
    \3\ Rev. Rul. 2004-45, 2004-22 I.R.B. 1. A limited purpose health 
FSA pays or reimburses benefits for permitted coverage and a limited 
purpose HRA pays or reimburses benefits for permitted insurance or 
permitted coverage. A limited purpose health FSA or HRA may also pay or 
reimburse preventive care benefits. A suspended HRA does not pay 
medical expense incurred during a suspension period except for 
preventive care, permitted insurance and permitted coverage. A post-
deductible health FSA or HRA does not pay or reimburse any medical 
expenses incurred before the minimum annual deductible under the HSA 
rules is satisfied. A retirement HSA pays or reimburses only medical 
expenses incurred after retirement.
---------------------------------------------------------------------------
            Tax treatment of and limits on contributions
    Contributions to an HSA by or on behalf of an eligible 
individual are deductible (within limits) in determining 
adjusted gross income (i.e., ``above-the-line'') of the 
individual. In addition, employer contributions to HSAs 
(including salary reduction contributions made through a 
cafeteria plan) are excludable from gross income and wages for 
employment tax purposes. In the case of an employee, 
contributions to an HSA may be made by both the individual and 
the individual's employer. All contributions are aggregated for 
purposes of the maximum annual contribution limit. 
Contributions to Archer MSAs reduce the annual contribution 
limit for HSAs.
    The maximum aggregate annual contribution that can be made 
to an HSA is the lesser of (1) 100 percent of the annual 
deductible under the high deductible health plan, or (2) (for 
2006) $2,700 in the case of self-only coverage and $5,450 in 
the case of family coverage.\4\ The annual contribution limit 
is the sum of the limits determined separately for each month, 
based on the individual's status and health plan coverage as of 
the first day of the month. The annual contribution limits are 
increased for individuals who have attained age 55 by the end 
of the taxable year. In the case of policyholders and covered 
spouses who are age 55 or older, the HSA annual contribution 
limit is greater than the otherwise applicable limit by $700 in 
2006, $800 in 2007, $900 in 2008, and $1,000 in 2009 and 
thereafter. As in determining the general annual contribution 
limit, the increase in the annual contribution limit for 
individuals who have attained age 55 is also determined on a 
monthly basis. As previously discussed, contributions, 
including catch-up contributions, cannot be made once an 
individual is enrolled in Medicare.
---------------------------------------------------------------------------
    \4\ These amounts are indexed for inflation.
---------------------------------------------------------------------------
    In the case of individuals who are married to each other 
and either spouse has family coverage, both spouses are treated 
as having only the family coverage with the lowest annual 
deductible. The annual contribution limit (without regard to 
the catch-up contribution amounts) is divided equally between 
the spouses unless they agree on a different division (after 
reduction for amounts paid from any Archer MSA of the spouses).
    An excise tax applies to contributions in excess of the 
maximum contribution amount for the HSA. The excise tax 
generally is equal to six percent of the cumulative amount of 
excess contributions that are not distributed from the HSA.
    Amounts can be rolled over into an HSA from another HSA or 
from an Archer MSA.
            Comparable contributions
    If an employer makes contributions to employees' HSAs, the 
employer must make available comparable contributions on behalf 
of all employees with comparable coverage during the same 
period. Contributions are considered comparable if they are 
either of the same amount or the same percentage of the 
deductible under the plan. If employer contributions do not 
satisfy the comparability rule during a period, then the 
employer is subject to an excise tax equal to 35 percent of the 
aggregate amount contributed by the employer to HSAs for that 
period. The comparability rule does not apply to contributions 
made through a cafeteria plan.
            Taxation of distributions
    Distributions from an HSA for qualified medical expenses of 
the individual and his or her spouse or dependents generally 
are excludable from gross income. In general, amounts in an HSA 
can be used for qualified medical expenses even if the 
individual is not currently eligible for contributions to the 
HSA.
    Qualified medical expenses generally are defined as under 
section 213(d) and include expenses for diagnosis, cure, 
mitigation, treatment, or prevention of disease. Qualified 
medical expenses do not include expenses for insurance other 
than for (1) long-term care insurance, (2) premiums for health 
coverage during any period of continuation coverage required by 
Federal law, (3) premiums for health care coverage while an 
individual is receiving unemployment compensation under Federal 
or State law, or (4) in the case of an account beneficiary who 
has attained the age of Medicare eligibility, health insurance 
premiums for Medicare, other than premiums for Medigap 
policies. Such qualified health insurance premiums include, for 
example, Medicare Part A and Part B premiums, Medicare HMO 
premiums, and the employee share of premiums for employer-
sponsored health insurance including employer-sponsored retiree 
health insurance. Whether the expenses are qualified medical 
expenses is determined as of the time the expenses were 
incurred.
    For purposes of determining the itemized deduction for 
medical expenses, distributions from an HSA for qualified 
medical expenses are not treated as expenses paid for medical 
care under section 213. Distributions from an HSA that are not 
for qualified medical expenses are includible in gross income. 
Distributions includible in gross income also are subject to an 
additional 10-percent tax unless made after death, disability, 
or the individual attains the age of Medicare eligibility 
(i.e., age 65).
            Reporting requirements
    Employer contributions are required to be reported on the 
employee's Form W-2. Trustees of HSAs may be required to report 
to the Secretary of the Treasury amounts with respect to 
contributions, distributions, the return of excess 
contributions, and other matters as determined appropriate by 
the Secretary. In addition, the Secretary may require providers 
of high deductible health plans to make reports to the 
Secretary and to account beneficiaries as the Secretary 
determines appropriate.

Health flexible spending arrangements and health reimbursement 
        arrangements

    Arrangements commonly used by employers to reimburse 
medical expenses of their employees (and their spouses and 
dependents) include health flexible spending arrangements 
(``FSAs'') and health reimbursement accounts (``HRAs''). Health 
FSAs typically are funded on a salary reduction basis, meaning 
that employees are given the option to reduce current 
compensation and instead have the compensation used to 
reimburse the employee for medical expenses. If the health FSA 
meets certain requirements, then the compensation that is 
forgone is not includible in gross income or wages and 
reimbursements for medical care from the health FSA are 
excludable from gross income and wages. Health FSAs are subject 
to the general requirements relating to cafeteria plans, 
including a requirement that a cafeteria plan generally may not 
provide deferred compensation.\5\ This requirement often is 
referred to as the ``use-it-or-lose-it-rule.'' Until May of 
2005, this requirement was interpreted to mean that amounts 
available from a health FSA as of the end of a plan year must 
be forfeited by the employee. In May 2005, the Treasury 
Department issued a notice that allows a grace period not to 
exceed two and one-half months immediately following the end of 
the plan year during which unused amounts may be used.\6\ An 
individual participating in a health FSA that allows 
reimbursements during a grace period is generally not eligible 
to make contributions to the HSA until the first month 
following the end of the grace period even if the individual's 
health FSA has no unused benefits as of the end of the prior 
plan year.\7\ Health FSAs are subject to certain other 
requirements, including rules that require that the FSA have 
certain characteristics similar to insurance.
---------------------------------------------------------------------------
    \5\ Sec. 125(d)(2).
    \6\ Notice 2005-42, 2005-23 I.R.B. 1204.
    \7\ Notice 2005-86, 2005-49 I.R.B. 1075.
---------------------------------------------------------------------------
    HRAs operate in a manner similar to health FSAs, in that 
they are an employer-maintained arrangement that reimburses 
employees for medical expenses. Some of the rules applicable to 
HRAs and health FSAs are similar, e.g., the amounts in the 
arrangements can only be used to reimburse medical expenses and 
not for other purposes. Some of the rules are different. For 
example, HRAs cannot be funded on a salary reduction basis and 
the use-it-or-lose-it rule does not apply. Thus, amounts 
remaining at the end of the year may be carried forward to be 
used to reimburse medical expenses in the next year.\8\ 
Reimbursements for insurance covering medical care expenses are 
allowable reimbursements under an HRA, but not under a health 
FSA.
---------------------------------------------------------------------------
    \8\ Guidance with respect to HRAs, including the interaction of 
FSAs and HRAs in the case an individual is covered under both, is 
provided in Notice 2002-45, 2002-2 C.B. 93.
---------------------------------------------------------------------------
    As mentioned above, subject to certain limited exceptions, 
health FSAs and HRAs constitute other coverage under the HSA 
rules.

                         B. REASONS FOR CHANGE

    High deductible health plans, coupled with an HSA, provide 
families and individuals with the opportunity to gain better 
access to affordable health care, while encouraging saving for 
medical costs through tax-deductible contributions and tax-free 
buildup of earnings. Since their inception in 2004, the use of 
HSAs has grown rapidly. Despite this growth, the early 
experience with HSAs has revealed a number of features of 
present law that the Committee believes create obstacles to the 
use of HSAs. The Committee bill includes provisions to address 
these obstacles.
    The Committee understands that HRAs and FSAs are common 
features of many employer-sponsored health plans. However, in 
some cases, the existence of these plans may present a barrier 
to adopting high deductible plans and HSAs. Thus, the Committee 
bill allows individuals in a health FSA or HRA a one-time 
opportunity to roll over existing balances into an HSA. The 
Committee bill also provides that, if certain requirements are 
satisfied, health FSA coverage under the grace period permitted 
by Treasury rules will not disqualify an individual from making 
contributions to an HSA. These changes are intended to 
facilitate the transition to high deductible health plans.
    HSAs are designed to provide a savings vehicle to enable 
individuals to pay for their out of pocket medical expenses. 
However, under present law, in some cases individuals may be 
concerned that the HSA may not provide sufficient opportunity 
to save for possible medical expenses. For example, if an 
individual enrolls in a high deductible plan during the year, 
the individual may have exposure for the full deductible under 
the plan, whereas the permitted contribution to the HSA is 
limited by the number of months the individual was in the plan. 
The Committee bill contains a number of provisions designed to 
address this type of issue. Thus, the bill permits the full 
contribution to an HSA for individuals who enroll during the 
year. To prevent abuse of this increased contribution, the 
individual must remain in a high deductible plan for 12 months. 
The bill also allows a one-time rollover to an HSA from an IRA 
(subject to the otherwise applicable HSA contribution limits) 
and allows employers to make higher HSA contributions for 
nonhighly compensated employees than for highly compensated 
employees. The Committee bill permits individuals to make the 
maximum dollar contribution to an HSA, regardless of the 
deductible under the high deductible plan, thus allowing 
individuals to save for expenses in addition to those subject 
to the deductible, including expenses not covered by the high 
deductible plan.
    Finally, the bill modifies the method by which the cost-of-
living adjustments are made for purposes of determining whether 
a plan is a high deductible plan. This change will allow 
individuals, insurers, and employers to know in advance of a 
year what plans will qualify an individual for an HSA.

                      C. EXPLANATION OF PROVISION

1. Allow rollovers from health FSAs and HRAs into HSAs for a limited 
        time

    The provision allows certain amounts in a health FSA or HRA 
to be distributed from the health FSA or HRA and contributed 
through a direct transfer to an HSA without violating the 
otherwise applicable requirements for such arrangements. The 
amount that can be distributed from a health FSA or HRA and 
contributed to an HSA may not exceed an amount equal to the 
lesser of (1) the balance in the health FSA or HRA as of 
September 21, 2006 or (2) the balance in the health FSA or HRA 
as of the date of the distribution. The balance in the health 
FSA or HRA as of any date is determined on a cash basis (i.e., 
expenses incurred that have not been reimbursed as of the date 
the determination is made are not taken into account). Amounts 
contributed to an HSA under the provision are excludable from 
gross income and wages for employment tax purposes, are not 
taken into account in applying the maximum deduction limitation 
for other HSA contributions, and are not deductible. 
Contributions must be made directly to the HSA before January 
1, 2012. The provision is limited to one distribution with 
respect to each health FSA or HRA of the individual.
    The provision is designed to assist individuals in 
transferring from another type of health plan to a high 
deductible health plan. Thus, if an individual for whom a 
contribution is made under the provision does not remain an 
eligible individual during the testing period, the amount of 
the contribution is includible in gross income of the 
individual. An exception applies if the employee ceases to be 
an eligible individual by reason of death or disability. The 
testing period is the period beginning with the month of the 
contribution and ending on the last day of the 12th month 
following such month. The amount is includible for the taxable 
year of the first day during the testing period that the 
individual is not an eligible individual. A 10-percent 
additional tax also applies to the amount includible.
    A modified comparability rule applies with respect to 
contributions under the provision. If the employer makes 
available to any employee the ability to make contributions to 
the HSA from distributions from a health FSA or HRA under the 
provision, all employees who are covered under a high 
deductible plan of the employer must be allowed to make such 
distributions and contributions. The present-law excise tax 
applies if this requirement is not met.
    For example, suppose the balance in a health FSA as of 
September 21, 2006, is $2,000 and the balance in the account as 
January 1, 2008 is $3,000. Under the provision, a health FSA 
will not be considered to violate applicable rules if, as of 
January 1, 2008, an amount not to exceed $2,000 is distributed 
from the health FSA and contributed to an HSA of the 
individual. The $2,000 distribution would not be includible in 
income, and the subsequent contribution would not be deductible 
and would not count against the annual maximum tax deductible 
contribution that can be made to the HSA. If the individual 
ceases to be an eligible individual as of June 1, 2008, the 
$2,000 contribution amount is included in gross income and 
subject to a 10-percent additional tax. If instead the 
distribution and contribution are made as of June 30, 2008, 
when the balance in the health FSA is $1,500, the amount of the 
distribution and contribution is limited to $1,500.
    The present law rule that an individual is not an eligible 
individual if the individual has coverage under a general 
purpose health FSA or HRA continues to apply. Thus, for 
example, if the health FSA or HRA from which the contribution 
is made is a general purpose health FSA or HRA and the 
individual remains eligible under such arrangement after the 
distribution and contribution, the individual is not an 
eligible individual.
    Effective date.--The provision is effective for 
distributions and contributions on or after the date of 
enactment and before January 1, 2012.

2. Certain FSA coverage treated as disregarded coverage

    The provision provides that, for taxable years beginning 
after December 31, 2006, in certain cases, coverage under a 
health flexible spending arrangement (``FSA'') during the 
period immediately following the end of a plan year during 
which unused benefits or contributions remaining at the end of 
such plan year may be paid or reimbursed to plan participants 
for qualified expenses is disregarded coverage. Such coverage 
is disregarded if (1) the balance in the health FSA at the end 
of the plan year is zero, or (2) in accordance with rules 
prescribed by the Secretary of Treasury, the entire remaining 
balance in the health FSA at the end of the plan year is 
contributed to an HSA as provided under another provision of 
the bill.\9\
---------------------------------------------------------------------------
    \9\ The amount that can be contributed is limited to the balance in 
the health FSA as of September 21, 2006.
---------------------------------------------------------------------------
    Thus, for example, if as of December 31, 2006, a 
participant's health FSA balance is zero, coverage under the 
health FSA during the period from January 1, 2007, until March 
15, 2007 (i.e., the ``grace period'') is disregarded in 
determining if tax deductible contributions can be made to an 
HSA for that period. Similarly, if the entire balance in an 
individual's health FSA as of December 31, 2006, is distributed 
and contributed to an HSA (as under another provision of the 
bill) coverage during the health FSA grace period is 
disregarded.
    It is intended that the Secretary will provide guidance 
under the provision with respect to the timing of health FSA 
distributions contributed to an HSA in order to facilitate such 
rollovers and the establishment of HSAs in connection with high 
deductible plans. For example, it is intended that the 
Secretary would provide rules under which coverage is 
disregarded if, before the end of a year, an individual elects 
high deductible plan coverage and to contribute any remaining 
FSA balance to an HSA in accordance with the provision even if 
the trustee-to-trustee transfer cannot be completed until the 
following plan year. Similar rules apply for the general 
provision allowing amounts from a health FSA or HRA to be 
contributed to an HSA in order to facilitate such contributions 
at the beginning of an employee's first year of HSA 
eligibility.
    The provision does not modify the permitted health FSA 
grace period allowed under existing Treasury guidance.
    Effective date.--The provision is effective after the date 
of enactment with respect to coverage for taxable years 
beginning after December 31, 2006.

3. Repeal of annual plan deductible limitation on HSA contribution 
        limitation

    The provision modifies the limit on the annual deductible 
contributions that can be made to an HSA so that the maximum 
deductible contribution is not limited to the annual deductible 
under the high deductible health plan. Under the provision, the 
maximum aggregate annual contribution that can be made to an 
HSA is $2,700 (as indexed for inflation after 2006) in the case 
of self-only coverage and $5,450 (as indexed for inflation 
after 2006) in the case of family coverage.
    Effective date.--The provision is effective for taxable 
years beginning after December 31, 2006.

4. Earlier indexing of cost of living adjustments

    Under the provision, in the case of adjustments made for 
any taxable year beginning after 2007, the Consumer Price Index 
for a calendar year is determined as of the close of the 12-
month period ending on March 31 of the calendar year (rather 
than August 31 as under present law) for the purpose of making 
cost-of-living adjustments for the HSA dollar amounts that are 
indexed for inflation (i.e., the contribution limits and the 
high-deductible health plan requirements). The provision also 
requires the Secretary of Treasury to publish the adjusted 
amounts for a year no later than June 1 of the preceding 
calendar year.
    Effective date.--The provision is effective for adjustments 
made for taxable years beginning after 2007.

5. Allow full contribution for months preceding month that taxpayer is 
        an eligible individual

    In general, the provision allows individuals who become 
covered under a high deductible plan in a month other than 
January to make the full deductible HSA contribution for the 
year. Under the provision, an individual who is an eligible 
individual during the last month of a taxable year is treated 
as having been an eligible individual during every month during 
the taxable year for purposes of computing the amount that may 
be contributed to the HSA for the year. Thus, such individual 
is allowed to make contributions for months before the 
individual was enrolled in a high deductible health plan. For 
the months preceding the last month of the taxable year that 
the individual is treated as an eligible individual solely by 
reason of the provision, the individual is treated as having 
been enrolled in the same high deductible health plan in which 
the individual was enrolled during the last month of the 
taxable year.
    If an individual makes contributions under the provision 
and does not remain an eligible individual during the testing 
period, the amount of the contributions attributable to months 
preceding the month in which the individual was an eligible 
individual which could not have been made but for the provision 
are includible in gross income. An exception applies if the 
employee ceases to be an eligible individual by reason of death 
or disability. The testing period is the period beginning with 
the last month of the taxable year and ending on the last day 
of the 12th month following such month. The amount is 
includible for the taxable year of the first day during the 
testing period that the individual is not an eligible 
individual. A 10-percent additional tax also applies to the 
amount includible.
    For example, suppose individual ``A'' enrolls in high 
deductible plan ``H'' in December of 2007 and is otherwise an 
eligible individual in that month. A was not an eligible 
individual in any other month in 2007. A may make HSA 
contributions as if she had been enrolled in plan H for all of 
2007. If A ceases to be an eligible individual (e.g., if she 
ceases to be covered under the high deductible health plan) in 
June 2008, an amount equal to the HSA deduction attributable to 
treating A as an eligible individual for January through 
November 2007 is included in income in 2008. In addition, a 10-
percent additional tax applies to the amount includible.
    Effective date.--The provision is effective for taxable 
years beginning after December 31, 2006.

6. Modify employer comparable contribution requirements for 
        contributions made to nonhighly compensated employees

    The provision provides an exception to the comparable 
contribution requirements which allows employers to make larger 
HSA contributions for nonhighly compensated employees than for 
highly compensated employees. Highly compensated employees are 
defined as under section 414(q) and include any employee who 
was (1) a five-percent owner at any time during the year or the 
preceding year; or (2) for the preceding year, (A) had 
compensation from the employer in excess of $100,000 \10\ (for 
2006) and (B) if elected by the employer, was in the group 
consisting of the top-20 percent of employees when ranked based 
on compensation. Nonhighly compensated employees are employees 
not included in the definition of highly compensated employee 
under section 414(q).
---------------------------------------------------------------------------
    \10\ This amount is indexed for inflation.
---------------------------------------------------------------------------
    The comparable contribution rules continue to apply to the 
contributions made to nonhighly compensated employees so that 
the employer must make available comparable contributions on 
behalf of all nonhighly compensated employees with comparable 
coverage during the same period.
    For example, an employer is permitted to make a $1,000 
contribution to the HSA of each nonhighly compensated employee 
for a year without making contributions to the HSA of each 
highly compensated employee.
    Effective date.--The provision is effective for taxable 
years beginning after December 31, 2006.

7. One-time rollovers from IRAs into HSAs

    The provision allows a one-time contribution to an HSA of 
amounts distributed from an individual retirement arrangement 
(``IRA''). The contribution must be made in a direct trustee-
to-trustee transfer. Amounts distributed from an IRA under the 
provision are not includible in income to the extent that the 
distribution would otherwise be includible in income. In 
addition, such distributions are not subject to the 10-percent 
additional tax on early distributions.
    In determining the extent to which amounts distributed from 
the IRA would otherwise be includible in income, the aggregate 
amount distributed from the IRA is treated as includible in 
income to the extent of the aggregate amount which would have 
been includible if all amounts were distributed from all IRAs 
of the same type (i.e., in the case of a traditional IRA, there 
is no pro-rata distribution of basis). As under present law, 
this rule is applied separately to Roth IRAs and other IRAs.
    The amount that can be distributed from the IRA and 
contributed to an HSA is limited to the otherwise maximum 
deductible contribution amount to the HSA computed on the basis 
of the type of coverage under the high deductible health plan 
at the time of the contribution. The amount that can otherwise 
be contributed to the HSA for the year of the contribution from 
the IRA is reduced by the amount contributed from the IRA. No 
deduction is allowed for the amount contributed from an IRA to 
an HSA.
    Under the provision, only one distribution and contribution 
may be made during the lifetime of the individual, except that 
if a distribution and contribution are made during a month in 
which an individual has self-only coverage as of the first day 
of the month, an additional distribution and contribution may 
be made during a subsequent month within the taxable year in 
which the individual has family coverage. The limit applies to 
the combination of both contributions.
    If the individual does not remain an eligible individual 
during the testing period, the amount of the distribution and 
contribution is includible in gross income of the individual. 
An exception applies if the employee ceases to be an eligible 
individual by reason of death or disability. The testing period 
is the period beginning with the month of the contribution and 
ending on the last day of the 12th month following such month. 
The amount is includible for the taxable year of the first day 
during the testing period that the individual is not an 
eligible individual. A 10-percent additional tax also applies 
to the amount includible.
    The provision does not apply to simplified employee 
pensions (``SEPs'') or to SIMPLE retirement accounts.
    Effective date.--The provision is effective for taxable 
years beginning after December 31, 2006.

                      III. Votes of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of the bill, H.R. 6134, the ``Health Opportunity 
Patient Empowerment Act of 2006''.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 6134, was ordered favorably reported, as 
amended, by a rollcall vote of 24 yeas to 14 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present    Representatives      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Levin........  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Weller.....................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Hulshof....................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Lewis (KY).................        X   ........  .........  Mr. Emanuel......  ........        X   .........
Mr. Foley......................        X   ........  .........  .................  ........        X   .........
Mr. Brady......................        X   ........  .........  .................  ........        X   .........
Mr. Reynolds...................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
Mr. Linder.....................        X   ........  .........
Mr. Beauprez...................        X   ........  .........
Ms. Hart.......................        X   ........  .........
Mr. Chocola....................        X   ........  .........
Mr. Nunes......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. Budget Effects of the Bill


               A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 6134 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2007-2011:


B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX EXPENDITURES BUDGET 
                               AUTHORITY

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET OFFICE

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 28, 2006.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6134, the Health 
Opportunity Patient Empowerment Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Emily 
Schlect.
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 6134--Health Opportunity Patient Empowerment Act of 2006

    Summary: H.R. 6134 would make various changes to rules 
regarding health savings accounts (HSAs). It would allow fully 
deductible contributions for the entire year in which a high-
deductible insurance policy is purchased, repeal certain 
limitations on HSA contributions, and allow a one-time rollover 
of funds from certain other accounts into HSAs, among other 
changes.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 6134 would reduce federal revenues by $23 million 
in 2007, by $287 million over the 2007-2011 period, and by $1.0 
billion over the 2007-2016 period. These estimates include 
reductions in off-budget receipts from Social Security payroll 
taxes of $3 million in 2007, $30 million over the 2007-2011 
period, and $147 million over the 2007-2016 period. The 
Congressional Budget Office (CBO) estimates that enacting H.R. 
6134 would not affect direct spending.
    JCT has determined that the legislation contains no 
private-sector or intergovernmental mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 6134 is shown in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         By fiscal year, in millions of dollars--
                                                                 ---------------------------------------------------------------------------------------
                                                                   2007    2008    2009    2010    2011    2012     2013      2014      2015      2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Allowing Fully Deductible Contributions for Prior Months........     -11     -29     -33     -36     -37     -37       -35       -33       -28       -22
Repealing a Limitation on HSA Contributions.....................     -10     -17     -27     -30     -38     -50       -66      -115      -170      -190
Allowing a Rollover of Certain Funds Into an HSA................      -2      -4      -4      -4      -5      -2         0         0         0         0
Estimated Revenues..............................................     -23     -50     -64     -70     -80     -89      -101      -148      -198      -212
    On-Budget...................................................     -20     -46     -58     -63     -70     -78       -87      -125      -164      -177
    Off-Budget a................................................      -3      -4      -6      -7     -10     -11       -14       -23       -34       -35
--------------------------------------------------------------------------------------------------------------------------------------------------------
a A portion of the revenue loss from each of the three provisions affects off-budget receipts. However, the only significant off-budget effects are from
  the provision repealing a limitation on HSA contributions. The estimated off-budget effects of the other two provisions are negligible.
Source: The Joint Committee on Taxation.
Note: HSA = Health Savings Account.

    Basis of estimate: H.R. 6134 would change rules regarding 
health savings accounts. JCT estimates that enacting H.R. 6134 
would reduce federal revenues by $23 million in 2007, by $287 
million over the 2007-2011 period, and by $1.04 billion over 
the 2007-2016 period. These estimates include reductions in 
off-budget receipts from Social Security payroll taxes of $3 
million in 2007, $30 million over the 2007-2011 period, and 
$148 million over the 2007-2016 period.
    Three provisions of the bill would have significant effects 
on revenues, JCT estimates. First, the bill would permit 
taxpayers starting an HSA partway through a year to contribute 
up to the full annual limit. The taxpayer must, however, 
maintain a high-deductible health plan for a full year or pay 
tax and penalty on the contribution. JCT estimates that this 
provision would reduce revenues by $11 million in 2007, by $147 
million over the 2007-2011 period, and by $302 million over the 
2007-2016 period.
    Second, H.R. 6134 would repeal the limitation on 
contributions to HSAs that corresponds to the annual deductible 
under the high-deductible insurance policy. Under current law, 
contributions are limited to the lesser of the annual 
deductible or a specified amount (currently $2,700 for single 
coverage and $5,450 for family coverage) that is indexed for 
inflation. JCT estimates that this provision would reduce 
revenues by $10 million in 2007, by $121 million over the 2007-
2011 period, and by $712 million over the 2007-2016 period. Of 
those revenue reductions, a portion would be off-budget--
totaling $148 million over the 2007-2016 period.
    Finally, the bill would allow employees to start an HSA by 
making a one-time transfer of amounts in a health reimbursement 
account for flexible spending account as of September 21, 2006. 
Such a transfer would have to be completed by January 1, 2012. 
JCT estimates that the provision would reduce revenues by $2 
million in 2007, by $19 million over the 2007-2011 period, and 
by $21 million over the 2007-2016 period.
    Intergovernmental and private-sector impact: JCT has 
determined that the legislation contains no private-sector or 
intergovernmental mandates as defined in UMRA.
    Estimated prepared by: Emily Schlect.
    Estimated approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                    D. MACROECONOMIC IMPACT ANALYSIS

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the staff of Joint Committee on Taxation with respect 
to the provisions of the bill amending the Internal Revenue 
Code of 1986: the effects of the bill on economic activity are 
so small as to be incalculable within the context of a model of 
the aggregate economy.

     V. Other Matters To Be Discussed Under the Rules of the House


          A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning Americans' need for health 
insurance coverage and the need to save for medical expenses 
that the Committee concluded that it is appropriate and timely 
to enact the provisions included in the bill as reported.

        B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. CONSTITUTIONAL AUTHORITY STATEMENT

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises . . .''), and from the 16th Amendment to the 
Constitution.

              D. INFORMATION RELATING TO UNFUNDED MANDATES

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (Pub. L. No. 104-4).
    The Committee has determined that the revenue provisions of 
the bill do not contain Federal mandates on the private sector. 
The Committee has determined that the revenue provision of the 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments. With respect to the non-
revenue provisions of the bill, see the CBO letter in part 
IV.C., above.

                E. APPLICABILITY OF HOUSE RULE XXI 5(B)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. TAX COMPLEXITY ANALYSIS

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Code and that have ``widespread 
applicability'' to individuals or small businesses.

                            G. TAX EARMARKS

    Pursuant to House Resolution 1000, the staff of the Joint 
Committee on Taxation has determined that the bill as reported 
contains no tax earmarks within the meaning of that Resolution.

       VI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *



SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) FSA and HRA Terminations to Fund HSAs.--
          (1) In general.--A plan shall not fail to be treated 
        as a health flexible spending arrangement or health 
        reimbursement arrangement under this section or section 
        105 merely because such plan provides for a qualified 
        HSA distribution.
          (2) Qualified hsa distribution.--The term ``qualified 
        HSA distribution'' means a distribution from a health 
        flexible spending arrangement or health reimbursement 
        arrangement to the extent that such distribution--
                  (A) does not exceed the lesser of the balance 
                in such arrangement on September 21, 2006, or 
                as of the date of such distribution, and
                  (B) is contributed by the employer directly 
                to the health savings account of the employee 
                before January 1, 2012.
        Such term shall not include more than 1 distribution 
        with respect to any arrangement.
          (3) Additional tax for failure to maintain high 
        deductible health plan coverage.--
                  (A) In general.--If, at any time during the 
                testing period, the employee is not an eligible 
                individual, then the amount of the qualified 
                HSA distribution--
                          (i) shall be includible in the gross 
                        income of the employee for the taxable 
                        year in which occurs the first month in 
                        the testing period for which such 
                        employee is not an eligible individual, 
                        and
                          (ii) the tax imposed by this chapter 
                        for such taxable year on the employee 
                        shall be increased by 10 percent of the 
                        amount which is so includible.
                  (B) Exception for disability or death.--
                Clauses (i) and (ii) of subparagraph (A) shall 
                not apply if the employee ceases to be an 
                eligible individual by reason of the death of 
                the employee or the employee becoming disabled 
                (within the meaning of section 72(m)(7)).
          (4) Definitions and special rules.--For purposes of 
        this subsection.--
                  (A) Testing period.--The term ``testing 
                period'' means the period beginning with the 
                month in which the qualified HSA distribution 
                is contributed to the health savings account 
                and ending on the last day of the 12th month 
                following such month.
                  (B) Eligible individual.--The term ``eligible 
                individual'' has the meaning given such term by 
                section 223(c)(1).
                  (C) Treatment as rollover contribution.--A 
                qualified HSA distribution shall be treated as 
                a rollover contribution described in section 
                223(f)(5).
          (5) Tax treatment relating to distributions.--For 
        purposes of this title.--
                  (A) In general.--A qualified HSA distribution 
                shall be treated as a payment described in 
                subsection (d).
                  (B) Comparability excise tax.--
                          (i) In general.--Except as provided 
                        in clause (ii), section 4980G shall not 
                        apply to qualified HSA distributions.
                          (ii) Failure to offer to all 
                        employees.--In the case of a qualified 
                        HSA distribution to any employee, the 
                        failure to offer such distribution to 
                        any eligible individual covered under a 
                        high deductible health plan of the 
                        employer shall (notwithstanding section 
                        4980G(d)) be treated for purposes of 
                        section 4980G as a failure to meet the 
                        requirements of section 4980G(b).

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 223. HEALTH SAVINGS ACCOUNTS.

  (a) * * *
  (b) Limitations.--
          (1) * * *
          (2) Monthly limitation.--The monthly limitation for 
        any month is 1/12 of.--
                  (A) in the case of an eligible individual who 
                has self-only coverage under a high deductible 
                health plan as of the first day of such month, 
                [the lesser of--
                          [(i) the annual deductible under such 
                        coverage, or
                          [(ii) $2,250, or] $2,250.
                  (B) in the case of an eligible individual who 
                has family coverage under a high deductible 
                health plan as of the first day of such month, 
                [the lesser of--
                          [(i) the annual deductible under such 
                        coverage, or
                          [(ii) $4,500.] $4,500.

           *       *       *       *       *       *       *

          (4) Coordination with other contributions.--The 
        limitation which would (but for this paragraph) apply 
        under this subsection to an individual for any taxable 
        year shall be reduced (but not below zero) by the sum 
        of--
                  (A) the aggregate amount paid for such 
                taxable year to Archer MSAs of such individual, 
                [and]
                  (B) the aggregate amount contributed to 
                health savings accounts of such individual 
                which is excludable from the taxpayer's gross 
                income for such taxable year under section 
                106(d) (and such amount shall not be allowed as 
                a deduction under subsection (a))[.], and
                  (C) the aggregate amount contributed to 
                health savings accounts of such individual for 
                such taxable year under section 408(d)(9) (and 
                such amount shall not be allowed as a deduction 
                under subsection (a)).

           *       *       *       *       *       *       *

          (8) Increase in limit for individuals becoming 
        eligible individuals after the beginning of the year.--
                  (A) In general.--For purposes of computing 
                the limitation under paragraph (1) for any 
                taxable year, an individual who is an eligible 
                individual during the last month of such 
                taxable year shall be treated--
                          (i) as having been an eligible 
                        individual during each of the months in 
                        such taxable year, and
                          (ii) as having been enrolled, during 
                        each of the months such individual is 
                        treated as an eligible individual 
                        solely by reason of clause (i), in the 
                        same high deductible health plan in 
                        which the individual was enrolled for 
                        the last month of such taxable year.
                  (B) Failure to maintain high deductible 
                health plan coverage.--
                          (i) In general.--If, at any time 
                        during the testing period, the 
                        individual is not an eligible 
                        individual, then--
                                  (I) gross income of the 
                                individual for the taxable year 
                                in which occurs the first month 
                                in the testing period for which 
                                such individual is not an 
                                eligible individual is 
                                increased by the aggregate 
                                amount of all contributions to 
                                the health savings account of 
                                the individual which could not 
                                have been made but for 
                                subparagraph (A), and
                                  (II) the tax imposed by this 
                                chapter for any taxable year on 
                                the individual shall be 
                                increased by 10 percent of the 
                                amount of such increase.
                          (ii) Exception for disability or 
                        death.--Subclauses (I) and (II) of 
                        clause (i) shall not apply if the 
                        individual ceased to be an eligible 
                        individual by reason of the death of 
                        the individual or the individual 
                        becoming disabled (within the meaning 
                        of section 72(m)(7)).
                          (iii) Testing period.--The term 
                        ``testing period'' means the period 
                        beginning with the last month of the 
                        taxable year referred to in 
                        subparagraph (A) and ending on the last 
                        day of the 12th month following such 
                        month.
  (c) Definitions and special rules.--For purposes of this 
section.--
          (1) Eligible individual
                  (A) * * *
                  (B) Certain coverage disregarded.--
                Subparagraph (A)(ii) shall be applied without 
                regard to.--
                          (i) coverage for any benefit provided 
                        by permitted insurance, [and]
                          (ii) coverage (whether through 
                        insurance or otherwise) for accidents, 
                        disability, dental care, vision care, 
                        or long-term care[.], and
                          (iii) for taxable years beginning 
                        after December 31, 2006, coverage under 
                        a health flexible spending arrangement 
                        during any period immediately following 
                        the end of a plan year of such 
                        arrangement during which unused 
                        benefits or contributions remaining at 
                        the end of such plan year may be paid 
                        or reimbursed to plan participants for 
                        qualified benefit expenses incurred 
                        during such period if--
                                  (I) the balance in such 
                                arrangement at the end of such 
                                plan year is zero, or
                                  (II) the individual is making 
                                a qualified HSA distribution 
                                (as defined in section 106(e)) 
                                in an amount equal to the 
                                remaining balance in such 
                                arrangement as of the end of 
                                such plan year, in accordance 
                                with rules prescribed by the 
                                Secretary.

           *       *       *       *       *       *       *

  (d) Health savings account.--For purposes of this section--
          (1) In general.--The term ``health savings account'' 
        means a trust created or organized in the United States 
        as a health savings account exclusively for the purpose 
        of paying the qualified medical expenses of the account 
        beneficiary, but only if the written governing 
        instrument creating the trust meets the following 
        requirements:
                  (A) Except in the case of a rollover 
                contribution described in subsection (f)(5) or 
                section 220(f)(5), no contribution will be 
                accepted--
                          (i) * * *
                          (ii) to the extent such contribution, 
                        when added to previous contributions to 
                        the trust for the calendar year, 
                        exceeds the sum of--
                                  (I) the dollar amount in 
                                effect under [subsection 
                                (b)(2)(B)(ii)] subsection 
                                (b)(2)(B), and

           *       *       *       *       *       *       *

  (g) Cost-of-living adjustment.--
          (1) In general.--Each dollar amount in subsections 
        (b)(2) and (c)(2)(A) shall be increased by an amount 
        equal to--
                  (A) * * *

           *       *       *       *       *       *       *

        In the case of adjustments made for any taxable year 
        beginning after 2007, section 1(f)(4) shall be applied 
        for purposes of this paragraph by substituting ``March 
        31'' for ``August 31'', and the Secretary shall publish 
        the adjusted amounts under subsections (b)(2) and 
        (c)(2)(A) for taxable years beginning in any calendar 
        year no later than June 1 of the preceding calendar 
        year.

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, etc.

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.

           *       *       *       *       *       *       *


Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Tax treatment of distributions.--
                  (1) * * *

           *       *       *       *       *       *       *

          (9) Distribution for health savings account 
        funding.--
                  (A) In general.--In the case of an individual 
                who is an eligible individual (as defined in 
                section 223(c)) and who elects the application 
                of this paragraph for a taxable year, gross 
                income of the individual for the taxable year 
                does not include a qualified HSA funding 
                distribution to the extent such distribution is 
                otherwise includible in gross income.
                  (B) Qualified hsa funding distribution.--For 
                purposes of this paragraph, the term 
                ``qualified HSA funding distribution'' means a 
                distribution from an individual retirement plan 
                (other than a plan described in subsection (k) 
                or (p)) of the employee to the extent that such 
                distribution is contributed to the health 
                savings account of the individual in a direct 
                trustee-to-trustee transfer.
                  (C) Limitations.--
                          (i) Maximum dollar limitation.--The 
                        amount excluded from gross income by 
                        subparagraph (A) shall not exceed the 
                        excess of--
                                  (I) the annual limitation 
                                under section 223(b) computed 
                                on the basis of the type of 
                                coverage under the high 
                                deductible health plan covering 
                                the individual at the time of 
                                the qualified HSA funding 
                                distribution, over
                                  (II) in the case of a 
                                distribution described in 
                                clause (ii)(II), the amount of 
                                the earlier qualified HSA 
                                funding distribution.
                          (ii) One-time transfer.--
                                  (I) In general.--Except as 
                                provided in subclause (II), an 
                                individual may make an election 
                                under subparagraph (A) only for 
                                one qualified HSA funding 
                                distribution during the 
                                lifetime of the individual. 
                                Such an election, once made, 
                                shall be irrevocable.
                                  (II) Conversion from self-
                                only to family coverage.--If a 
                                qualified HSA funding 
                                distribution is made during a 
                                month in a taxable year during 
                                which an individual has self-
                                only coverage under a high 
                                deductible health plan as of 
                                the first day of the month, the 
                                individual may elect to make an 
                                additional qualified HSA 
                                funding distribution during a 
                                subsequent month in such 
                                taxable year during which the 
                                individual has family coverage 
                                under a high deductible health 
                                plan as of the first day of the 
                                subsequent month.
                  (D) Failure to maintain high deductible 
                health plan coverage.--
                          (i) In general.--If, at any time 
                        during the testing period, the 
                        individual is not an eligible 
                        individual, then the aggregate amount 
                        of all contributions to the health 
                        savings account of the individual made 
                        under subparagraph (A)--
                                  (I) shall be includible in 
                                the gross income of the 
                                individual for the taxable year 
                                in which occurs the first month 
                                in the testing period for which 
                                such individual is not an 
                                eligible individual, and
                                  (II) the tax imposed by this 
                                chapter for any taxable year on 
                                the individual shall be 
                                increased by 10 percent of the 
                                amount which is so includible.
                          (ii) Exception for disability or 
                        death.--Subclauses (I) and (II) of 
                        clause (i) shall not apply if the 
                        individual ceased to be an eligible 
                        individual by reason of the death of 
                        the individual or the individual 
                        becoming disabled (within the meaning 
                        of section 72(m)(7)).
                          (iii) Testing period.--The term 
                        ``testing period'' means the period 
                        beginning with the month in which the 
                        qualified HSA funding distribution is 
                        contributed to a health savings account 
                        and ending on the last day of the 12th 
                        month following such month.
                  (E) Application of section 72.--
                Notwithstanding section 72, in determining the 
                extent to which an amount is treated as 
                otherwise includible in gross income for 
                purposes of subparagraph (A), the aggregate 
                amount distributed from an individual 
                retirement plan shall be treated as includible 
                in gross income to the extent that such amount 
                does not exceed the aggregate amount which 
                would have been so includible if all amounts 
                from all individual retirement plans were 
                distributed. Proper adjustments shall be made 
                in applying section 72 to other distributions 
                in such taxable year and subsequent taxable 
                years.

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 43--QUALIFIED PENSION, ETC., PLANS

           *       *       *       *       *       *       *


SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS 
                    ACCOUNT CONTRIBUTIONS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Exception.--For purposes of applying section 4980E to a 
contribution to a health savings account of an employee who is 
not a highly compensated employee (as defined in section 
414(q)), highly compensated employees shall not be treated as 
comparable participating employees.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    Get your facts first, then you can distort them as you 
please.--Mark Twain
    Passage of H.R. 6134 is reckless and inappropriate. Health 
Savings Accounts (HSAs) have only been available since 2004 and 
we have limited information about the effect of these products 
on the insurance market. Neither the Department of Treasury nor 
the Joint Committee on Taxation were able to provide any 
evidence at the mark-up of H.R. 6134 that the changes made in 
the bill are warranted. Before we allocate an additional 
billion dollars to expand,\1\ Congress should have more 
information. Furthermore, given the potential of HSAs to 
displace or otherwise undermine more comprehensive health 
insurance benefits offered through employers--which cover 
nearly 60 percent of the working population--Congress should 
not create additional incentives to proliferate these schemes.
---------------------------------------------------------------------------
    \1\ Joint Committee on Taxation estimate of HR 6134, September 25, 
2006.
---------------------------------------------------------------------------
    Preliminary analysis by the Government Accountability 
Office (GAO)--the only independent source to review available 
IRS data from tax returns--shows that HSAs primarily benefit 
individuals in the highest tax bracket.\2\ Specifically, the 
GAO found that the average adjusted gross income of tax filers 
reporting HSA contributions in 2004 was $133,000, compared to 
$51,000 for all tax filers under age 65 in 2004. The GAO also 
found that more than half of tax filers with HSAs in 2004 did 
not make any withdrawals, indicating that these accounts are 
used primarily as a tax shelter. Another survey found that 20 
percent of employers admit that they established HSAs primarily 
as a tax shelter for their workers.\3\
---------------------------------------------------------------------------
    \2\ Government Accountability Office, GAO 06-798: ``Consumer-
Directed Health Plans. Early Enrollee Experiences with Health Savings 
Accounts and Eligible Health Plans.'' Washington, DC; August 2006.
    \3\ Mercer Human Resources Consulting, ``2005 National Survey of 
Employer-Sponsored Health Plans.'' Washington, DC; April 3, 2006.
---------------------------------------------------------------------------
    Proponents of HSAs often claim that they will help the 
uninsured. They cite data from the insurance industry showing 
approximately one-third of the people enrolling in high-
deductible health insurance plans that qualify for an HSA were 
previously uninsured. But this finding is not unique to high 
deductible/HSA plans; it is true for all plans purchased 
through the individual and small group market. Indeed, the 
number of people in the United States without health insurance 
has increased by two million since HSAs took effect in 2004, 
and the most recent data from the Census Bureau indicate that 
nearly 47 million Americans are uninsured, a disgraceful new 
record.
    Not surprisingly, the Joint Committee on Taxation (JCT) 
estimates that H.R. 6134 will do virtually nothing to help the 
uninsured, having only a ``negligible effect'' on the number of 
people with health insurance.\4\ Moreover, the JCT also 
estimates that H.R. 6134 will result in just 300,000 additional 
people opening an HSA over the next 10 years, further stating 
that ``almost all of these accountholders would have been 
previously insured.'' \5\ Thus, rather than providing 
assistance to those truly in need, H.R. 6134 gives an 
additional tax break to people who already have health 
insurance. In the current fiscal environment and in light of 
other more pressing matters before this Congress, we believe it 
is irresponsible to give an additional billion dollars in tax 
breaks to top wage earners.
---------------------------------------------------------------------------
    \4\ Joint Committee on Taxation estimate of HR 6134, September 25, 
2006.
    \5\ ibid.
---------------------------------------------------------------------------
    In these waning days of the 109th Congress, there are much 
better ways to spend $1 billion. As Rep. Becerra highlighted 
during the mark-up, if Congress does not act to supplement 
funding for the State Children's Health Insurance Program (S-
CHIP), 600,000 children across America will likely lose their 
health insurance coverage next year. The S-CHIP shortfall would 
cost less than the $1 billion being spent on H.R. 6134. 
Maintaining health insurance for children is a much more 
important endeavor than providing yet another tax-preferred 
savings vehicle that will primarily benefit the rich.
    Even if we were inclined to support the legislation--which 
we are not--it would still be too soon to act. Although tax 
records are available from 2004--the first year HSAs were 
available--the Department of the Treasury has repeatedly 
refused to release data that would inform the debate on HSAs. 
Nor has Treasury released assumptions behind their budget 
estimates on HSAs despite our repeated annual written 
requests.\6\ Again, it is wrong for Congress to expand this 
new, untested program without a more complete picture of its 
beneficiaries and the broader implications of HSAs.
---------------------------------------------------------------------------
    \6\ Congressman Stark Letter to Secretary Snow, Department of the 
Treasury, February 8, 2005 and Congressmen McDermott and Stark Letter 
to Secretary Snow, Department of the Treasury, February 17, 2006.
---------------------------------------------------------------------------
    The single positive outcome of the Committee action on H.R. 
6134 is that we have received a commitment from the Chairman to 
make a joint request to the Treasury to release the IRS data on 
HSAs for 2004 and, even if preliminary, 2005. As Thomas 
Jefferson said, ``Information is the currency of democracy.'' 
We look forward to working with the Chairman in this endeavor.

                                   Sander Levin.
                                   Jim McDermott.
                                   Michael R. McNulty.
                                   Rahm Emanuel.
                                   Richard E. Neal.
                                   Ben Cardin.
                                   Stephanie Tubbs Jones.
                                   C.B. Rangel.
                                   Pete Stark.
                                   Lloyd Doggett.
                                   Xavier Becerra.
                                   John B. Larson.
                                   John Lewis.