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114th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 114-308
======================================================================
RESTORING ACCESS TO MEDICATION ACT OF 2015
_______
October 23, 2015.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Ryan of Wisconsin, from the Committee on Ways and Means, submitted
the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 1270]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 1270) to amend the Internal Revenue Code of 1986 to
repeal the amendments made by the Patient Protection and
Affordable Care Act which disqualify expenses for over-the-
counter drugs under health savings accounts and health flexible
spending arrangements, 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...........................................2
A. Purpose and Summary................................... 2
B. Background and Need for Legislation................... 2
C. Legislative History................................... 2
II. EXPLANATION OF THE BILL..........................................3
A. Repeal of the Disqualification of Expenses for Over-
the-Counter Drugs under Certain Accounts and
Arrangements (sec. 2 of the bill and secs. 106, 220,
223 of the Code)..................................... 3
III. VOTES OF THE COMMITTEE...........................................6
IV. BUDGET EFFECTS OF THE BILL.......................................6
A. Committee Estimate of Budgetary Effects............... 6
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority........................ 7
C. Cost Estimate Prepared by the Congressional Budget
Office............................................... 7
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......10
A. Committee Oversight Findings and Recommendations...... 10
B. Statement of General Performance Goals and Objectives. 10
C. Information Relating to Unfunded Mandates............. 11
D. Applicability of House Rule XXI 5(b).................. 11
E. Tax Complexity Analysis............................... 11
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits.............................. 16
G. Duplication of Federal Programs....................... 16
H. Disclosure of Directed Rule Makings................... 16
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........16
A. Text of Existing Law Amended or Repealed by the Bill,
as Reported.......................................... 16
B. Changes in Existing Law Proposed by the Bill, as
Reported............................................. 39
VII. ADDITIONAL VIEWS................................................62
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 ``Restoring Access to Medication Act of
2015''.
SEC. 2. REPEAL OF DISQUALIFICATION OF EXPENSES FOR OVER-THE-COUNTER
DRUGS UNDER CERTAIN ACCOUNTS AND ARRANGEMENTS.
(a) HSAs.--Section 223(d)(2)(A) of the Internal Revenue Code of 1986
is amended by striking the last sentence.
(b) Archer MSAs.--Section 220(d)(2)(A) of such Code is amended by
striking the last sentence.
(c) Health Flexible Spending Arrangements and Health Reimbursement
Arrangements.--Section 106 of such Code is amended by striking
subsection (f).
(d) Effective Date.--The amendments made by this section shall apply
to expenses incurred after December 31, 2015.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 1270, as reported by the Committee on Ways
and Means, repeals the prohibition on using tax-free funds from
HSAs, Archer MSAs, health FSAs, and HRAs to purchase over-the-
counter medication.
B. Background and Need for Legislation
While the Committee continues to actively pursue health
care reform to relieve unnecessary burdens on the broader
economy and on taxpayers in need of access to quality health
care, the Committee also believes it is important to provide
immediate relief from taxes imposing excessive constraints on
individual choice. The Committee believes that eliminating the
prohibition on using tax-free funds from HSAs, Archer MSAs,
health FSAs, and HRAs to purchase over-the-counter medication
will relieve an unfair tax burden.
C. Legislative History
Background
H.R. 1270 was introduced on March 4, 2015, and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 1270, the
``Restoring Access to Medication Act of 2015'' on September 17,
2015, and ordered the bill, as amended, favorably reported
(with a quorum being present).
Committee hearings
The harmful effects of the prohibition on using tax-favored
funds from various health-related savings and reimbursement
vehicles to purchase over-the-counter medication was discussed
at one hearing during the 114th Congress:
Full Committee Hearing on Obamacare Implementation
and the Department of Health and Human Services FY 16 Budget
Request (June 10, 2015).
II. EXPLANATION OF THE BILL
A. Repeal of the Disqualification of Expenses for Over-the-Counter
Drugs Under Certain Accounts and Arrangements (sec. 2 of the bill and
secs. 106, 220, 223 of the Code)
PRESENT LAW
Individual deduction for medical expenses
Expenses for medical care, not compensated for by insurance
or otherwise, are deductible by an individual under the rules
relating to itemized deductions to the extent the expenses
exceed 10 percent of adjusted gross income (``AGI'') in a given
year.\1\ Medical care generally is defined broadly as amounts
paid for the diagnosis, cure, mitigation, treatment or
prevention of disease, or for the purpose of affecting any
structure of the body.\2\
---------------------------------------------------------------------------
\1\Sec. 213(a). The threshold is 7.5 percent for taxable years
beginning before January 1, 2017, with respect to a taxpayer if the
taxpayer or the taxpayer's spouse has attained age 65 before the close
of the taxable year. Except where otherwise stated, all references are
to the Internal Revenue Code of 1986, as amended.
\2\Sec. 213(d). There are certain limitations on the general
definition including a rule that cosmetic surgery or similar procedures
are generally not medical care.
---------------------------------------------------------------------------
Under an explicit limitation, any amount paid during a
taxable year for medicine or drugs is deductible as a medical
expense only if the medicine or drug is a prescribed drug or
insulin.\3\ Prescribed drug for this purpose means a drug or
biological which requires a prescription of a physician for its
use by an individual.\4\ Thus, any amount paid for medicine
available without a prescription (``over-the-counter
medicine'') is not deductible as a medical expense, including
any medicine prescribed or recommended by a physician.\5\
---------------------------------------------------------------------------
\3\Sec. 213(b).
\4\Sec. 213(d)(3).
\5\Rev. Rul. 2003-58, 2003-1 C.B. 959.
---------------------------------------------------------------------------
Exclusion for employer-provided health benefits
Employees are not taxed on (that is, may exclude from gross
income and from wages for payroll tax purposes) the value of
employer-provided health coverage under an accident or health
plan.\6\ In addition, any reimbursements under an employer-
provided accident or health plan for medical care expenses for
employees, their spouses, their dependents, and adult children
under age 27 generally are excludible from gross income (and
from wages for payroll tax purposes).\7\
---------------------------------------------------------------------------
\6\Secs. 106 and 3121(a)(2).
\7\Sec. 105(b).
---------------------------------------------------------------------------
An employer may agree to reimburse expenses for medical
care of its employees (and their spouses, dependents, and adult
children under age 27), not covered by a health insurance plan,
through a flexible spending arrangement (``FSA'') which allows
reimbursement not in excess of a specified dollar amount,
provided the amount is only available for reimbursement for
medical care.\8\ The amount available for reimbursement is
either elected by an employee under a cafeteria plan (``health
FSA'') or otherwise specified by the employer under a health
reimbursement arrangement (``HRA''). Reimbursements under these
arrangements are also excludible from gross income (and from
wages for payroll tax purposes) as reimbursements for medical
care under employer-provided health coverage.
---------------------------------------------------------------------------
\8\Treas. Reg. sec. 1.105-2.
---------------------------------------------------------------------------
Health savings accounts
An individual with a high deductible health plan (and no
other health plan other than a plan that provides certain
permitted insurance or permitted coverage) may establish a
health savings account (``HSA'').\9\ 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. Thus, earnings on amounts in HSAs are not taxable.
---------------------------------------------------------------------------
\9\Sec. 223.
---------------------------------------------------------------------------
Subject to limits,\10\ contributions made to an HSA by an
employer, including contributions made through a cafeteria plan
through salary reduction, are excludible from income (and from
wages for payroll tax purposes). Contributions made by
individuals are deductible for income tax purposes, regardless
of whether the individuals itemize deductions. Distributions
from an HSA that are used for qualified medical expenses are
excludible from 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 20
percent. The 20-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). Similar
rules apply for another type of medical savings arrangement
called an Archer medical savings account (``Archer MSA'').\11\
---------------------------------------------------------------------------
\10\For 2015, the maximum aggregate annual contribution that can be
made to an HSA is $3,350 in the case of self-only coverage and $6,650
in the case of family coverage. The annual contribution limits are
increased by $1,000 for individuals who have attained age 55 by the end
of the taxable year (referred to as ``catch-up contributions'').
Contributions, including catch-up contributions, cannot be made once an
individual is enrolled in Medicare.
\11\Sec. 220.
---------------------------------------------------------------------------
Medical care for excludible reimbursements
For purposes of the exclusion for reimbursements under
employer-provided accident and health plans (including under
health FSAs and HRAs), and for distributions from HSAs and
Archer MSAs used for qualified medical expenses, the definition
of medical care is generally the same as the definition that
applies for the itemized deduction for the cost of medical
care. However, prior to the enactment of the Patient Protection
and Affordable Care Act (referred to as the ``Affordable Care
Act''),\12\ the limitation (applicable to the itemized
deduction) that only prescription medicines or drugs and
insulin are taken into account did not apply. Thus, for
example, amounts paid from a health FSA or HRA, or funds
distributed from an HSA to reimburse a taxpayer for over-the-
counter medicine, such as nonprescription aspirin, allergy
medicine, antacids, or pain relievers, were excludible from
income even though, if the taxpayer paid for such amounts
directly (without such reimbursement), the expenses could not
be taken into account in determining the itemized deduction for
medical expenses.\13\
---------------------------------------------------------------------------
\12\The Patient Protection and Affordable Care Act, Pub. L. No 111-
148, enacted March 23, 2010, and the Health Care and Education
Reconciliation Act of 2010, Pub. L. No. 111-152, enacted March 30,
2010, are collectively referred to as the Affordable Care Act..
\13\Rev. Rul. 2003-102, 2993-2 C.B. 559, obsoleted by Rev. Rul.
2010-23, 2010-39 I.R.B. 388.
---------------------------------------------------------------------------
For years beginning after December 31, 2010, the Affordable
Care Act changed the definition of medical care for purposes of
the exclusion for reimbursements for medical care under
employer-provided accident and health plans and for
distributions from HSAs and Archer MSAs used for qualified
medical expenses to require that over-the-counter medicine
(other than insulin) be prescribed by a physician in order for
the medicine to be medical care for these purposes.\14\ Thus,
under present law, preferential treatment under a health FSA or
an HRA is available only on reimbursements for the cost of
over-the-counter medicine if the medicine is prescribed by a
physician, and distributions from an HSA or an Archer MSA used
to purchase over-the-counter medicine are not a qualified
medical expense unless the medicine is prescribed by a
physician.\15\
---------------------------------------------------------------------------
\14\Sec. 9003 of the Affordable Care Act. Notice 2010-59, 2010-39
I.R.B. 388, provides guidance on this change to the definition of
medical care for these purposes.
\15\This rule still differs from the rule in section 213(a) and
(d)(3) disallowing the medical expense deduction for over-the-counter
medicine. Under the section 213 rule, the expense for any medicine
available without a prescription (other than insulin) is not deductible
even if the particular individual has a prescription.
---------------------------------------------------------------------------
REASON FOR CHANGE
The Committee observes that the requirement that over-the-
counter medicine requires a prescription in order to be an
eligible expense for individuals and families covered by a
health FSA, HSA, HRA, or Archer MSA has left these consumers
with three options: (1) seek an unnecessary appointment with a
doctor to obtain a prescription, and then submit the purchase
for reimbursement under a health FSA account; (2) purchase the
over-the-counter medicine out-of-pocket, which significantly
increases the after-tax cost to the consumer; or (3) forego
treatment entirely and suffer from the symptoms of the
condition. The Committee notes that all three options increase
costs to the consumer and to our healthcare system. The
Committee therefore believes that the provision of the
Affordable Care Act that disqualified expenses for over-the-
counter medicine (unless obtained with a prescription) from
being medical expenses under health FSAs, HRAs, HSAs, and
Archer HSAs should be repealed.
EXPLANATION OF PROVISION
The provision repeals the change to the definition of
medical care made by the Affordable Care Act for purposes of
the exclusion for reimbursements for medical care under
employer-provided accident and health plans and for
distributions from HSAs or Archer MSAs used for qualified
medical expenses that requires that over-the-counter medicine
(other than insulin) be prescribed by a physician in order for
the medicine to qualify for tax-favored treatment under these
health-related savings and reimbursement vehicles. Thus, for
example, amounts paid from a health FSA or HRA, or funds
distributed from an HSA or an Archer MSA, to reimburse a
taxpayer for over-the-counter medicine, such as nonprescription
aspirin, allergy medicine, antacids, or pain relievers, will be
tax-free in accordance with the general rules associated with
those health-related savings and reimbursement vehicles.
EFFECTIVE DATE
The provision is effective with respect to expenses
incurred after December 31, 2015.
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 H.R. 1270, the ``Restoring Access to
Medication Act of 2015,'' on September 17, 2015.
The Chairman's amendment in the nature of a substitute was
adopted by a voice vote (with a quorum being present).
The bill, H.R. 1270, was ordered favorably reported as
amended to the House of Representatives by a voice vote (with a
quorum being present).
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 1270, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal budget receipts for fiscal years 2016-
2025:\[1]\
FISCAL YEARS
[Millions of Dollars]
----------------------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-20 2016-25
----------------------------------------------------------------------------------------------------------------
-305 -527 -561 -600 -645 -695 -744 -796 -852 -909 -2,638 -6,634
----------------------------------------------------------------------------------------------------------------
\[1]\Estimate includes the following off-budget effects:
----------------------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-20 2016-25
----------------------------------------------------------------------------------------------------------------
-82 -120 -100 -110 -115 -115 -125 -135 -140 -140 -527 -1,182
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: the gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
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 22, 2015.
Hon. Paul Ryan
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. 1270, the
Restoring Access to Medication Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 1270--Restoring Access to Medication Act of 2015
Summary: H.R. 1270 would amend the Internal Revenue Code to
repeal the provisions that disqualify expenses for over-the-
counter medicine under health savings accounts (HSAs), Archer
medical savings accounts (Archer MSAs), health flexible
spending arrangements (FSAs), and health reimbursement
arrangements (HRAs). The staff of the Joint Committee on
Taxation (JCT) estimates that enacting H.R. 1270 would reduce
revenues by about $6.6 billion over the 2016-2025 period. Of
that reduction, about $1.2 billion would result from changes in
off-budget revenues (from Social Security payroll taxes, which
are categorized as off-budget). Pay-as-you-go procedures apply
because enacting the legislation would affect on-budget
revenues.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.R. 1270 is shown in the following table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-------------------------------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-2020 2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN REVENUES
Estimated Revenues............ -305 -527 -561 -600 -645 -695 -744 -796 -852 -909 -2,638 -6,634
On-budget................. -223 -407 -461 -490 -530 -580 -619 -661 -712 -769 -2,111 -5,452
Off-budget................ -82 -120 -100 -110 -115 -115 -125 -135 -140 -140 -527 -1,182
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Basis of Estimate: The bill would allow taxpayers to be
reimbursed for purchases of over-the-counter medications from
their HSAs, Archer MSAs, FSAs, and HRAs. Under current law,
expenses for over-the-counter medications are not eligible for
reimbursement from those accounts unless the medicine is
prescribed by a physician. The bill would expand the expenses
eligible for reimbursement under these health accounts, which
provide tax-favored treatment for medical expenses. The bill
would be effective for expenses incurred after December 31,
2015. JCT estimates that enacting H.R. 1270 would reduce on-
budget revenues by about $5.4 billion and off-budget revenues
by about $1.2 billion from 2016 through 2025, thereby
increasing federal deficits by about $6.6 billion over that
period.
Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in revenues that are subject to those
pay-as-you-go procedures are shown in the following table. Only
on-budget changes to outlays or revenues are subject to pay-as-
you-go procedures.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1270, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 17, 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-----------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016-2020 2016-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE ON-BUDGET DEFICIT
Statutory Pay-As-You-Go Effects................... 223 407 461 490 530 580 619 661 712 769 2,111 5,452
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Intergovernmental and private-sector impact: JCT has
determined that the bill contains no intergovernmental or
private-sector mandates as defined in UMRA.
Estimate prepared by: Peter Huether.
Estimate approved by: David Weiner, Assistant Director for
Tax Analysis.
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 as a result of the
Committee's review of the provisions of H.R. 1270 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
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. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. 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 bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
The following statement is made pursuant to clause 3(h)(1)
of rule XIII of the Rules of the House of Representatives.
Section 4022(b) of the Internal Revenue Service Restructuring
and Reform Act of 1998 requires the staff of the Joint
Committee on Taxation (in consultation with the Internal
Revenue Service and the Treasury Department) 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 and has
widespread applicability to individuals or small businesses.
For each such provision identified by the staff of the Joint
Committee on Taxation a summary description of the provision is
provided along with an estimate of the number and type of
affected taxpayers, and a discussion regarding the relevant
complexity and administrative issues.
1. Modifications to definition of medical care with respect
to over-the-counter-medicine
Summary description of the provisions
The provision changes the definition of medical care for
purposes of the exclusion for reimbursements for medical care
under employer-provided accident and health plans (which
include health FSAs and HRAs) and for distributions from HSAs
or Archer MSAs used for qualified medical expenses to include
over-the-counter medicine not prescribed by a physician.
Number of affected taxpayers
It is estimated that the provision will affect over ten
percent of individual tax returns.
Discussion
Taxpayers voluntarily claiming reimbursement for over-the-
counter medicines may have an increased burden in record
keeping and claim submissions.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
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) General Rule.--Except as otherwise provided in this
section, gross income of an employee does not include employer-
provided coverage under an accident or health plan.
(b) Contributions to Archer Msas.--
(1) In general.--In the case of an employee who is an
eligible individual, amounts contributed by such
employee's employer to any Archer MSA of such employee
shall be treated as employer-provided coverage for
medical expenses under an accident or health plan to
the extent such amounts do not exceed the limitation
under section 220(b)(1) (determined without regard to
this subsection) which is applicable to such employee
for such taxable year.
(2) No constructive receipt.--No amount shall be
included in the gross income of any employee solely
because the employee may choose between the
contributions referred to in paragraph (1) and employer
contributions to another health plan of the employer.
(3) Special rule for deduction of employer
contributions.--Any employer contribution to an Archer
MSA, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in
which paid.
(4) Employer MSA contributions required to be shown
on return.--Every individual required to file a return
under section 6012 for the taxable year shall include
on such return the aggregate amount contributed by
employers to the Archer MSAs of such individual or such
individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage.--
Paragraph (1) shall not apply for purposes of section
4980B.
(6) Definitions.--For purposes of this subsection,
the terms ``eligible individual'' and ``Archer MSA''
have the respective meanings given to such terms by
section 220.
(7) Cross reference.--For penalty on failure by
employer to make comparable contributions to the Archer
MSAs of comparable employees, see section 4980E.
(c) Inclusion of Long-Term Care Benefits Provided Through
Flexible Spending Arrangements.--
(1) In general.--Gross income of an employee shall
include employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c)) to
the extent that such coverage is provided through a
flexible spending or similar arrangement.
(2) Flexible spending arrangement.--For purposes of
this subsection, a flexible spending arrangement is a
benefit program which provides employees with coverage
under which--
(A) specified incurred expenses may be
reimbursed (subject to reimbursement maximums
and other reasonable conditions), and
(B) the maximum amount of reimbursement which
is reasonably available to a participant for
such coverage is less than 500 percent of the
value of such coverage.
In the case of an insured plan, the maximum amount
reasonably available shall be determined on the basis
of the underlying coverage.
(d) Contributions to Health Savings Accounts.--
(1) In general.--In the case of an employee who is an
eligible individual (as defined in section 223(c)(1)),
amounts contributed by such employee's employer to any
health savings account (as defined in section 223(d))
of such employee shall be treated as employer-provided
coverage for medical expenses under an accident or
health plan to the extent such amounts do not exceed
the limitation under section 223(b) (determined without
regard to this subsection) which is applicable to such
employee for such taxable year.
(2) Special rules.--Rules similar to the rules of
paragraphs (2), (3), (4), and (5) of subsection (b)
shall apply for purposes of this subsection.
(3) Cross reference.--For penalty on failure by
employer to make comparable contributions to the health
savings accounts of comparable employees, see section
4980G.
(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).
(f) Reimbursements for Medicine Restricted to Prescribed
Drugs and Insulin.--For purposes of this section and section
105, reimbursement for expenses incurred for a medicine or a
drug shall be treated as a reimbursement for medical expenses
only if such medicine or drug is a prescribed drug (determined
without regard to whether such drug is available without a
prescription) or is insulin.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 220. ARCHER MSAS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by such individual to an Archer MSA of such
individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is the amount equal to 1/12 of--
(A) in the case of an individual who has
self-only coverage under the high deductible
health plan as of the first day of such month,
65 percent of the annual deductible under such
coverage, and
(B) in the case of an individual who has
family coverage under the high deductible
health plan as of the first day of such month,
75 percent of the annual deductible under such
coverage.
(3) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) of this
paragraph) shall be divided equally between
them unless they agree on a different division.
(4) Deduction not to exceed compensation.--
(A) Employees.--The deduction allowed under
subsection (a) for contributions as an eligible
individual described in subclause (I) of
subsection (c)(1)(A)(iii) shall not exceed such
individual's wages, salaries, tips, and other
employee compensation which are attributable to
such individual's employment by the employer
referred to in such subclause.
(B) Self-employed individuals.--The deduction
allowed under subsection (a) for contributions
as an eligible individual described in
subclause (II) of subsection (c)(1)(A)(iii)
shall not exceed such individual's earned
income (as defined in section 401(c)(1))
derived by the taxpayer from the trade or
business with respect to which the high
deductible health plan is established.
(C) Community property laws not to apply.--
The limitations under this paragraph shall be
determined without regard to community property
laws.
(5) Coordination with exclusion for employer
contributions.--No deduction shall be allowed under
this section for any amount paid for any taxable year
to an Archer MSA of an individual if--
(A) any amount is contributed to any Archer
MSA of such individual for such year which is
excludable from gross income under section
106(b), or
(B) if such individual's spouse is covered
under the high deductible health plan covering
such individual, any amount is contributed for
such year to any Archer MSA of such spouse
which is so excludable.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(c) Definitions.--For purposes of this section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month,
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan, and
(iii)
(I) the high deductible
health plan covering such
individual is established and
maintained by the employer of
such individual or of the
spouse of such individual and
such employer is a small
employer, or
(II) such individual is an
employee (within the meaning of
section 401(c)(1)) or the
spouse of such an employee and
the high deductible health plan
covering such individual is not
established or maintained by
any employer of such individual
or spouse.
(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.
(C) Continued eligibility of employee and
spouse establishing Archer MSAs.--If, while an
employer is a small employer--
(i) any amount is contributed to an
Archer MSA of an individual who is an
employee of such employer or the spouse
of such an employee, and
(ii) such amount is excludable from
gross income under section 106(b) or
allowable as a deduction under this
section,
such individual shall not cease to meet the
requirement of subparagraph (A)(iii)(I) by
reason of such employer ceasing to be a small
employer so long as such employee continues to
be an employee of such employer.
(D) Limitations on eligibility.--For
limitations on number of taxpayers who are
eligible to have Archer MSAs, see subsection
(i).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) in the case of self-only
coverage, which has an annual
deductible which is not less than
$1,500 and not more than $2,250,
(ii) in the case of family coverage,
which has an annual deductible which is
not less than $3,000 and not more than
$4,500, and
(iii) the annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $3,000 for self-only
coverage, and
(II) $5,500 for family
coverage.
(B) Special rules.--
(i) Exclusion of certain plans.--Such
term does not include a health plan if
substantially all of its coverage is
coverage described in paragraph (1)(B).
(ii) Safe harbor for absence of
preventive care deductible.--A plan
shall not fail to be treated as a high
deductible health plan by reason of
failing to have a deductible for
preventive care if the absence of a
deductible for such care is required by
State law.
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Small employer.--
(A) In general.--The term ``small employer''
means, with respect to any calendar year, any
employer if such employer employed an average
of 50 or fewer employees on business days
during either of the 2 preceding calendar
years. For purposes of the preceding sentence,
a preceding calendar year may be taken into
account only if the employer was in existence
throughout such year.
(B) Employers not in existence in preceding
year.--In the case of an employer which was not
in existence throughout the 1st preceding
calendar year, the determination under
subparagraph (A) shall be based on the average
number of employees that it is reasonably
expected such employer will employ on business
days in the current calendar year.
(C) Certain growing employers retain
treatment as small employer.--The term ``small
employer'' includes, with respect to any
calendar year, any employer if--
(i) such employer met the requirement
of subparagraph (A) (determined without
regard to subparagraph (B)) for any
preceding calendar year after 1996,
(ii) any amount was contributed to
the Archer MSA of any employee of such
employer with respect to coverage of
such employee under a high deductible
health plan of such employer during
such preceding calendar year and such
amount was excludable from gross income
under section 106(b) or allowable as a
deduction under this section, and
(iii) such employer employed an
average of 200 or fewer employees on
business days during each preceding
calendar year after 1996.
(D) Special rules.--
(i) Controlled groups.--For purposes
of this paragraph, all persons treated
as a single employer under subsection
(b), (c), (m), or (o) of section 414
shall be treated as 1 employer.
(ii) Predecessors.--Any reference in
this paragraph to an employer shall
include a reference to any predecessor
of such employer.
(5) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(d) Archer Msa.--For purposes of this section--
(1) Archer MSA.--The term ``Archer MSA'' means a
trust created or organized in the United States as a
medical savings account exclusively for the purpose of
paying the qualified medical expenses of the account
holder, 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), no
contribution will be accepted--
(i) unless it is in cash, or
(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year,
exceeds 75 percent of the highest
annual limit deductible permitted under
subsection (c)(2)(A)(ii) for such
calendar year.
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
holder, amounts paid by such holder for medical
care (as defined in section 213(d)) for such
individual, the spouse of such individual, and
any dependent (as defined in section 152,
determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof) of such
individual, but only to the extent such amounts
are not compensated for by insurance or
otherwise. Such term shall include an amount
paid for medicine or a drug only if such
medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--
(i) In general.--Subparagraph (A)
shall not apply to any payment for
insurance.
(ii) Exceptions.--Clause (i) shall
not apply to any expense for coverage
under--
(I) a health plan during any
period of continuation coverage
required under any Federal law,
(II) a qualified long-term
care insurance contract (as
defined in section 7702B(b)),
or
(III) a health plan during a
period in which the individual
is receiving unemployment
compensation under any Federal
or State law.
(C) Medical expenses of individuals who are
not eligible individuals.--Subparagraph (A)
shall apply to an amount paid by an account
holder for medical care of an individual who is
not described in clauses (i) and (ii) of
subsection (c)(1)(A)for the month in which the
expense for such care is incurred only if no
amount is contributed (other than a rollover
contribution) to any Archer MSA of such account
holder for the taxable year which includes such
month. This subparagraph shall not apply to any
expense for coverage described in subclause (I)
or (III) of subparagraph (B)(ii).
(3) Account holder.--The term ``account holder''
means the individual on whose behalf the Archer MSA was
established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(b),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--An Archer MSA is exempt from
taxation under this subtitle unless such account has
ceased to be an Archer MSA. Notwithstanding the
preceding sentence, any such account is subject to the
taxes imposed by section 511 (relating to imposition of
tax on unrelated business income of charitable, etc.
organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to Archer MSAs, and any amount treated as distributed
under such rules shall be treated as not used to pay
qualified medical expenses.
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of an Archer MSA which
is used exclusively to pay qualified medical expenses
of any account holder shall not be includible in gross
income.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of an Archer MSA which is not used exclusively to pay
the qualified medical expenses of the account holder
shall be included in the gross income of such holder.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any Archer
MSA of an individual, paragraph (2) shall not
apply to distributions from the Archer MSAs of
such individual (to the extent such
distributions do not exceed the aggregate
excess contributions to all such accounts of
such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution) which is neither
excludable from gross income under section
106(b) nor deductible under this section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account holder for any taxable
year in which there is a payment or
distribution from an Archer MSA of such holder
which is includible in gross income under
paragraph (2) shall be increased by 20 percent
of the amount which is so includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
holder becomes disabled within the meaning of
section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account holder attains
the age specified in section 1811 of the Social
Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from an
Archer MSA to the account holder to the extent
the amount received is paid into an Archer MSA
or a health savings account (as defined in
section 223(d)) for the benefit of such holder
not later than the 60th day after the day on
which the holder receives the payment or
distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from an Archer
MSA if, at any time during the 1-year period
ending on the day of such receipt, such
individual received any other amount described
in subparagraph (A) from an Archer MSA which
was not includible in the individual's gross
income because of the application of this
paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of
an Archer MSA for qualified medical expenses shall not
be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in an Archer MSA
to an individual's spouse or former spouse under a
divorce or separation instrument described in
subparagraph (A) of section 71(b)(2) shall not be
considered a taxable transfer made by such individual
notwithstanding any other provision of this subtitle,
and such interest shall, after such transfer, be
treated as an Archer MSA with respect to which such
spouse is the account holder.
(8) Treatment after death of account holder.--
(A) Treatment if designated beneficiary is
spouse.--If the account holder's surviving
spouse acquires such holder's interest in an
Archer MSA by reason of being the designated
beneficiary of such account at the death of the
account holder, such Archer MSA shall be
treated as if the spouse were the account
holder.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account holder, any person
acquires the account holder's interest
in an Archer MSA in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be an Archer MSA as of the
date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such holder, in such person's
gross income for the taxable
year which includes such date,
or if such person is the estate
of such holder, in such
holder's gross income for the
last taxable year of such
holder.
(ii) Special rules.--
(I) Reduction of inclusion
for pre-death expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--In the case of any taxable
year beginning in a calendar year after 1998, each dollar
amount in subsection (c)(2) shall be increased by an amount
equal to--
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which such
taxable year begins by substituting ``calendar year
1997'' for ``calendar year 1992'' in subparagraph (B)
thereof.
If any increase under the preceding sentence is not a multiple
of $50, such increase shall be rounded to the nearest multiple
of $50.
(h) Reports.--The Secretary may require the trustee of an
Archer MSA to make such reports regarding such account to the
Secretary and to the account holder with respect to
contributions, distributions, and such other matters as the
Secretary determines appropriate. The reports required by this
subsection shall be filed at such time and in such manner and
furnished to such individuals at such time and in such manner
as may be required by the Secretary.
(i) Limitation on Number of Taxpayers Having Archer Msas.--
(1) In general.--Except as provided in paragraph (5),
no individual shall be treated as an eligible
individual for any taxable year beginning after the
cut-off year unless--
(A) such individual was an active MSA
participant for any taxable year ending on or
before the close of the cut-off year, or
(B) such individual first became an active
MSA participant for a taxable year ending after
the cut-off year by reason of coverage under a
high deductible health plan of an MSA-
participating employer.
(2) Cut-off year.--For purposes of paragraph (1), the
term ``cut-off year'' means the earlier of--
(A) calendar year 2007, or
(B) the first calendar year before 2007 for
which the Secretary determines under subsection
(j) that the numerical limitation for such year
has been exceeded.
(3) Active MSA participant.--For purposes of this
subsection--
(A) In general.--The term ``active MSA
participant'' means, with respect to any
taxable year, any individual who is the account
holder of any Archer MSA into which any
contribution was made which was excludable from
gross income under section 106(b), or allowable
as a deduction under this section, for such
taxable year.
(B) Special rule for cut-off years before
2007.--In the case of a cut-off year before
2007--
(i) an individual shall not be
treated as an eligible individual for
any month of such year or an active MSA
participant under paragraph (1)(A)
unless such individual is, on or before
the cut-off date, covered under a high
deductible health plan, and
(ii) an employer shall not be treated
as an MSA-participating employer unless
the employer, on or before the cut-off
date, offered coverage under a high
deductible health plan to any employee.
(C) Cut-off date.--For purposes of
subparagraph (B)--
(i) In general.--Except as otherwise
provided in this subparagraph, the cut-
off date is October 1 of the cut-off
year.
(ii) Employees with enrollment
periods after October 1.--In the case
of an individual described in subclause
(I) of subsection (c)(1)(A)(iii), if
the regularly scheduled enrollment
period for health plans of the
individual's employer occurs during the
last 3 months of the cut-off year, the
cut-off date is December 31 of the cut-
off year.
(iii) Self-employed individuals.--In
the case of an individual described in
subclause (II) of subsection
(c)(1)(A)(iii), the cut-off date is
November 1 of the cut-off year.
(iv) Special rules for 1997.--If 1997
is a cut-off year by reason of
subsection (j)(1)(A)--
(I) each of the cut-off dates
under clauses (i) and (iii)
shall be 1 month earlier than
the date determined without
regard to this clause, and
(II) clause (ii) shall be
applied by substituting ``4
months'' for ``3 months''.
(4) MSA-participating employer.--For purposes of this
subsection, the term ``MSA-participating employer''
means any small employer if--
(A) such employer made any contribution to
the Archer MSA of any employee during the cut-
off year or any preceding calendar year which
was excludable from gross income under section
106(b), or
(B) at least 20 percent of the employees of
such employer who are eligible individuals for
any month of the cut-off year by reason of
coverage under a high deductible health plan of
such employer each made a contribution of at
least $100 to their Archer MSAs for any taxable
year ending with or within the cut-off year
which was allowable as a deduction under this
section.
(5) Additional eligibility after cut-off year.--If
the Secretary determines under subsection (j)(2)(A)
that the numerical limit for the calendar year
following a cut-off year described in paragraph (2)(B)
has not been exceeded--
(A) this subsection shall not apply to any
otherwise eligible individual who is covered
under a high deductible health plan during the
first 6 months of the second calendar year
following the cut-off year (and such individual
shall be treated as an active MSA participant
for purposes of this subsection if a
contribution is made to any Archer MSA with
respect to such coverage), and
(B) any employer who offers coverage under a
high deductible health plan to any employee
during such 6-month period shall be treated as
an MSA-participating employer for purposes of
this subsection if the requirements of
paragraph (4) are met with respect to such
coverage.
For purposes of this paragraph, subsection (j)(2)(A)
shall be applied for 1998 by substituting ``750,000''
for ``600,000''.
(j) Determination of Whether Numerical Limits Are Exceeded.--
(1) Determination of whether limit exceeded for
1997.--The numerical limitation for 1997 is exceeded
if, based on the reports required under paragraph (4),
the number of Archer MSAs established as of--
(A) April 30, 1997, exceeds 375,000, or
(B) June 30, 1997, exceeds 525,000.
(2) Determination of whether limit exceeded for 1998,
1999, 2001, 2002, 2004, 2005, or 2006.--
(A) In general.--The numerical limitation for
1998, 1999, 2001, 2002, 2004, 2005, or 2006 is
exceeded if the sum of--
(i) the number of MSA returns filed
on or before April 15 of such calendar
year for taxable years ending with or
within the preceding calendar year,
plus
(ii) the Secretary's estimate
(determined on the basis of the returns
described in clause (i)) of the number
of MSA returns for such taxable years
which will be filed after such date,
exceeds 750,000 (600,000 in the case of 1998).
For purposes of the preceding sentence, the
term ``MSA return'' means any return on which
any exclusion is claimed under section 106(b)
or any deduction is claimed under this section.
(B) Alternative computation of limitation.--
The numerical limitation for 1998, 1999, 2001,
2002, 2004, 2005, or 2006 is also exceeded if
the sum of--
(i) 90 percent of the sum determined
under subparagraph (A) for such
calendar year, plus
(ii) the product of 2.5 and the
number of Archer MSAs established
during the portion of such year
preceding July 1 (based on the reports
required under paragraph (4)) for
taxable years beginning in such year,
exceeds 750,000.
(C) No limitation for 2000 or 2003.--The
numerical limitation shall not apply for 2000
or 2003.
(3) Previously uninsured individuals not included in
determination.--
(A) In general.--The determination of whether
any calendar year is a cut-off year shall be
made by not counting the Archer MSA of any
previously uninsured individual.
(B) Previously uninsured individual.--For
purposes of this subsection, the term
``previously uninsured individual'' means, with
respect to any Archer MSA, any individual who
had no health plan coverage (other than
coverage referred to in subsection (c)(1)(B))
at any time during the 6-month period before
the date such individual's coverage under the
high deductible health plan commences.
(4) Reporting by MSA trustees.--
(A) In general.--Not later than August 1 of
1997, 1998, 1999, 2001, 2002, 2004, 2005, and
2006, each person who is the trustee of an
Archer MSA established before July 1 of such
calendar year shall make a report to the
Secretary (in such form and manner as the
Secretary shall specify) which specifies--
(i) the number of Archer MSAs
established before such July 1 (for
taxable years beginning in such
calendar year) of which such person is
the trustee,
(ii) the name and TIN of the account
holder of each such account, and
(iii) the number of such accounts
which are accounts of previously
uninsured individuals.
(B) Additional report for 1997.--Not later
than June 1, 1997, each person who is the
trustee of an Archer MSA established before May
1, 1997, shall make an additional report
described in subparagraph (A) but only with
respect to accounts established before May 1,
1997.
(C) Penalty for failure to file report.--The
penalty provided in section 6693(a) shall apply
to any report required by this paragraph,
except that--
(i) such section shall be applied by
substituting ``$25'' for ``$50'', and
(ii) the maximum penalty imposed on
any trustee shall not exceed $5,000.
(D) Aggregation of accounts.--To the extent
practicable, in determining the number of
Archer MSAs on the basis of the reports under
this paragraph, all Archer MSAs of an
individual shall be treated as 1 account and
all accounts of individuals who are married to
each other shall be treated as 1 account.
(5) Date of making determinations.--Any determination
under this subsection that a calendar year is a cut-off
year shall be made by the Secretary and shall be
published not later than October 1 of such year.
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(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,
$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,
$4,500.
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(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,
(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)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) and without
regard to any additional contribution amount
under paragraph (3))--
(i) shall be reduced by the aggregate
amount paid to Archer MSAs of such
spouses for the taxable year, and
(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(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) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(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.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(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) unless it is in cash, or
(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), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d)
for such individual, the spouse of such
individual, and any dependent (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of such individual, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term shall include
an amount paid for medicine or a drug only if
such medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as
distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary shall not
be includible in gross income.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of a health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (to
the extent such distributions do not exceed the
aggregate excess contributions to all such
accounts of such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) nor deductible under this
section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 percent of the amount which is so
includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account beneficiary
attains the age specified in section 1811 of
the Social Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings account if, at any time during the 1-
year period ending on the day of such receipt,
such individual received any other amount
described in subparagraph (A) from a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse acquires such beneficiary's interest in
a health savings account by reason of being the
designated beneficiary of such account at the
death of the account beneficiary, such health
savings account shall be treated as if the
spouse were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(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) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such taxable year begins determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--
(i) except as provided in clause
(ii), ``calendar year 1997'', and
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.
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.
(2) Rounding.--If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded
to the nearest multiple of $50.
(h) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed 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 italics, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets and 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) General Rule.--Except as otherwise provided in this
section, gross income of an employee does not include employer-
provided coverage under an accident or health plan.
(b) Contributions to Archer Msas.--
(1) In general.--In the case of an employee who is an
eligible individual, amounts contributed by such
employee's employer to any Archer MSA of such employee
shall be treated as employer-provided coverage for
medical expenses under an accident or health plan to
the extent such amounts do not exceed the limitation
under section 220(b)(1) (determined without regard to
this subsection) which is applicable to such employee
for such taxable year.
(2) No constructive receipt.--No amount shall be
included in the gross income of any employee solely
because the employee may choose between the
contributions referred to in paragraph (1) and employer
contributions to another health plan of the employer.
(3) Special rule for deduction of employer
contributions.--Any employer contribution to an Archer
MSA, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in
which paid.
(4) Employer MSA contributions required to be shown
on return.--Every individual required to file a return
under section 6012 for the taxable year shall include
on such return the aggregate amount contributed by
employers to the Archer MSAs of such individual or such
individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage.--
Paragraph (1) shall not apply for purposes of section
4980B.
(6) Definitions.--For purposes of this subsection,
the terms ``eligible individual'' and ``Archer MSA''
have the respective meanings given to such terms by
section 220.
(7) Cross reference.--For penalty on failure by
employer to make comparable contributions to the Archer
MSAs of comparable employees, see section 4980E.
(c) Inclusion of Long-Term Care Benefits Provided Through
Flexible Spending Arrangements.--
(1) In general.--Gross income of an employee shall
include employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c)) to
the extent that such coverage is provided through a
flexible spending or similar arrangement.
(2) Flexible spending arrangement.--For purposes of
this subsection, a flexible spending arrangement is a
benefit program which provides employees with coverage
under which--
(A) specified incurred expenses may be
reimbursed (subject to reimbursement maximums
and other reasonable conditions), and
(B) the maximum amount of reimbursement which
is reasonably available to a participant for
such coverage is less than 500 percent of the
value of such coverage.
In the case of an insured plan, the maximum amount
reasonably available shall be determined on the basis
of the underlying coverage.
(d) Contributions to Health Savings Accounts.--
(1) In general.--In the case of an employee who is an
eligible individual (as defined in section 223(c)(1)),
amounts contributed by such employee's employer to any
health savings account (as defined in section 223(d))
of such employee shall be treated as employer-provided
coverage for medical expenses under an accident or
health plan to the extent such amounts do not exceed
the limitation under section 223(b) (determined without
regard to this subsection) which is applicable to such
employee for such taxable year.
(2) Special rules.--Rules similar to the rules of
paragraphs (2), (3), (4), and (5) of subsection (b)
shall apply for purposes of this subsection.
(3) Cross reference.--For penalty on failure by
employer to make comparable contributions to the health
savings accounts of comparable employees, see section
4980G.
(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).
[(f) Reimbursements for Medicine Restricted to Prescribed
Drugs and Insulin.--For purposes of this section and section
105, reimbursement for expenses incurred for a medicine or a
drug shall be treated as a reimbursement for medical expenses
only if such medicine or drug is a prescribed drug (determined
without regard to whether such drug is available without a
prescription) or is insulin.]
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 220. ARCHER MSAS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by such individual to an Archer MSA of such
individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is the amount equal to 1/12 of--
(A) in the case of an individual who has
self-only coverage under the high deductible
health plan as of the first day of such month,
65 percent of the annual deductible under such
coverage, and
(B) in the case of an individual who has
family coverage under the high deductible
health plan as of the first day of such month,
75 percent of the annual deductible under such
coverage.
(3) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) of this
paragraph) shall be divided equally between
them unless they agree on a different division.
(4) Deduction not to exceed compensation.--
(A) Employees.--The deduction allowed under
subsection (a) for contributions as an eligible
individual described in subclause (I) of
subsection (c)(1)(A)(iii) shall not exceed such
individual's wages, salaries, tips, and other
employee compensation which are attributable to
such individual's employment by the employer
referred to in such subclause.
(B) Self-employed individuals.--The deduction
allowed under subsection (a) for contributions
as an eligible individual described in
subclause (II) of subsection (c)(1)(A)(iii)
shall not exceed such individual's earned
income (as defined in section 401(c)(1))
derived by the taxpayer from the trade or
business with respect to which the high
deductible health plan is established.
(C) Community property laws not to apply.--
The limitations under this paragraph shall be
determined without regard to community property
laws.
(5) Coordination with exclusion for employer
contributions.--No deduction shall be allowed under
this section for any amount paid for any taxable year
to an Archer MSA of an individual if--
(A) any amount is contributed to any Archer
MSA of such individual for such year which is
excludable from gross income under section
106(b), or
(B) if such individual's spouse is covered
under the high deductible health plan covering
such individual, any amount is contributed for
such year to any Archer MSA of such spouse
which is so excludable.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(c) Definitions.--For purposes of this section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month,
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan, and
(iii)
(I) the high deductible
health plan covering such
individual is established and
maintained by the employer of
such individual or of the
spouse of such individual and
such employer is a small
employer, or
(II) such individual is an
employee (within the meaning of
section 401(c)(1)) or the
spouse of such an employee and
the high deductible health plan
covering such individual is not
established or maintained by
any employer of such individual
or spouse.
(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.
(C) Continued eligibility of employee and
spouse establishing Archer MSAs.--If, while an
employer is a small employer--
(i) any amount is contributed to an
Archer MSA of an individual who is an
employee of such employer or the spouse
of such an employee, and
(ii) such amount is excludable from
gross income under section 106(b) or
allowable as a deduction under this
section,
such individual shall not cease to meet the
requirement of subparagraph (A)(iii)(I) by
reason of such employer ceasing to be a small
employer so long as such employee continues to
be an employee of such employer.
(D) Limitations on eligibility.--For
limitations on number of taxpayers who are
eligible to have Archer MSAs, see subsection
(i).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) in the case of self-only
coverage, which has an annual
deductible which is not less than
$1,500 and not more than $2,250,
(ii) in the case of family coverage,
which has an annual deductible which is
not less than $3,000 and not more than
$4,500, and
(iii) the annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $3,000 for self-only
coverage, and
(II) $5,500 for family
coverage.
(B) Special rules.--
(i) Exclusion of certain plans.--Such
term does not include a health plan if
substantially all of its coverage is
coverage described in paragraph (1)(B).
(ii) Safe harbor for absence of
preventive care deductible.--A plan
shall not fail to be treated as a high
deductible health plan by reason of
failing to have a deductible for
preventive care if the absence of a
deductible for such care is required by
State law.
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Small employer.--
(A) In general.--The term ``small employer''
means, with respect to any calendar year, any
employer if such employer employed an average
of 50 or fewer employees on business days
during either of the 2 preceding calendar
years. For purposes of the preceding sentence,
a preceding calendar year may be taken into
account only if the employer was in existence
throughout such year.
(B) Employers not in existence in preceding
year.--In the case of an employer which was not
in existence throughout the 1st preceding
calendar year, the determination under
subparagraph (A) shall be based on the average
number of employees that it is reasonably
expected such employer will employ on business
days in the current calendar year.
(C) Certain growing employers retain
treatment as small employer.--The term ``small
employer'' includes, with respect to any
calendar year, any employer if--
(i) such employer met the requirement
of subparagraph (A) (determined without
regard to subparagraph (B)) for any
preceding calendar year after 1996,
(ii) any amount was contributed to
the Archer MSA of any employee of such
employer with respect to coverage of
such employee under a high deductible
health plan of such employer during
such preceding calendar year and such
amount was excludable from gross income
under section 106(b) or allowable as a
deduction under this section, and
(iii) such employer employed an
average of 200 or fewer employees on
business days during each preceding
calendar year after 1996.
(D) Special rules.--
(i) Controlled groups.--For purposes
of this paragraph, all persons treated
as a single employer under subsection
(b), (c), (m), or (o) of section 414
shall be treated as 1 employer.
(ii) Predecessors.--Any reference in
this paragraph to an employer shall
include a reference to any predecessor
of such employer.
(5) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(d) Archer Msa.--For purposes of this section--
(1) Archer MSA.--The term ``Archer MSA'' means a
trust created or organized in the United States as a
medical savings account exclusively for the purpose of
paying the qualified medical expenses of the account
holder, 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), no
contribution will be accepted--
(i) unless it is in cash, or
(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year,
exceeds 75 percent of the highest
annual limit deductible permitted under
subsection (c)(2)(A)(ii) for such
calendar year.
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
holder, amounts paid by such holder for medical
care (as defined in section 213(d)) for such
individual, the spouse of such individual, and
any dependent (as defined in section 152,
determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof) of such
individual, but only to the extent such amounts
are not compensated for by insurance or
otherwise. [Such term shall include an amount
paid for medicine or a drug only if such
medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.]
(B) Health insurance may not be purchased
from account.--
(i) In general.--Subparagraph (A)
shall not apply to any payment for
insurance.
(ii) Exceptions.--Clause (i) shall
not apply to any expense for coverage
under--
(I) a health plan during any
period of continuation coverage
required under any Federal law,
(II) a qualified long-term
care insurance contract (as
defined in section 7702B(b)),
or
(III) a health plan during a
period in which the individual
is receiving unemployment
compensation under any Federal
or State law.
(C) Medical expenses of individuals who are
not eligible individuals.--Subparagraph (A)
shall apply to an amount paid by an account
holder for medical care of an individual who is
not described in clauses (i) and (ii) of
subsection (c)(1)(A)for the month in which the
expense for such care is incurred only if no
amount is contributed (other than a rollover
contribution) to any Archer MSA of such account
holder for the taxable year which includes such
month. This subparagraph shall not apply to any
expense for coverage described in subclause (I)
or (III) of subparagraph (B)(ii).
(3) Account holder.--The term ``account holder''
means the individual on whose behalf the Archer MSA was
established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(b),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--An Archer MSA is exempt from
taxation under this subtitle unless such account has
ceased to be an Archer MSA. Notwithstanding the
preceding sentence, any such account is subject to the
taxes imposed by section 511 (relating to imposition of
tax on unrelated business income of charitable, etc.
organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to Archer MSAs, and any amount treated as distributed
under such rules shall be treated as not used to pay
qualified medical expenses.
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of an Archer MSA which
is used exclusively to pay qualified medical expenses
of any account holder shall not be includible in gross
income.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of an Archer MSA which is not used exclusively to pay
the qualified medical expenses of the account holder
shall be included in the gross income of such holder.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any Archer
MSA of an individual, paragraph (2) shall not
apply to distributions from the Archer MSAs of
such individual (to the extent such
distributions do not exceed the aggregate
excess contributions to all such accounts of
such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution) which is neither
excludable from gross income under section
106(b) nor deductible under this section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account holder for any taxable
year in which there is a payment or
distribution from an Archer MSA of such holder
which is includible in gross income under
paragraph (2) shall be increased by 20 percent
of the amount which is so includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
holder becomes disabled within the meaning of
section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account holder attains
the age specified in section 1811 of the Social
Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from an
Archer MSA to the account holder to the extent
the amount received is paid into an Archer MSA
or a health savings account (as defined in
section 223(d)) for the benefit of such holder
not later than the 60th day after the day on
which the holder receives the payment or
distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from an Archer
MSA if, at any time during the 1-year period
ending on the day of such receipt, such
individual received any other amount described
in subparagraph (A) from an Archer MSA which
was not includible in the individual's gross
income because of the application of this
paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of
an Archer MSA for qualified medical expenses shall not
be treated as an expense paid for medical care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in an Archer MSA
to an individual's spouse or former spouse under a
divorce or separation instrument described in
subparagraph (A) of section 71(b)(2) shall not be
considered a taxable transfer made by such individual
notwithstanding any other provision of this subtitle,
and such interest shall, after such transfer, be
treated as an Archer MSA with respect to which such
spouse is the account holder.
(8) Treatment after death of account holder.--
(A) Treatment if designated beneficiary is
spouse.--If the account holder's surviving
spouse acquires such holder's interest in an
Archer MSA by reason of being the designated
beneficiary of such account at the death of the
account holder, such Archer MSA shall be
treated as if the spouse were the account
holder.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account holder, any person
acquires the account holder's interest
in an Archer MSA in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be an Archer MSA as of the
date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such holder, in such person's
gross income for the taxable
year which includes such date,
or if such person is the estate
of such holder, in such
holder's gross income for the
last taxable year of such
holder.
(ii) Special rules.--
(I) Reduction of inclusion
for pre-death expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--In the case of any taxable
year beginning in a calendar year after 1998, each dollar
amount in subsection (c)(2) shall be increased by an amount
equal to--
(1) such dollar amount, multiplied by
(2) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which such
taxable year begins by substituting ``calendar year
1997'' for ``calendar year 1992'' in subparagraph (B)
thereof.
If any increase under the preceding sentence is not a multiple
of $50, such increase shall be rounded to the nearest multiple
of $50.
(h) Reports.--The Secretary may require the trustee of an
Archer MSA to make such reports regarding such account to the
Secretary and to the account holder with respect to
contributions, distributions, and such other matters as the
Secretary determines appropriate. The reports required by this
subsection shall be filed at such time and in such manner and
furnished to such individuals at such time and in such manner
as may be required by the Secretary.
(i) Limitation on Number of Taxpayers Having Archer Msas.--
(1) In general.--Except as provided in paragraph (5),
no individual shall be treated as an eligible
individual for any taxable year beginning after the
cut-off year unless--
(A) such individual was an active MSA
participant for any taxable year ending on or
before the close of the cut-off year, or
(B) such individual first became an active
MSA participant for a taxable year ending after
the cut-off year by reason of coverage under a
high deductible health plan of an MSA-
participating employer.
(2) Cut-off year.--For purposes of paragraph (1), the
term ``cut-off year'' means the earlier of--
(A) calendar year 2007, or
(B) the first calendar year before 2007 for
which the Secretary determines under subsection
(j) that the numerical limitation for such year
has been exceeded.
(3) Active MSA participant.--For purposes of this
subsection--
(A) In general.--The term ``active MSA
participant'' means, with respect to any
taxable year, any individual who is the account
holder of any Archer MSA into which any
contribution was made which was excludable from
gross income under section 106(b), or allowable
as a deduction under this section, for such
taxable year.
(B) Special rule for cut-off years before
2007.--In the case of a cut-off year before
2007--
(i) an individual shall not be
treated as an eligible individual for
any month of such year or an active MSA
participant under paragraph (1)(A)
unless such individual is, on or before
the cut-off date, covered under a high
deductible health plan, and
(ii) an employer shall not be treated
as an MSA-participating employer unless
the employer, on or before the cut-off
date, offered coverage under a high
deductible health plan to any employee.
(C) Cut-off date.--For purposes of
subparagraph (B)--
(i) In general.--Except as otherwise
provided in this subparagraph, the cut-
off date is October 1 of the cut-off
year.
(ii) Employees with enrollment
periods after October 1.--In the case
of an individual described in subclause
(I) of subsection (c)(1)(A)(iii), if
the regularly scheduled enrollment
period for health plans of the
individual's employer occurs during the
last 3 months of the cut-off year, the
cut-off date is December 31 of the cut-
off year.
(iii) Self-employed individuals.--In
the case of an individual described in
subclause (II) of subsection
(c)(1)(A)(iii), the cut-off date is
November 1 of the cut-off year.
(iv) Special rules for 1997.--If 1997
is a cut-off year by reason of
subsection (j)(1)(A)--
(I) each of the cut-off dates
under clauses (i) and (iii)
shall be 1 month earlier than
the date determined without
regard to this clause, and
(II) clause (ii) shall be
applied by substituting ``4
months'' for ``3 months''.
(4) MSA-participating employer.--For purposes of this
subsection, the term ``MSA-participating employer''
means any small employer if--
(A) such employer made any contribution to
the Archer MSA of any employee during the cut-
off year or any preceding calendar year which
was excludable from gross income under section
106(b), or
(B) at least 20 percent of the employees of
such employer who are eligible individuals for
any month of the cut-off year by reason of
coverage under a high deductible health plan of
such employer each made a contribution of at
least $100 to their Archer MSAs for any taxable
year ending with or within the cut-off year
which was allowable as a deduction under this
section.
(5) Additional eligibility after cut-off year.--If
the Secretary determines under subsection (j)(2)(A)
that the numerical limit for the calendar year
following a cut-off year described in paragraph (2)(B)
has not been exceeded--
(A) this subsection shall not apply to any
otherwise eligible individual who is covered
under a high deductible health plan during the
first 6 months of the second calendar year
following the cut-off year (and such individual
shall be treated as an active MSA participant
for purposes of this subsection if a
contribution is made to any Archer MSA with
respect to such coverage), and
(B) any employer who offers coverage under a
high deductible health plan to any employee
during such 6-month period shall be treated as
an MSA-participating employer for purposes of
this subsection if the requirements of
paragraph (4) are met with respect to such
coverage.
For purposes of this paragraph, subsection (j)(2)(A)
shall be applied for 1998 by substituting ``750,000''
for ``600,000''.
(j) Determination of Whether Numerical Limits Are Exceeded.--
(1) Determination of whether limit exceeded for
1997.--The numerical limitation for 1997 is exceeded
if, based on the reports required under paragraph (4),
the number of Archer MSAs established as of--
(A) April 30, 1997, exceeds 375,000, or
(B) June 30, 1997, exceeds 525,000.
(2) Determination of whether limit exceeded for 1998,
1999, 2001, 2002, 2004, 2005, or 2006.--
(A) In general.--The numerical limitation for
1998, 1999, 2001, 2002, 2004, 2005, or 2006 is
exceeded if the sum of--
(i) the number of MSA returns filed
on or before April 15 of such calendar
year for taxable years ending with or
within the preceding calendar year,
plus
(ii) the Secretary's estimate
(determined on the basis of the returns
described in clause (i)) of the number
of MSA returns for such taxable years
which will be filed after such date,
exceeds 750,000 (600,000 in the case of 1998).
For purposes of the preceding sentence, the
term ``MSA return'' means any return on which
any exclusion is claimed under section 106(b)
or any deduction is claimed under this section.
(B) Alternative computation of limitation.--
The numerical limitation for 1998, 1999, 2001,
2002, 2004, 2005, or 2006 is also exceeded if
the sum of--
(i) 90 percent of the sum determined
under subparagraph (A) for such
calendar year, plus
(ii) the product of 2.5 and the
number of Archer MSAs established
during the portion of such year
preceding July 1 (based on the reports
required under paragraph (4)) for
taxable years beginning in such year,
exceeds 750,000.
(C) No limitation for 2000 or 2003.--The
numerical limitation shall not apply for 2000
or 2003.
(3) Previously uninsured individuals not included in
determination.--
(A) In general.--The determination of whether
any calendar year is a cut-off year shall be
made by not counting the Archer MSA of any
previously uninsured individual.
(B) Previously uninsured individual.--For
purposes of this subsection, the term
``previously uninsured individual'' means, with
respect to any Archer MSA, any individual who
had no health plan coverage (other than
coverage referred to in subsection (c)(1)(B))
at any time during the 6-month period before
the date such individual's coverage under the
high deductible health plan commences.
(4) Reporting by MSA trustees.--
(A) In general.--Not later than August 1 of
1997, 1998, 1999, 2001, 2002, 2004, 2005, and
2006, each person who is the trustee of an
Archer MSA established before July 1 of such
calendar year shall make a report to the
Secretary (in such form and manner as the
Secretary shall specify) which specifies--
(i) the number of Archer MSAs
established before such July 1 (for
taxable years beginning in such
calendar year) of which such person is
the trustee,
(ii) the name and TIN of the account
holder of each such account, and
(iii) the number of such accounts
which are accounts of previously
uninsured individuals.
(B) Additional report for 1997.--Not later
than June 1, 1997, each person who is the
trustee of an Archer MSA established before May
1, 1997, shall make an additional report
described in subparagraph (A) but only with
respect to accounts established before May 1,
1997.
(C) Penalty for failure to file report.--The
penalty provided in section 6693(a) shall apply
to any report required by this paragraph,
except that--
(i) such section shall be applied by
substituting ``$25'' for ``$50'', and
(ii) the maximum penalty imposed on
any trustee shall not exceed $5,000.
(D) Aggregation of accounts.--To the extent
practicable, in determining the number of
Archer MSAs on the basis of the reports under
this paragraph, all Archer MSAs of an
individual shall be treated as 1 account and
all accounts of individuals who are married to
each other shall be treated as 1 account.
(5) Date of making determinations.--Any determination
under this subsection that a calendar year is a cut-off
year shall be made by the Secretary and shall be
published not later than October 1 of such year.
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(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,
$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,
$4,500.
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(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,
(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)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) and without
regard to any additional contribution amount
under paragraph (3))--
(i) shall be reduced by the aggregate
amount paid to Archer MSAs of such
spouses for the taxable year, and
(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(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) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(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.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(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) unless it is in cash, or
(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), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d)
for such individual, the spouse of such
individual, and any dependent (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of such individual, but only to the
extent such amounts are not compensated for by
insurance or otherwise. [Such term shall
include an amount paid for medicine or a drug
only if such medicine or drug is a prescribed
drug (determined without regard to whether such
drug is available without a prescription) or is
insulin.]
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as
distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(f) Tax Treatment of Distributions.--
(1) Amounts used for qualified medical expenses.--Any
amount paid or distributed out of a health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary shall not
be includible in gross income.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of a health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (to
the extent such distributions do not exceed the
aggregate excess contributions to all such
accounts of such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) nor deductible under this
section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 percent of the amount which is so
includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account beneficiary
attains the age specified in section 1811 of
the Social Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings account if, at any time during the 1-
year period ending on the day of such receipt,
such individual received any other amount
described in subparagraph (A) from a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse acquires such beneficiary's interest in
a health savings account by reason of being the
designated beneficiary of such account at the
death of the account beneficiary, such health
savings account shall be treated as if the
spouse were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(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) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such taxable year begins determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--
(i) except as provided in clause
(ii), ``calendar year 1997'', and
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.
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.
(2) Rounding.--If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded
to the nearest multiple of $50.
(h) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
VII. ADDITIONAL VIEWS
I am concerned about H.R. 1270--the Restoring Access to
Medication Act of 2015--because it costs $6.6 billion in lost
tax revenue and this revenue loss is not offset. When combined
with the other bills under consideration at the committee's
markup, the total cost of lost revenue is over $400 billion
over the next ten years--and the Majority did not set forth any
options to pay for this cost. Not one cost offset option was
offered by the Majority at the markup. It is unacceptable in
this time of fiscal austerity to not pay the cost of these
bills. It is irresponsible to add over $400 billion in lost
revenue to the deficit.
This bill also continues the Majority's attempts to repeal
the Affordable Care Act (ACA) without offering a replacement.
H.R. 1270 would repeal a cost offset that helps pay for the
ACA--our landmark health reform legislation that was both fully
paid for and is now delivering affordable, comprehensive health
insurance coverage to millions of Americans. While the Majority
continues to attack the ACA, they have yet to offer replacement
health reform legislation that would extend affordable,
comprehensive coverage to the uninsured.
Sincerely,
Sander M. Levin.
