TITLE
III--TAX-RELATED HEALTH PROVISIONS
SEC. 300. AMENDMENT
OF 1986 CODE.
Except
as otherwise expressly provided, whenever in this title an amendment
or repeal is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered to be
made to a section or other provision of the Internal Revenue Code of
1986.
Subtitle
A--Medical Savings Accounts
SEC. 301. MEDICAL
SAVINGS ACCOUNTS.
(a)
IN GENERAL- Part VII of subchapter B of chapter 1 (relating to
additional itemized deductions for individuals) is amended by
redesignating section 220 as section 221 and by inserting after
section 219 the following new section:
`SEC. 220. MEDICAL
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 such
individual to a medical 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 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 a medical savings account of an individual if--
`(A)
any amount is contributed to any medical savings account 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 medical savings account 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.
`(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 MEDICAL
SAVINGS ACCOUNTS- If, while an employer is a small employer--
`(i)
any amount is contributed to a medical savings account 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 medical
savings accounts, 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)
Medicare supplemental insurance,
`(B)
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,
`(C)
insurance for a specified disease or illness, and
`(D)
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 medical savings account 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)
MEDICAL SAVINGS ACCOUNT- For purposes of this section--
`(1)
MEDICAL SAVINGS ACCOUNT- The term `medical savings account' means a
trust created or organized in the United States 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) of such
individual, but only to the extent such amounts are not compensated
for by insurance or otherwise.
`(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 an eligible individual
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
medical savings account 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 medical 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(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- A medical savings account is exempt from taxation under
this subtitle unless such account has ceased to be a medical 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 medical 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 medical savings account 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 a medical savings account 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 medical savings account of an individual, paragraph (2)
shall not apply to distributions from the medical 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) 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 a
medical savings account of such holder which is includible in gross
income under paragraph (2) shall be increased by 15 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 a medical savings account to the account holder to
the extent the amount received is paid into a medical savings account
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 a medical 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 medical 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 medical 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 medical 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 medical savings account 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 a medical savings
account by reason of being the designated beneficiary of such account
at the death of the account holder, such medical savings account 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 a medical savings
account in a case to which subparagraph (A) does not apply--
`(I)
such account shall cease to be a medical 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 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 a medical savings
account 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 MEDICAL SAVINGS ACCOUNTS-
`(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 2000, or
`(B)
the first calendar year before 2000 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
medical savings account 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 2000- In the case of a cut-off
year before 2000--
`(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 subpara-graph (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 medical savings account 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 medical savings accounts 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 medical
savings account 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 medical savings accounts
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 OR 1999-
`(A)
IN GENERAL- The numerical limitation for 1998 or 1999 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
600,000 (750,000 in the case of 1999). 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 or 1999 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 medical savings accounts
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.
`(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 medical savings account
of any previously uninsured individual.
`(B)
PREVIOUSLY UNINSURED INDIVIDUAL- For purposes of this subsection, the
term `previously uninsured individual' means, with respect to any
medical savings account, 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, and 1999, each
person who is the trustee of a medical savings account 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 medical savings accounts 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 a medical savings account 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 medical savings accounts on the basis of the reports under
this paragraph, all medical savings accounts 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.'.
(b)
DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEMIZES OTHER DEDUCTIONS-
Subsection (a) of section 62 is amended by inserting after paragraph
(15) the following new paragraph:
`(16)
MEDICAL SAVINGS ACCOUNTS- The deduction allowed by section 220.'.
(c)
EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS-
(1)
EXCLUSION FROM INCOME TAX- The text of section 106 (relating to
contributions by employer to accident and health plans) is amended to
read as follows:
`(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 MEDICAL SAVINGS ACCOUNTS-
`(1)
IN GENERAL- In the case of an employee who is an eligible individual,
amounts contributed by such employee's employer to any medical savings
account 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 a medical savings account, 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 medical savings accounts 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 `medical savings account' 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
medical savings accounts of comparable employees, see section 4980E.'.
(2)
EXCLUSION FROM EMPLOYMENT TAXES-
(A)
RAILROAD RETIREMENT TAX- Subsection (e) of section 3231 is amended by
adding at the end the following new paragraph:
`(10)
MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS- The term `compensation' shall
not include any payment made to or for the benefit of an employee if
at the time of such payment it is reasonable to believe that the
employee will be able to exclude such payment from income under
section 106(b).'.
(B)
UNEMPLOYMENT TAX- Subsection (b) of section 3306 is amended by
striking `or' at the end of paragraph (15), by striking the period at
the end of paragraph (16) and inserting `; or', and by inserting after
paragraph (16) the following new paragraph:
`(17)
any payment made to or for the benefit of an employee if at the time
of such payment it is reasonable to believe that the employee will be
able to exclude such payment from income under section 106(b).'.
(C)
WITHHOLDING TAX- Subsection (a) of section 3401 is amended by striking
`or' at the end of paragraph (19), by striking the period at the end
of paragraph (20) and inserting `; or', and by inserting after
paragraph (20) the following new paragraph:
`(21)
any payment made to or for the benefit of an employee if at the time
of such payment it is reasonable to believe that the employee will be
able to exclude such payment from income under section 106(b).'
(3)
EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON W-2- Subsection (a) of
section 6051 is amended by striking `and' at the end of paragraph (9),
by striking the period at the end of paragraph (10) and inserting `,
and', and by inserting after paragraph (10) the following new
paragraph:
`(11)
the amount contributed to any medical savings account (as defined in
section 220(d)) of such employee or such employee's spouse.'.
(4)
PENALTY FOR FAILURE OF EMPLOYER TO MAKE COMPARABLE MSA CONTRIBUTIONS-
(A)
IN GENERAL- Chapter 43 is amended by adding after section 4980D the
following new section:
`SEC.
4980E. FAILURE OF EMPLOYER TO MAKE COMPARABLE MEDICAL SAVINGS ACCOUNT
CONTRIBUTIONS.
`(a)
GENERAL RULE- In the case of an employer who makes a contribution to
the medical savings account of any employee with respect to coverage
under a high deductible health plan of the employer during a calendar
year, there is hereby imposed a tax on the failure of such employer to
meet the requirements of subsection (d) for such calendar year.
`(b)
AMOUNT OF TAX- The amount of the tax imposed by subsection (a) on any
failure for any calendar year is the amount equal to 35 percent of the
aggregate amount contributed by the employer to medical savings
accounts of employees for taxable years of such employees ending with
or within such calendar year.
`(c)
WAIVER BY SECRETARY- In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax imposed by subsection (a) to the extent that
the payment of such tax would be excessive relative to the failure
involved.
`(d)
EMPLOYER REQUIRED TO MAKE COMPARABLE MSA CONTRIBUTIONS FOR ALL
PARTICIPATING EMPLOYEES-
`(1)
IN GENERAL- An employer meets the requirements of this subsection for
any calendar year if the employer makes available comparable
contributions to the medical savings accounts of all comparable
participating employees for each coverage period during such calendar
year.
`(2)
COMPARABLE CONTRIBUTIONS-
`(A)
IN GENERAL- For purposes of paragraph (1), the term `comparable
contributions' means contributions--
`(i)
which are the same amount, or
`(ii)
which are the same percentage of the annual deductible limit under the
high deductible health plan covering the employees.
`(B)
PART-YEAR EMPLOYEES- In the case of an employee who is employed by the
employer for only a portion of the calendar year, a contribution to
the medical savings account of such employee shall be treated as
comparable if it is an amount which bears the same ratio to the
comparable amount (determined without regard to this subparagraph) as
such portion bears to the entire calendar year.
`(3)
COMPARABLE PARTICIPATING EMPLOYEES- For purposes of paragraph (1), the
term `comparable participating employees' means all employees--
`(A)
who are eligible individuals covered under any high deductible health
plan of the employer, and
`(B)
who have the same category of coverage.
For
purposes of subparagraph (B), the categories of coverage are self-only
and family coverage.
`(4)
PART-TIME EMPLOYEES-
`(A)
IN GENERAL- Paragraph (3) shall be applied separately with respect to
part-time employees and other employees.
`(B)
PART-TIME EMPLOYEE- For purposes of subparagraph (A), the term
`part-time employee' means any employee who is customarily employed
for fewer than 30 hours per week.
`(e)
CONTROLLED GROUPS- For purposes of this section, all persons treated
as a single employer under subsection (b), (c), (m), or (o) of section
414 shall be treated as 1 employer.
`(f)
DEFINITIONS- Terms used in this section which are also used in section
220 have the respective meanings given such terms in section 220.'.
(B)
CLERICAL AMENDMENT- The table of sections for chapter 43 is amended by
adding after the item relating to section 4980D the following new
item:
`Sec. 4980E. Failure
of employer to make comparable medical savings account
contributions.'.
(d)
MEDICAL SAVINGS ACCOUNT CONTRIBUTIONS NOT AVAILABLE UNDER CAFETERIA
PLANS- Subsection (f) of section 125 of such Code is amended by
inserting `106(b),' before `117'.
(e)
TAX ON EXCESS CONTRIBUTIONS- Section 4973 (relating to tax on excess
contributions to individual retirement accounts, certain section
403(b) contracts, and certain individual retirement annuities) is
amended--
(1)
by inserting `medical savings accounts,' after `accounts,' in the
heading of such section,
(2)
by striking `or' at the end of paragraph (1) of sub-section (a),
(3)
by redesignating paragraph (2) of subsection (a) as paragraph (3) and
by inserting after paragraph (1) the following:
`(2)
a medical savings account (within the meaning of section 220(d)), or',
and
(4)
by adding at the end the following new subsection:
`(d)
EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS- For purposes of this
section, in the case of medical savings accounts (within the meaning
of section 220(d)), the term `excess contributions' means the sum of--
`(1)
the aggregate amount contributed for the taxable year to the accounts
(other than rollover contributions described in section 220(f)(5))
which is neither excludable from gross income under section 106(b) nor
allowable as a deduction under section 220 for such year, and
`(2)
the amount determined under this subsection for the preceding taxable
year, reduced by the sum of--
`(A)
the distributions out of the accounts which were included in gross
income under section 220(f)(2), and
`(B)
the excess (if any) of--
`(i)
the maximum amount allowable as a deduction under section 220(b)(1)
(determined without regard to section 106(b)) for the taxable year,
over
`(ii)
the amount contributed to the accounts for the taxable year.
For
purposes of this subsection, any contribution which is distributed out
of the medical savings account in a distribution to which section
220(f)(3) applies shall be treated as an amount not contributed.'.
(f)
TAX ON PROHIBITED TRANSACTIONS-
(1)
Section 4975 (relating to tax on prohibited transactions) is amended
by adding at the end of subsection (c) the following new paragraph:
`(4)
SPECIAL RULE FOR MEDICAL SAVINGS ACCOUNTS- An individual for whose
benefit a medical savings account (within the meaning of section
220(d)) is established shall be exempt from the tax imposed by this
section with respect to any transaction concerning such account (which
would otherwise be taxable under this section) if, with respect to
such transaction, the account ceases to be a medical savings account
by reason of the application of section 220(e)(2) to such account.'.
(2)
Paragraph (1) of section 4975(e) is amended to read as follows:
`(1)
PLAN- For purposes of this section, the term `plan' means--
`(A)
a trust described in section 401(a) which forms a part of a plan, or a
plan described in section 403(a), which trust or plan is exempt from
tax under section 501(a),
`(B)
an individual retirement account described in section 408(a),
`(C)
an individual retirement annuity described in section 408(b),
`(D)
a medical savings account described in section 220(d), or
`(E)
a trust, plan, account, or annuity which, at any time, has been
determined by the Secretary to be described in any preceding
subparagraph of this paragraph.'.
(g)
FAILURE TO PROVIDE REPORTS ON MEDICAL SAVINGS ACCOUNTS-
(1)
Subsection (a) of section 6693 (relating to failure to provide reports
on individual retirement accounts or annuities) is amended to read as
follows:
`(a)
REPORTS-
`(1)
IN GENERAL- If a person required to file a report under a provision
referred to in paragraph (2) fails to file such report at the time and
in the manner required by such provision, such person shall pay a
penalty of $50 for each failure unless it is shown that such failure
is due to reasonable cause.
`(2)
PROVISIONS- The provisions referred to in this paragraph are--
`(A)
subsections (i) and (l) of section 408 (relating to individual
retirement plans), and
`(B)
section 220(h) (relating to medical savings accounts).'.
(h)
EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION EXPENSES-
Subparagraph (B) of section 848(e)(1) (defining specified insurance
contract) is amended by striking `and' at the end of clause (ii), by
striking the period at the end of clause (iii) and inserting `, and',
and by adding at the end the following new clause:
`(iv)
any contract which is a medical savings account (as defined in section
220(d)).'.
(i)
CLERICAL AMENDMENT- The table of sections for part VII of subchapter B
of chapter 1 is amended by striking the last item and inserting the
following:
`Sec.
220. Medical savings accounts.
`Sec.
221. Cross reference.'.
(j)
EFFECTIVE DATE- The amendments made by this section shall apply to
taxable years beginning after December 31, 1996.
(k)
MONITORING OF PARTICIPATION IN MEDICAL SAVINGS ACCOUNTS- The Secretary
of the Treasury or his delegate shall--
(1)
during 1997, 1998, 1999, and 2000, regularly evaluate the number of
individuals who are maintaining medical savings accounts and the
reduction in revenues to the United States by reason of such accounts,
and
(2)
provide such reports of such evaluations to Congress as such Secretary
determines appropriate.
(l)
STUDY OF EFFECTS OF MEDICAL SAVINGS ACCOUNTS ON SMALL GROUP MARKET-
The Comptroller General of the United States shall enter into a
contract with an organization with expertise in health economics,
health insurance markets, and actuarial science to conduct a
comprehensive study regarding the effects of medical savings accounts
in the small group market on--
(1)
selection, including adverse selection,
(2)
health costs, including any impact on premiums of individuals with
comprehensive coverage,
(3)
use of preventive care,
(4)
consumer choice,
(5)
the scope of coverage of high deductible plans purchased in
conjunction with such accounts, and
(6)
other relevant items.
A
report on the results of the study conducted under this subsection
shall be submitted to the Congress no later than January 1, 1999.
Subtitle
B--Increase in Deduction for Health Insurance Costs of Self-Employed
Individuals
SEC. 311. INCREASE IN
DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.
(a)
IN GENERAL- Paragraph (1) of section 162(l) is amended to read as
follows:
`(1)
ALLOWANCE OF DEDUCTION-
`(A)
IN GENERAL- In the case of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed as a deduction
under this section an amount equal to the applicable percentage of the
amount paid during the taxable year for insurance which constitutes
medical care for the taxpayer, his spouse, and dependents.
`(B)
APPLICABLE PERCENTAGE- For purposes of subparagraph (A), the
applicable percentage shall be determined under the following table:
`For
taxable years beginning in calendar year--
The
applicable percentage is--
1997
--40 percent
1998 through 2002
--45 percent
2003
--50 percent
2004
--60 percent
2005
--70 percent
2006 or thereafter
--80 percent.'.
(b)
EXCLUSION FOR AMOUNTS RECEIVED UNDER CERTAIN SELF-INSURED PLANS-
Paragraph (3) of section 104(a) is amended by inserting `(or through
an arrangement having the effect of accident or health insurance)'
after `health insurance'.
(c)
EFFECTIVE DATE- The amendments made by this section shall apply to
taxable years beginning after December 31, 1996.
Subtitle
C--Long-Term Care Services and Contracts
PART I--GENERAL
PROVISIONS
SEC. 321. TREATMENT
OF LONG-TERM CARE INSURANCE.
(a)
GENERAL RULE- Chapter 79 (relating to definitions) is amended by
inserting after section 7702A the following new section:
`SEC. 7702B.
TREATMENT OF QUALIFIED LONG-TERM CARE INSURANCE.
`(a)
IN GENERAL- For purposes of this title--
`(1)
a qualified long-term care insurance contract shall be treated as an
accident and health insurance contract,
`(2)
amounts (other than policyholder dividends, as defined in section 808,
or premium refunds) received under a qualified long-term care
insurance contract shall be treated as amounts received for personal
injuries and sickness and shall be treated as reimbursement for
expenses actually incurred for medical care (as defined in section
213(d)),
`(3)
any plan of an employer providing coverage under a qualified long-term
care insurance contract shall be treated as an accident and health
plan with respect to such coverage,
`(4)
except as provided in subsection (e)(3), amounts paid for a qualified
long-term care insurance contract providing the benefits described in
subsection (b)(2)(A) shall be treated as payments made for insurance
for purposes of section 213(d)(1)(D), and
`(5)
a qualified long-term care insurance contract shall be treated as a
guaranteed renewable contract subject to the rules of section 816(e).
`(b)
QUALIFIED LONG-TERM CARE INSURANCE CONTRACT- For purposes of this
title--
`(1)
IN GENERAL- The term `qualified long-term care insurance contract'
means any insurance contract if--
`(A)
the only insurance protection provided under such contract is coverage
of qualified long-term care services,
`(B)
such contract does not pay or reimburse expenses incurred for services
or items to the extent that such expenses are reimbursable under title
XVIII of the Social Security Act or would be so reimbursable but for
the application of a deductible or coinsurance amount,
`(C)
such contract is guaranteed renewable,
`(D)
such contract does not provide for a cash surrender value or other
money that can be--
`(i)
paid, assigned, or pledged as collateral for a loan, or
`(ii)
borrowed,
other
than as provided in subparagraph (E) or paragraph (2)(C),
`(E)
all refunds of premiums, and all policyholder dividends or similar
amounts, under such contract are to be applied as a reduction in
future premiums or to increase future benefits, and
`(F)
such contract meets the requirements of subsection (g).
`(2)
SPECIAL RULES-
`(A)
PER DIEM, ETC. PAYMENTS PERMITTED- A contract shall not fail to be
described in subparagraph (A) or (B) of paragraph (1) by reason of
payments being made on a per diem or other periodic basis without
regard to the expenses incurred during the period to which the
payments relate.
`(B)
SPECIAL RULES RELATING TO MEDICARE-
`(i)
Paragraph (1)(B) shall not apply to expenses which are reimbursable
under title XVIII of the Social Security Act only as a secondary payor.
`(ii)
No provision of law shall be construed or applied so as to prohibit
the offering of a qualified long-term care insurance contract on the
basis that the contract coordinates its benefits with those provided
under such title.
`(C)
REFUNDS OF PREMIUMS- Paragraph (1)(E) shall not apply to any refund on
the death of the insured, or on a complete surrender or cancellation
of the contract, which cannot exceed the aggregate premiums paid under
the contract. Any refund on a complete surrender or cancellation of
the contract shall be includible in gross income to the extent that
any deduction or exclusion was allowable with respect to the premiums.
`(c)
QUALIFIED LONG-TERM CARE SERVICES- For purposes of this section--
`(1)
IN GENERAL- The term `qualified long-term care services' means
necessary diagnostic, preventive, therapeutic, curing, treating,
mitigating, and rehabilitative services, and maintenance or personal
care services, which--
`(A)
are required by a chronically ill individual, and
`(B)
are provided pursuant to a plan of care prescribed by a licensed
health care practitioner.
`(2)
CHRONICALLY ILL INDIVIDUAL-
`(A)
IN GENERAL- The term `chronically ill individual' means any individual
who has been certified by a licensed health care practitioner as--
`(i)
being unable to perform (without substantial assistance from another
individual) at least 2 activities of daily living for a period of at
least 90 days due to a loss of functional capacity,
`(ii)
having a level of disability similar (as determined under regulations
prescribed by the Secretary in consultation with the Secretary of
Health and Human Services) to the level of disability described in
clause (i), or
`(iii)
requiring substantial supervision to protect such individual from
threats to health and safety due to severe cognitive impairment.
Such
term shall not include any individual otherwise meeting the
requirements of the preceding sentence unless within the preceding
12-month period a licensed health care practitioner has certified that
such individual meets such requirements.
`(B)
ACTIVITIES OF DAILY LIVING- For purposes of subparagraph (A), each of
the following is an activity of daily living:
`(i)
Eating.
`(ii)
Toileting.
`(iii)
Transferring.
`(iv)
Bathing.
`(v)
Dressing.
`(vi)
Continence.
A
contract shall not be treated as a qualified long-term care insurance
contract unless the determination of whether an individual is a
chronically ill individual takes into account at least 5 of such
activities.
`(3)
MAINTENANCE OR PERSONAL CARE SERVICES- The term `maintenance or
personal care services' means any care the primary purpose of which is
the provision of needed assistance with any of the disabilities as a
result of which the individual is a chronically ill individual
(including the protection from threats to health and safety due to
severe cognitive impairment).
`(4)
LICENSED HEALTH CARE PRACTITIONER- The term `licensed health care
practitioner' means any physician (as defined in section 1861(r)(1) of
the Social Security Act) and any registered professional nurse,
licensed social worker, or other individual who meets such
requirements as may be prescribed by the Secretary.
`(d)
AGGREGATE PAYMENTS IN EXCESS OF LIMITS-
`(1)
IN GENERAL- If the aggregate of--
`(A)
the periodic payments received for any period under all qualified
long-term care insurance contracts which are treated as made for
qualified long-term care services for an insured, and
`(B)
the periodic payments received for such period which are treated under
section 101(g) as paid by reason of the death of such insured,
exceeds
the per diem limitation for such period, such excess shall be
includible in gross income without regard to section 72. A payment
shall not be taken into account under subparagraph (B) if the insured
is a terminally ill individual (as defined in section 101(g)) at the
time the payme
