[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 1249 Introduced in Senate (IS)]

  1st Session
                                S. 1249

To amend the Internal Revenue Code of 1986 to establish medical savings 
                   accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

           September 15 (legislative day, September 5), 1995

   Mr. Frist introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to establish medical savings 
                   accounts, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. DEDUCTION FOR CONTRIBUTIONS TO 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. CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an eligible individual, 
there shall be allowed as a deduction the amounts paid in cash during 
the taxable year by the individual to a medical savings account for the 
benefit of--
            ``(1) the eligible individual, or
            ``(2) any spouse or dependent (as defined in section 152) 
        of the eligible individual who is enrolled in the same health 
        plan as the eligible individual but only if the spouse or 
        dependent is also an eligible individual.
    ``(b) Limitations.--
            ``(1) Only 1 account per family.--No deduction shall be 
        allowed under subsection (a) for amounts paid to any medical 
        savings account for the benefit of an eligible individual, such 
        individual's spouse, or any dependent (as so defined) of such 
        individual if such individual, spouse, or dependent is a 
        beneficiary of any other medical savings account.
            ``(2) Dollar limitation.--
                    ``(A) In general.--The amount allowable as a 
                deduction under subsection (a) with respect to 
                contributions to a medical savings account for the 
                taxable year shall not exceed the lesser of--
                            ``(i) $2,500 ($5,000 in the case of a 
                        medical savings account established on behalf 
                        of more than 1 individual), or
                            ``(ii) the catastrophic health plan 
                        differential.
                    ``(B) Catastrophic health plan differential.--For 
                purposes of subparagraph (A)(ii)--
                            ``(i) In general.--The catastrophic health 
                        plan differential for any taxable year is equal 
                        to the sum of the amounts determined under 
                        clause (ii) for each month during the taxable 
                        year for which the taxpayer was an eligible 
                        individual.
                            ``(ii) Monthly differential.--The amount 
                        determined under this clause for any month is 
                        the excess (if any) of--
                                    ``(I) the monthly premium 
                                determined under clause (iii) for the 
                                same class of enrollment as the 
                                catastrophic health plan in which the 
                                eligible individual is enrolled in, 
                                over
                                    ``(II) the aggregate amount paid 
                                for coverage for such month under the 
                                catastrophic health plan.
                            ``(iii) Monthly premium.--Not later than 
                        December 31 of each calendar year, the 
                        Secretary shall determine and publish the 
                        monthly premium (for each class of enrollment) 
                        for coverage under the health benefits plan 
                        offered under chapter 89 of title 5, United 
                        States Code, with the highest enrollment, 
                        adjusted for a national population under 65 
                        years of age (as determined by the Secretary) 
                        for the following calendar year. The premium 
                        shall be determined on the basis of the annual 
                        open enrollment period with respect to such 
                        following calendar year.
                    ``(C) Cost-of-living adjustment.--In the case of a 
                taxable year beginning in a calendar year after 1996, 
                each dollar amount in subparagraph (A)(i) shall be 
                increased by an amount equal to such dollar amount 
                multiplied by the cost-of-living adjustment under 
                section 1(f)(3) for the calendar year in which the 
                taxable year begins, determined by substituting `1995' 
                for `1992' in subparagraph (B) thereof.
            ``(3) Phase-in of deduction.--In the case of taxable years 
        beginning after December 31, 1995, and before January 1, 2000, 
        only the following percentages of the deduction allowable under 
        this section (without regard to this paragraph) shall be 
        allowed:

``If the taxable year                                    The applicable
  begins in:                                             percentage is:
    1996 or 1997..................................          50 percent 
    1998 or 1999..................................         75 percent. 
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means, with respect to any month, any individual who is not 
        eligible during such month--
                    ``(A) to participate in an employer-subsidized 
                health plan maintained by an employer of the 
                individual, the individual's spouse, or any dependent 
                (as defined in section 152) of either, or
                    ``(B) to receive any employer contribution to a 
                medical savings account.
        For purposes of subparagraph (B), a self-employed individual 
        (within the meaning of section 401(c)) shall not be treated as 
        his own employer.
            ``(2) Catastrophic health plan.--For purposes of this 
        section--
                    ``(A) In general.--The term `catastrophic health 
                plan' means a health plan which--
                            ``(i) has an annual out-of-pocket expense 
                        requirement per covered individual which is not 
                        less than $2,500, and
                            ``(ii) has an aggregate annual limit on 
                        out-of-pocket expenses for all covered 
                        individuals which is not less than $5,000.
                    ``(B) Minimum period of plan.--A health plan shall 
                not be treated as a catastrophic health plan unless--
                            ``(i) the initial period of coverage under 
                        the plan is 24 months, and
                            ``(ii) coverage under the plan may not be 
                        terminated after such initial period without 
                        advance notice of at least 1 year unless the 
                        individual is enrolling in another catastrophic 
                        health plan.
                Clauses (i) and (ii) shall not preclude any termination 
                for cause.
                    ``(C) Health plan.--The term `health plan' means 
                any plan or arrangement which provides, or pays the 
                cost of, health benefits. Such term does not include 
                the following, or any combination thereof:
                            ``(i) Coverage only for accidental death, 
                        dismemberment, dental, or vision.
                            ``(ii) Coverage providing wages or payments 
                        in lieu of wages for any period during which 
                        the employee is absent from work on account of 
                        sickness or injury.
                            ``(iii) A medicare supplemental policy (as 
                        defined in section 1882(g)(1)) or additional 
                        health care services under a risk contract 
                        under section 1876 for which an individual is 
                        charged premiums in addition to premiums under 
                        part B of title XVIII.
                            ``(iv) Coverage issued as a supplement to 
                        liability insurance.
                            ``(v) Workers' compensation or similar 
                        insurance.
                            ``(vi) Automobile medical-payment 
                        insurance.
                            ``(vii) A long-term care insurance policy, 
                        including a nursing home fixed indemnity policy 
                        (unless the Secretary determines that such a 
                        policy provides sufficiently comprehensive 
                        coverage of a benefit so that it should be 
                        treated as a health plan).
                            ``(viii) An equivalent health care program.
                            ``(ix) Any plan or arrangement not 
                        described in any preceding subparagraph which 
                        provides for benefit payments, on a periodic 
                        basis, for a specified disease or illness or 
                        period of hospitalization without regard to the 
                        costs incurred or services rendered during the 
                        period to which the payments relate.
                            ``(x) Such other plan or arrangement as the 
                        Secretary determines is not a health plan.
                    ``(D) Equivalent health care program.--The term 
                `equivalent health care program' means--
                            ``(i) part A or part B of the medicare 
                        program under title XVIII of the Social 
                        Security Act,
                            ``(ii) the medicaid program under title XIX 
                        of the Social Security Act,
                            ``(iii) the health care program for active 
                        military personnel under title 10, United 
                        States Code,
                            ``(iv) the veterans health care program 
                        under chapter 17 of title 38, United States 
                        Code,
                            ``(v) the Civilian Health and Medical 
                        Program of the Uniformed Services (CHAMPUS), as 
                        defined in section 1073(4) of title 10, United 
                        States Code, and
                            ``(vi) the Indian health service program 
                        under the Indian Health Care Improvement Act 
                        (25 U.S.C. 1601 et seq.).
            ``(3) Medical savings account.--The term `medical savings 
        account' has the meaning given such term by section 7705.
            ``(4) Time when contributions deemed made.--A contribution 
        shall be deemed to be made on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).''
    (b) Deduction Allowed Against Gross Income.--Subsection (a) of 
section 62 (defining adjusted gross income) is amended by inserting 
after paragraph (15) the following new paragraph:
            ``(16) Medical savings accounts.--The deduction allowed by 
        section 220.''
    (c) 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 new items:

                              ``Sec. 220. Contributions to medical 
                                        savings accounts.
                              ``Sec. 221. Cross reference.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 2. EXCLUSION FROM INCOME OF EMPLOYER CONTRIBUTIONS TO MEDICAL 
              SAVINGS ACCOUNTS.

    (a) In General.--Section 106 (relating to contributions by 
employers to accident and health plans) is amended by adding at the end 
the following new subsection:
    ``(b) Contributions to Medical Savings Accounts.--
            ``(1) Treatment of contributions.--
                    ``(A) In general.--Gross income of an employee who 
                is covered by a catastrophic health plan of an employer 
                shall not include any employer contribution to a 
                medical savings account on behalf of the employee or 
                the employee's spouse or dependents (as defined in 
                section 152).
                    ``(B) No constructive receipt.--No amount shall be 
                included in the gross income of any employee solely 
                because the employee may choose between the 
                contributions described in subparagraph (A) and 
                employer contributions to a health plan of the 
                employer.
            ``(2) Limitations.--
                    ``(A) Only 1 account per family.--No exclusion 
                shall be allowed under paragraph (1) for amounts paid 
                to any medical savings account on behalf of an employee 
                or the employee's spouse or dependents (as so defined) 
                if employee, spouse, or dependent is a beneficiary of 
                any other medical savings account.
                    ``(B) Dollar limitation.--The amount which may be 
                excluded under paragraph (1) for any taxable year shall 
                not exceed the lesser of--
                            ``(i) $2,500 ($5,000 in the case of a 
                        medical savings account established on behalf 
                        of more than 1 individual), or
                            ``(ii) the sum of the catastrophic health 
                        plan differentials for each month during the 
                        taxable year.
            ``(3) Catastrophic health plan differential.--For purposes 
        of subparagraph (B)(ii), the catastrophic health plan 
        differential with respect to any employee for any month is the 
        amount by which the cost for the month of the catastrophic 
        health plan in which the employee is enrolled is less than--
                    ``(A) the cost of the health plan (for the same 
                class of enrollment) which--
                            ``(i) the employee is eligible to enroll in 
                        through the employer, and
                            ``(ii) has the highest cost of all health 
                        plans in which the employee may enroll in 
                        through the employer, or
                    ``(B) if the employee is not eligible to enroll in 
                any such health plan through the employer or the 
                employer does not offer any such health plan, the 
                monthly premium for the month determined under section 
                220(b)(2)(B)(iii).
            ``(4) Cost-of-living adjustment.--In the case of a taxable 
        year beginning in a calendar year after 1996, each dollar 
        amount in paragraph (2)(B)(i) shall be increased by an amount 
        equal to such dollar amount multiplied by the cost-of-living 
        adjustment under section 1(f)(3) for the calendar year in which 
        the taxable year begins, determined by substituting `1995' for 
        `1992' in subparagraph (B) thereof.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) Catastrophic health plan.--The term 
                `catastrophic health plan' has the meaning given such 
                term by section 220(c)(2).
                    ``(B) Medical savings account.--The term `medical 
                savings account' has the meaning given such term by 
                section 7705.''
    (b) Employer Payments Excluded From Employment Base.--
            (1) Social security.--
                    (A) Subsection (a) of section 3121 is amended by 
                striking ``or'' at the end of paragraph (20), by 
                striking the period at the end of paragraph (21) and 
                inserting ``; or'', and by inserting after paragraph 
                (21) the following new paragraph:
            ``(22) 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) Subsection (a) of section 209 of the Social 
                Security Act is amended by striking ``or'' at the end 
                of paragraph (18), by striking the period at the end of 
                paragraph (19) and inserting ``; or'', and by inserting 
                after paragraph (19) the following new paragraph:
            ``(20) 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) of the Internal Revenue Code 
        of 1986.''
            (2) Railroad retirement.--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).''
            (3) Unemployment.--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).''
            (4) Withholding.--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).''
    (c) Conforming Amendment.--Section 106 is amended by striking 
``Gross'' and inserting:
    ``(a) General Rule.--Gross''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 3. MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Chapter 79 is amended by adding at the end the 
following new section:

``SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

    ``(a) General Rule.--The term `medical savings account' means a 
trust created or organized in the United States for the exclusive 
benefit of the beneficiaries of the trust, but only if the written 
governing instrument creating the trust meets the following 
requirements:
            ``(1) Except in the case of a rollover contribution 
        described in subsection (c)(5), no contribution will be 
        accepted unless--
                    ``(A) it is in cash, and
                    ``(B) it is made for a period during which the 
                individual on whose behalf it is made is covered under 
                a catastrophic health plan.
            ``(2) Contributions will not be accepted for any taxable 
        year in excess of the amount allowable as a deduction under 
        section 220(b)(2) for such taxable year.
            ``(3) The trustee is a bank (as defined in section 408(n)), 
        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.
            ``(4) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(5) No part of the trust assets will be invested in life 
        insurance contracts.
            ``(6) The interest of an individual in the balance in the 
        individual's account is nonforfeitable.
    ``(b) Treatment of Accounts.--
            ``(1) Account treated as grantor trust.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the account beneficiary of a medical 
                savings account shall be treated for purposes of this 
                title as the owner of such account and shall be subject 
                to tax thereon in accordance with subpart E of part I 
                of subchapter J of this chapter (relating to grantors 
                and others treated as substantial owners).
                    ``(B) Treatment of capital losses.--With respect to 
                assets held in a medical savings account, any capital 
                loss for a taxable year from the sale or exchange of 
                such an asset shall be allowed only to the extent of 
                capital gains from such assets for such taxable year. 
                Any capital loss which is disallowed under the 
                preceding sentence shall be treated as a capital loss 
                from the sale or exchange of such an asset in the next 
                taxable year.
            ``(2) Account terminates if individual engages in 
        prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the account beneficiary, such beneficiary engages in 
                any transaction prohibited by section 4975 with respect 
                to the account, the account shall cease to be a medical 
                savings account as of the first day of such taxable 
                year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical savings account by reason of subparagraph (A) 
                on the first day of any taxable year, subsection (c) 
                shall be applied as if--
                            ``(i) there were a distribution on such 
                        first day in an amount equal to the fair market 
                        value (on such first day) of all assets in the 
                        account (on such first day), and
                            ``(ii) no portion of such distribution were 
                        used to pay qualified medical expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the account beneficiary uses the account or 
        any portion thereof as security for a loan for purposes other 
        than to pay qualified medical expenses, the portion so used is 
        treated as distributed and not used to pay qualified medical 
        expenses.
    ``(c) 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 beneficiary (or spouse or dependent (as defined in 
        section 152)) of the account shall not be includible in gross 
        income.
            ``(2) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--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 beneficiary (or spouse or dependent (as so 
                defined)) shall be included in the gross income of such 
                beneficiary to the extent such amount does not exceed 
                the excess of--
                            ``(i) the aggregate contributions to such 
                        account which were not includible in gross 
                        income by reason of section 106(b) or which 
                        were deductible under section 220, over
                            ``(ii) the aggregate prior payments or 
                        distributions from such account which were 
                        includible in gross income under this 
                        paragraph.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all payments and distributions during 
                        any taxable year shall be treated as 1 
                        distribution, and
                            ``(ii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(3) Excess contributions returned before due date of 
        return.--Paragraph (2) shall not apply to the distribution of 
        any contribution paid during a taxable year to a medical 
        savings account to the extent that such contribution exceeds 
        the amount under subsection (a)(2) if--
                    ``(A) 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
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the individual for the taxable year in 
        which it is received.
            ``(4) Penalty for distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by chapter 1 on 
                the account beneficiary for any taxable year in which 
                there is a payment or distribution from a medical 
                savings account of such beneficiary which is includible 
                in gross income under paragraph (2) shall be increased 
                by 10 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.
            ``(5) Rollover contribution.--If any amount paid or 
        distributed from a medical savings account to the account 
        beneficiary (or spouse or dependent (as defined in section 
        152)) is paid into a medical savings account for the benefit of 
        such beneficiary (or spouse or dependent) not later than the 
        60th day after the day on which the beneficiary (or spouse or 
        dependent) receives the payment or distribution--
                    ``(A) paragraph (2) shall not apply to such amount, 
                and
                    ``(B) such amount shall be treated as a rollover 
                contribution described in this paragraph.
            ``(6) Coordination with medical expense deduction.--For 
        purposes of 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 to the 
        extent of the amount of such payment or distribution which is 
        attributable to amounts described in paragraph (2)(A).
            ``(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 at the time of the transfer 
        shall be treated as a medical savings account of such spouse, 
        and not of such individual. Any such account or annuity shall, 
        for purposes of this subtitle, be treated as maintained for the 
        benefit of the spouse to whom the interest was transferred.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means any expense for--
                            ``(i) medical care (as defined in section 
                        213(d)), or
                            ``(ii) qualified long-term care services.
                    ``(B) Exception for insurance.--
                            ``(i) In general.--Such term shall not 
                        include any expense for insurance.
                            ``(ii) Exceptions.--Clause (i) shall not 
                        apply to any expense for--
                                    ``(I) coverage under a health plan 
                                during a period of continuation 
                                coverage described in section 
                                4980B(f)(2)(B),
                                    ``(II) coverage under a medicare 
                                supplemental policy (as defined in 
                                section 1882(g)(1) of the Social 
                                Security Act), or
                                    ``(III) payment of premiums under 
                                part A or B of title XVIII of the 
                                Social Security Act,
                                    ``(IV) coverage under a policy 
                                providing qualified long-term care 
                                services, or
                                    ``(V) coverage under a health plan 
                                during any period during which an 
                                individual is unemployed.
                    ``(C) Qualified long-term care services.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        long-term care services' means necessary 
                        diagnostic, preventive, therapeutic, 
                        rehabilitative, and maintenance (including 
                        personal care) services--
                                    ``(I) which are required by an 
                                individual during any period during 
                                which such individual is a functionally 
                                impaired individual,
                                    ``(II) which have as their primary 
                                purpose the provision of needed 
                                assistance with 1 or more activities of 
                                daily living which a functionally 
                                impaired individual is certified as 
                                being unable to perform under clause 
                                (ii)(I), and
                                    ``(III) which are provided pursuant 
                                to a continuing plan of care prescribed 
                                by a licensed health care practitioner 
                                (other than a relative of such 
                                individual).
                            ``(ii) Functionally impaired individual.--
                                    ``(I) In general.--The term 
                                `functionally impaired individual' 
                                means any individual who is certified 
                                by a licensed health care practitioner 
                                (other than a relative of such 
                                individual) as being unable to perform, 
                                without substantial assistance from 
                                another individual (including 
                                assistance involving verbal reminding, 
                                physical cueing, or substantial 
                                supervision), at least 3 activities of 
                                daily living described in clause (iii).
                                    ``(II) Special rule for home health 
                                care services.--In the case of services 
                                which are provided during any period 
                                during which an individual is residing 
                                within the individual's home (whether 
                                or not the services are provided within 
                                the home), subclause (I) shall be 
                                applied by substituting `2' for `3'. 
                                For purposes of this subclause, a 
                                nursing home or similar facility shall 
                                not be treated as a home.
                            ``(iii) Activities of daily living.--Each 
                        of the following is an activity of daily 
                        living:
                                    ``(I) Eating.
                                    ``(II) Transferring.
                                    ``(III) Toileting.
                                    ``(IV) Dressing.
                                    ``(V) Bathing.
                    ``(D) Licensed health care practitioner.--For 
                purposes of subparagraph (C)--
                            ``(i) In general.--The term `licensed 
                        health care practitioner' means--
                                    ``(I) a physician or registered 
                                professional nurse,
                                    ``(II) a qualified community care 
                                case manager (as defined in clause 
                                (ii)), or
                                    ``(III) any other individual who 
                                meets such requirements as may be 
                                prescribed by the Secretary after 
                                consultation with the Secretary of 
                                Health and Human Services.
                            ``(ii) Qualified community care case 
                        manager.--The term `qualified community care 
                        case manager' means an individual or entity 
                        which--
                                    ``(I) has experience or has been 
                                trained in providing case management 
                                services and in preparing individual 
                                care plans;
                                    ``(II) has experience in assessing 
                                individuals to determine their 
                                functional and cognitive impairment;
                                    ``(III) is not a relative of the 
                                individual receiving case management 
                                services; and
                                    ``(IV) meets such requirements as 
                                may be prescribed by the Secretary 
                                after consultation with the Secretary 
                                of Health and Human Services.
                    ``(E) Relative.--For purposes of this paragraph, 
                the term `relative' means an individual bearing a 
                relationship to another individual which is described 
                in paragraphs (1) through (8) of section 152(a).
            ``(2) Account beneficiary.--The term `account beneficiary' 
        means the individual for whose benefit the medical savings 
        account is maintained.
    ``(e) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) the assets of such account are held by a bank (as 
        defined in section 408(n)), 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 account will be consistent with the 
        requirements of this section, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute a medical savings account 
        described in subsection (a).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(f) Reports.--The trustee of a medical savings account shall make 
such reports regarding such account to the Secretary and to the 
individual for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the Secretary 
may require under regulations. 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 those 
regulations.''
    (b) Preemption of Certain Conflicting Laws.--
            (1) In general.--Notwithstanding any other provision of 
        law, no Federal or State law shall prohibit a carrier from 
        offering a catastrophic health plan in conjunction with a 
        medical savings account (as defined in section 7705 of the 
        Internal Revenue Code of 1986).
            (2) Definitions.--For purposes of this subsection--
                    (A) the term ``carrier'' means any entity licensed 
                or authorized under Federal or State law to offer a 
                health plan,
                    (B) the term ``catastrophic health plan'' means a 
                health plan--
                            (i) which is described in section 220(c)(2) 
                        of the Internal Revenue Code of 1986, or
                            (ii) a similar health plan which provides 
                        significant cost sharing, and
                    (C) the term ``health plan'' has the meaning given 
                such term by section 220(c)(2)(C) of such Code.
    (c) Treatment of 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 
        subsection (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 7705(a)), 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 a medical savings account 
(within the meaning of section 7705(a)), the term `excess 
contributions' means the amount by which the amount contributed for the 
taxable year to the account exceeds the amount which may be contributed 
to the account under section 7705(a)(2) for such taxable year. For 
purposes of this subsection, any contribution which is distributed out 
of the medical savings account in a distribution to which section 
7705(c)(3) applies shall be treated as an amount not contributed.''
    (d) Treatment of Prohibited Transactions.--Section 4975 (relating 
to prohibited transactions) is amended--
            (1) 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 7705(a)) 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 7705(b)(2)(A) to such 
        account.'', and
            (2) by inserting ``or a medical savings account described 
        in section 7705(a)'' in subsection (e)(1) after ``described in 
        section 408(a)''.
    (e) Failure To Provide Reports on Medical Savings Accounts.--
Section 6693 (relating to failure to provide reports on individual 
retirement accounts or annuities) is amended--
            (1) by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following: 
        ``The person required by section 7705(f) to file a report 
        regarding a medical savings account at the time and in the 
        manner required by such section shall pay a penalty of $50 for 
        each failure unless it is shown that such failure is due to 
        reasonable cause.''
    (f) Clerical Amendments.--
            (1) The table of sections for chapter 43 is amended by 
        striking the item relating to section 4973 and inserting the 
        following:

                              ``Sec. 4973. Treatment of excess 
                                        contributions to individual 
                                        retirement accounts, medical 
                                        savings accounts, certain 
                                        403(b) contracts, and certain 
                                        individual retirement 
                                        annuities.''
            (2) The table of sections for subchapter B of chapter 68 is 
        amended by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the item relating to section 6693.

SEC. 4. SENSE OF THE SENATE REGARDING TAX TREATMENT OF HEALTH INSURANCE 
              AND LONG-TERM CARE INSURANCE.

    It is the sense of the Senate that--
            (1) there should be tax parity for all health insurance 
        whether provided or purchased by individuals, self-employed, or 
        employers; and
            (2) long-term care services and insurance should be 
        provided tax status similar to medical care services and 
        insurance.
                                 <all>
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