[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2658 Introduced in House (IH)]







107th CONGRESS
  1st Session
                                H. R. 2658

    To amend the Internal Revenue Code of 1986 to exclude employer 
 contributions to health care expenditure accounts from gross income, 
and to amend title I of the Employee Retirement Income Security Act of 
1974 to clarify the applicability of such title to plans employing such 
                               accounts.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 26, 2001

 Mr. DeMint (for himself, Mr. Armey, Mrs. Johnson of Connecticut, Mr. 
  Burr of North Carolina, Mr. Cooksey, Mr. Fletcher, Mr. Herger, Mr. 
   Hoekstra, Mr. McKeon, Mr. Sam Johnson of Texas, Mr. Shadegg, Mrs. 
Myrick, Mr. Souder, Mr. Ryan of Wisconsin, Mr. Toomey, Mr. Stearns, Mr. 
 Pitts, Mr. Bartlett of Maryland, Mr. Pence, Mr. Tiahrt, Mr. Paul, Mr. 
  Manzullo, and Mr. Tiberi) introduced the following bill; which was 
  referred to the Committee on Ways and Means, and in addition to the 
     Committee on Education and the Workforce, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisons as fall within the jursidiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 to exclude employer 
 contributions to health care expenditure accounts from gross income, 
and to amend title I of the Employee Retirement Income Security Act of 
1974 to clarify the applicability of such title to plans employing such 
                               accounts.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Health Care Account Act of 2001''.

SEC. 2. HEALTH CARE EXPENDITURE ACCOUNTS.

    (a) Exclusion for Employer Contributions to Health Care Expenditure 
Accounts.--
            (1) Exclusion from income tax.--Section 106 of the Internal 
        Revenue Code of 1986 (relating to contributions by employer to 
        accident and health plans) is amended by adding at the end the 
        following new subsection:
    ``(d) Contributions to Health Care Expenditure Accounts.--
            ``(1) In general.--Amounts contributed by the employee's 
        employer to any health care expenditure account of such 
        employee shall be treated as employer-provided coverage for 
        medical expenses under an accident or health plan.
            ``(2) Limitations.--
                    ``(A) Employee must be covered by health 
                insurance.--Paragraph (1) shall not apply with respect 
                to a contribution unless, at the time of such 
                contribution, the employee was covered by insurance 
                which constitutes medical care for the employee and 
                which is qualified as a health plan by the State in 
                which such plan is offered. For purposes of the 
                preceding sentence, the term `medical care' shall have 
                the meaning given to such term by section 213(d) 
                (without regard to paragraph (1)(C) and so much of 
                paragraph (1)(D) as relates to qualified long-term care 
                insurance contracts).
                    ``(B) Employee may not contribute to both health 
                care expenditure account and archer msa in the same 
                year.--Paragraph (1) shall not apply with respect to 
                any contribution in a taxable year if a deduction under 
                section 220 is allowed to the employee for the taxable 
                year.
                    ``(C) Employer may not contribute to both health 
                care expenditure account and group health plan.--
                Paragraph (1) shall not apply with respect to any 
                contribution to an employee of an employer in a taxable 
                year if an exclusion is allowed under subsection (a) 
                for such taxable year to any employee of the employer 
                for employer-provided coverage for medical expenses 
                under an accident or health plan (determined without 
                regard to this subsection).
                    ``(D) 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.
                    ``(E) Highly compensated participants and key 
                employees.--For purposes of this subsection, rules 
                similar to the rules of section 125(b) shall apply.
            ``(3) Special rule for deduction of employer 
        contributions.--Any employer contribution to a health care 
        expenditure account, if otherwise allowable as a deduction 
        under this chapter, shall be allowed only for the taxable year 
        in which paid.
            ``(4) Employer 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 health 
        care expenditure account of such individual or such 
        individual's spouse for such taxable year.
            ``(5) Health care expenditure account 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 `health care expenditure 
        account' have the respective meanings given to such terms by 
        section 531.
            ``(7) Cross reference.--

                                ``For penalty on failure by employer to 
make comparable contributions to the health care expenditure accounts 
of comparable employees, see section 4980F.''.
    (b) Exclusion for Employee Contributions to Health Care Expenditure 
Accounts.--
            (1) In general.--Part III of subchapter B of chapter 1 of 
        such Code (relating to items specifically excluded from gross 
        income) is amended by redesignating section 139 as section 139A 
        and by inserting after section 138 the following new section:

``SEC. 139. EMPLOYEE CONTRIBUTIONS TO HEALTH CARE EXPENDITURE ACCOUNTS.

    ``(a) In General.--Gross income shall not include any contribution 
by an employee to a health care expenditure account (as defined in 
section 531).
    ``(b) Limitation.--The amount excluded by subsection (a) shall not 
exceed the lesser of--
            ``(1) the limitation for the taxable year with respect to 
        the employee under section 531(c)(1)(B), or
            ``(2) an amount equal to the compensation (as defined in 
        section 219(f)(1)) includible in the employee's gross income 
        for such taxable year (determined without regard to this 
        section).''.
            (2) Clerical amendment.--The table of sections for such 
        part III is amended by striking the last item and inserting the 
        following new items:

                              ``Sec. 139. Employee contributions to 
                                        health care expenditure 
                                        accounts.
                              ``Sec. 139A. Cross references to other 
                                        Acts.''.
    (c) Health Care Expenditure Accounts.--Subchapter F of chapter 1 of 
such Code (relating to exempt organizations) is amended by adding at 
the end the following new part:

              ``PART IX--HEALTH CARE EXPENDITURE ACCOUNTS

                              ``Sec. 531. Health care expenditure 
                                        accounts.

``SEC. 531. HEALTH CARE EXPENDITURE ACCOUNTS.

    ``(a) Health Care Expenditure Account.--For purposes of this 
section, the term `health care expenditure 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--
            ``(1) the requirements of subsections (c), and
            ``(2) the account requirements of subparagraphs (B), (C), 
        (D), and (E) of section 220(d)(1).
    ``(b) Qualified Medical Expenses.--
            ``(1) 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.
            ``(2) Account holder.--The term `account holder' means the 
        individual on whose behalf the health care expenditure account 
        was established.
            ``(3) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 408(g) (relating to community 
                property laws).
                    ``(B) Section 408(h) (relating to custodial 
                accounts).
                    ``(C) Section 408(m) (relating to investment in 
                collectibles treated as distributions).
                    ``(D) Section 220(f)(7) (relating to transfer of 
                account incident to divorce).
                    ``(E) Section 220(f)(8) (relating to treatment 
                after death of account holder).
    ``(c) Contributions.--
            ``(1) In general.--Except in the case of a rollover 
        contribution described in subsection (e)(5), the requirement of 
        this paragraph is that no contribution will be accepted--
                    ``(A) unless it is in cash, and
                    ``(B) if such contribution would result in 
                aggregate contributions for the taxable year exceeding 
                $5,000.
            ``(2) Coordination with exclusion for employer 
        contributions.--The limitation which would (but for this 
        paragraph) apply under paragraph (1)(B) to the taxpayer for any 
        taxable year shall be reduced (but not below zero) by the 
        amount which would (but for section 106(d)) be includible in 
        the taxpayer's gross income for such taxable year.
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--A health care expenditure account is 
        exempt from taxation under this subtitle unless such account 
        has ceased to be a health care expenditure account. 
        Notwithstanding the preceding sentence, any such account is 
        subject to the taxes imposed by section 511 (relating to 
        imposition of tax on unrelated business income of charitable, 
        etc. organizations).
            ``(2) Account terminations.--Rules similar to the rules of 
        paragraphs (2) and (4) of section 408(e) shall apply to health 
        care expenditure accounts, and any amount treated as 
        distributed under such rules shall be treated as not used to 
        pay qualified medical expenses.
    ``(e) Tax Treatment of Distributions.--
            ``(1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a health care expenditure 
        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 health care 
        expenditure 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) Contributions returned before due date of return.--
        Paragraph (2) shall not apply to distributions of any 
        contribution made during the taxable year on behalf of the 
        account holder if--
                    ``(A) such distribution is made on or before the 
                last day prescribed by law (including extensions of 
                time) for filing such holder's return for such taxable 
                year, and
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the individual for the taxable year in 
        which such contribution is made.
            ``(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 health care 
                expenditure 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 death.--Subparagraph (A) shall 
                not apply if the payment or distribution is made after 
                the account holder dies.
            ``(5) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (2) shall not apply to 
                any amount paid or distributed from a health care 
                expenditure account to the account holder to the extent 
                the amount received is paid into a health care 
                expenditure account or an Archer MSA 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 health care expenditure account 
                if, at any time during the 1-year period ending on the 
                day of such receipt, such individual received any other 
                amount described in subparagraph (A) from a health care 
                expenditure account which was not includible in the 
                individual's gross income because of the application of 
                this paragraph or section 220(f)(5) (relating to 
                rollover contribution with respect to Archer MSAs).
            ``(6) Coordination with other medical expense provisions.--
                    ``(A) Medical expense deduction.--For purposes of 
                determining the amount of the deduction under section 
                213, any payment or distribution out of a health care 
                expenditure account for qualified medical expenses 
                shall not be treated as an expense paid for medical 
                care.
                    ``(B) Archer msas.--For purposes of section 220, 
                the amount of qualified medical expenses otherwise 
                taken into account under paragraph (1) for a taxable 
                year shall be reduced (before the application of 
                paragraphs (2) and (4)) by the sum of the amounts 
                distributed from an Archer MSA for the taxable year.
    ``(f) Reports.--The Secretary may require the trustee of a health 
care expenditure 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.''.
    (d) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to certain tax-favored 
accounts and annuities) is amended--
            (1)(A) by striking ``or'' at the end of paragraph (3) of 
        subsection (a),
            (B) by inserting ``or'' after the comma at the end of 
        paragraph (4), and
            (C) by inserting after paragraph (4) the following:
            ``(2) a health care expenditure account (within the meaning 
        of section 531(d)),'', and
            (2) by adding at the end the following new subsection:
    ``(d) Excess Contributions to Health Care Expenditure Accounts.--
For purposes of this section, in the case of health care expenditure 
accounts (within the meaning of section 531(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 531(e)(5)) which is neither excludable from gross 
        income under section 106(d) nor allowable as a contribution 
        under section 531 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 531(e)(2), 
                and
                    ``(B) the excess (if any) of--
                            ``(i) the maximum amount allowable as a 
                        contribution under section 531(b)(1) 
                        (determined without regard to section 106(d)) 
                        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 health care expenditure account in a distribution to which 
section 531(e)(3) applies shall be treated as an amount not 
contributed.''.
    (e) Tax on Prohibited Transactions.--
            (1) Section 4975 of such Code (relating to tax on 
        prohibited transactions) is amended by adding at the end of 
        subsection (c) the following new paragraph:
            ``(6) Special rule for health care expenditure accounts.--
        An individual for whose benefit a health care expenditure 
        account (within the meaning of section 531) 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 health care expenditure account 
by reason of the application of section 531(d)(2) to such account.''.
            (2) Paragraph (1) of section 4975(e) of such Code is 
        amended by striking ``or'' at the end of subparagraph (E), by 
        redesignating subparagraph (F) as subparagraph (G), and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) a health care expenditure account described 
                in section 531(d), or''.
    (f) Failure To Provide Reports on Health Care Expenditure 
Accounts.--Paragraph (2) of section 6693(a) of such Code is amended by 
striking ``and'' at the end of subparagraph (C), by striking the period 
at the end of subparagraph (D) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                    ``(E) section 531(f) (relating to health care 
                expenditure accounts).''.
    (g) Withholding Tax.--Subsection (a) of section 3401 of such Code 
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(d).''.
    (h) Employer Contributions Required To Be Shown on W-2.--Subsection 
(a) of section 6051 of such Code is amended by striking ``and'' at the 
end of paragraph (10), by striking the period at the end of paragraph 
(11) and inserting ``, and'', and by inserting after paragraph (11) the 
following new paragraph:
            ``(12) the amount contributed to any health care 
        expenditure account (as defined in section 531) of such 
        employee or such employee's spouse.''.
    (i) Penalty for Failure of Employer To Make Comparable Health Care 
Expenditure Account Contributions.--
            (1) In general.--Chapter 43 of such Code is amended by 
        adding after section 4980E the following new section:

``SEC. 4980F. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH CARE 
              EXPENDITURE ACCOUNT CONTRIBUTIONS.

    ``(a) General Rule.--In the case of an employer who makes a 
contribution to the health care expenditure account of any employee 
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 health 
care expenditure 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 Health Care Expenditure 
Account 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 health care 
        expenditure accounts of all comparable participating employees 
        during such calendar year.
            ``(2) Comparable contributions.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `comparable contributions' means contributions 
                which meet the requirements of section 125.
                    ``(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 
                health care expenditure 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 who are eligible individuals who have a 
        health care expenditure account.
            ``(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 531 have the respective meanings given such terms in section 
531.''.
            (2) Clerical amendment.--The table of sections for chapter 
        43 of such Code is amended by adding after the item relating to 
        section 4980E the following new item:

                              ``Sec. 4980F. Failure of employer to make 
                                        comparable medical savings 
                                        account contributions.''.
    (j) Conforming and Clerical Amendments.--
            (1) Section 220(d)(1)(A) of such Code is amended by 
        inserting ``or section 531(e)(5)'' after ``subsection (f)(5)''.
            (2) The table of parts for subchapter F of chapter 1 of 
        such Code is amended by adding after the item relating to part 
        VIII the following new item:

            ``Part IX--Health care expenditure accounts.''.

    (k) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 3. APPLICABILITY OF ERISA TO HEALTH CARE EXPENDITURE ACCOUNTS.

    (a) ERISA Coverage of Health Care Expenditure Accounts.--Section 4 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003) 
is amended--
            (1) by striking ``The provisions of part 7'' in subsection 
        (b) and inserting the following:
    ``(c) The provisions of part 7''; and
            (2) by adding at the end the following new subsection:
    ``(d) In the case of any employee welfare benefit plan of which a 
health care expenditure account (within the meaning of section 531(a) 
of the Internal Revenue Code of 1986) forms a part--
            ``(1) for purposes of applying this title to such plan in 
        connection with such account, the benefits provided under such 
        plan shall be deemed to consist solely of any employer 
        contributions to the account provided for in the terms of the 
        plan, and
            ``(2) this title shall not apply with respect to any health 
        insurance coverage (within the meaning of section 733(b)) 
        acquired with funds held in such account.''.
    (b) Exclusion From Definitions of Group Health Plan.--
            (1) Continuation coverage requirements.--Section 607(1) of 
        such Act (29 U.S.C. 1167(1)) is amended, in the second 
        sentence, by inserting before the period the following: ``or 
        the provisions of any employee welfare benefit plan described 
        in section 4(d) relating to a health care expenditure account 
        (within the meaning of section 531(a) of the Internal Revenue 
        Code of 1986).''.
            (2) HIPAA group health plan requirements.--Section 733(a) 
        of such Act (29 U.S.C. 1191b(a)) is amended by adding at the 
        end the following new paragraph:
    ``(3) Exclusion of health care expenditure account plans.--The term 
`group health plan' excludes the provisions of any employee welfare 
benefit plan described in section 4(d) relating to a health care 
expenditure account (within the meaning of section 531(a) of the 
Internal Revenue Code of 1986).''.
    (c) Limitation on ERISA Preemption.--Section 514(b) of such Act (29 
U.S.C. 1144(b)) is amended--
            (1) by redesignating paragraph (9) as paragraph (10); and
            (2) by inserting after paragraph (8) the following new 
        paragraph:
    ``(9) Nothing in this section shall be construed to alter, amend, 
modify, invalidate, impair, or supersede any provision of State law 
relating to health insurance coverage (within the meaning of section 
733(b)) solely because such coverage is acquired with funds held in a 
health care expenditure account (within the meaning of section 531(a) 
of the Internal Revenue Code of 1986) forming a part of an employee 
welfare benefit plan.''.
                                 <all>