Refundable and advanceable credit for health insurance costs

(a)

In General

Subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by redesignating section 36 as section 37 and by inserting after section 35 the following new section:

36.

Health insurance costs

(a)

In General

In the case of an individual, there shall be allowed as a credit against the tax imposed by this subtitle an amount equal to the amount paid during the taxable year for qualified health insurance for coverage of the taxpayer, his spouse, and dependents. (b)

Limitations

(1)

Maximum credit

(A)

In General

The amount allowed as a credit under subsection (a) to the taxpayer for the taxable year shall not exceed the sum of the monthly limitations for months during such taxable year. (B)

Monthly limitation

The monthly limitation for any month is the amount equal to 1/12 of the lesser of— (i)the product of $1,000 multiplied by the number of individuals taken into account under subsection (a) who are covered under qualified health insurance as of the first day of such month, or (ii)$3,000. (2)

Employer subsidized coverage

Subsection (a) shall not apply to amounts paid for coverage of any individual for any month for which such individual participates in any subsidized health plan maintained by any employer of the taxpayer or of the spouse of the taxpayer. The rule of the last sentence of section 162(l)(2)(B) shall apply for purposes of the preceding sentence. (c)

Qualified health insurance

For purposes of this section— (1)

In General

The term qualified health insurance means insurance which constitutes medical care if— (A)such insurance meets the requirements of section 223(c)(2)(A)(ii), (B)there is no exclusion from, or limitation on, coverage for any preexisting medical condition of any applicant who, on the date the application is made, has been continuously insured during the 1-year period ending on the date of the application under— (i)qualified health insurance (determined without regard to this subparagraph), or (ii)a program described in— (I)title XVIII or XIX of the Social Security Act, (II)chapter 55 of title 10, United States Code, (III)chapter 17 of title 38, United States Code, (IV)chapter 89 of title 5, United States Code, or (V)the Indian Health Care Improvement Act, and (C)in the case of each applicant who has not been continuously so insured during the 1-year period ending on the date the application is made, the exclusion from, or limitation on, coverage for any preexisting medical condition does not extend beyond the period after such date equal to the lesser of— (i)the number of months immediately prior to such date during which the individual was not so insured since the illness or condition in question was first diagnosed, or (ii)1 year. (2)

Exclusion of certain plans

Such term does not include— (A)insurance if substantially all of its coverage is coverage described in section 223(c)(1)(B), (B)insurance under a program described in paragraph (1)(B)(ii). (3)

Transition rule for 2005

In the case of applications made during 2005, the requirements of subparagraphs (C) and (D) of paragraph (1) are met only if the insurance does not exclude from coverage, or limit coverage for, any preexisting medical condition of any applicant. (d)

Special rules

(1)

Coordination with medical deduction, etc

Any amount paid by a taxpayer for insurance to which subsection (a) applies shall not be taken into account in computing the amount allowable to the taxpayer as a credit under section 35 or as a deduction under section 162(l) or 213(a). (2)

Denial of credit to dependents

No credit 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. (3)

Married couples must file joint return

(A)

In General

If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and his spouse file a joint return for the taxable year. (B)

Marital status; certain married individuals living apart

Rules similar to the rules of paragraphs (3) and (4) of section 21(e) shall apply for purposes of this paragraph. (4)

Verification of coverage, etc

No credit shall be allowed under this section to any individual unless such individual’s coverage under qualified health insurance, and the amount paid for such coverage, are verified in such manner as the Secretary may prescribe. (5)

Coordination with advance payments of credit

With respect to any taxable year, the amount which would (but for this subsection) be allowed as a credit to the taxpayer under subsection (a) shall be reduced (but not below zero) by the aggregate amount paid on behalf of such taxpayer under section 7527A for months beginning in such taxable year. (6)

Cost-of-living adjustment

In the case of any taxable year beginning in a calendar year after 2005, each dollar amount contained in subsection (b)(1)(B) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 2004 for calendar year 1992 in subparagraph (B) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $10.

(b)

Advance payment of credit

Chapter 77 of such Code (relating to miscellaneous provisions) is amended by inserting after section 7527 the following new section:

7527A.

Advance payment of credit for health insurance costs

(a)

General rule

The Secretary shall establish a program for making payments on behalf of individuals to providers of qualified health insurance (as defined in section 36(c)) for such individuals. (b)

Limitation on advance payments during any taxable year

The Secretary may make payments under subsection (a) only to the extent that the total amount of such payments made on behalf of any individual during the taxable year does not exceed the amount allowable as a credit to such individual for such year under section 36 (determined without regard to subsection (d)(5) thereof).

(c)

Conforming amendments

(1)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting or 36 after section 35. (2)The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by striking the item relating to section 36 and inserting the following new items:

Sec. 36. Health insurance costs

Sec. 37. Overpayments of tax

(3)The table of sections for chapter 77 of such Code is amended by inserting after the item relating to section 7527 the following new item:

Sec. 7527A. Advance payment of credit for health insurance costs

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2004.