Short title

This Act may be cited as the

Comprehensive Health Care Reform Act of 2005

Refundable credit for health care costs

(a)

In general

Section 35 of the Internal Revenue Code of 1986 (relating to health insurance costs of eligible individuals) is amended to read as follows:

35.

Health insurance costs

(a)

In general

In the case of an individual, there shall be allowed as a credit against the tax imposed by subtitle A an amount equal to the amount paid by the taxpayer for insurance which constitutes medical care for the taxpayer and the taxpayer’s spouse and dependents. (b)

Limitation

The credit allowed by subsection (a) for the taxable year shall not exceed the sum of— (1)the taxpayer’s net income tax for the taxable year, plus (2)the taxpayer’s social security taxes (as defined in section 24(d)) for such taxable year.

For purposes of paragraph (1), the term net income tax means the sum of the regular tax liability plus the tax imposed by section 55, reduced by the credits allowable under this part (other than this subpart).

(c)

Denial of double benefit

Any amount allowed as a credit under this section shall not be taken into account in determining the amount of any deduction under this chapter.

(b)

Conforming amendments

(1)Section 162 of such Code is amended by striking subsection (l). (2)Chapter 77 of such Code is amended by striking section 7527 and by striking the item relating to section 7527 in the table of sections for such chapter. (3)Subpart B of part III of subchapter A of chapter 61 of such Code is amended by striking section 6050T and by striking the item relating to section 6050T in the table of sections for such chapter. (4)Section 6103(l) of such Code is amended by striking paragraph (18). (5)Section 6103(p) of such Code is amended— (A)in paragraph (3)(A) by striking (17), or (18) and inserting or (17), and (B)in paragraph (4) by striking or (17) after any other person described in subsection (l)(16) each place it appears. (6)Section 7213A(a)(1)(B) of such Code is amended by striking subsection (l)(18) or (n) of section 6103 and inserting section 6103(n). (7)Section 6724(d)(1)(B) of such Code is amended by striking clause (xi). (8)Section 6724(d)(2) of such Code is amended by striking subparagraph (BB). (9)The item relating to section 35 in the table of sections for subpart C of part IV of subchapter A of chapter 1 of such Code is amended to read as follows:

Sec. 35 Health insurance costs

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Disposition of unused health benefits in cafeteria plans and flexible spending arrangements

(a)

In general

Section 125 of the Internal Revenue Code of 1986 (relating to cafeteria plans) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following:

(h)

Carryforwards or payments of certain unused health benefits

(1)

In general

For purposes of this title, a plan or other arrangement shall not fail to be treated as a cafeteria plan solely because qualified benefits under such plan include a health flexible spending arrangement under which not more than $500 of unused health benefits may be— (A)carried forward to the succeeding plan year of such health flexible spending arrangement, or (B)paid to or on behalf of an employee as compensation as of the end of such plan year or upon the termination of, or failure to re-enroll in, such plan or arrangement. (2)

Distribution of unused health benefits on behalf of employee

For purposes of paragraph (1)(B), unused health benefits paid as compensation on behalf of an employee by the employer shall be— (A)includible in gross income and wages of the employee, whether or not a deduction for such payment is allowable under this title to the employee, and (B)excludable from— (i)gross income to the extent provided under section 402(e), 457(a) (with respect to contributions to an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A)), or 220, and (ii)wages to the extent otherwise provided for amounts so excludable. (3)

Health flexible spending arrangement

For purposes of this subsection, the term health flexible spending arrangement means a flexible spending arrangement (as defined in section 106(c)) that is a qualified benefit and only permits reimbursement for expenses for medical care (as defined in section 213(d)(1)) (without regard to subparagraphs (C) and (D) thereof). (4)

Unused health benefits

For purposes of this subsection, the term unused health benefits means the excess of— (A)the maximum amount of reimbursement allowable during a plan year under a health flexible spending arrangement, over (B)the actual amount of reimbursement during such year under such arrangement.

(b)

Effective date

The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2005.

Strengthening Health Savings Accounts

(a)

Repeal of requirement for coverage under high deductible health plan

(1)

In general

Section 223 of the Internal Revenue Code of 1986 (relating to health savings accounts) is amended by striking subsections (a), (b), and (c) and inserting the following:

(a)

Deduction allowed

In the case of an individual, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual. (b)

Limitations

(1)

In general

The amount allowable as a deduction to a taxpayer under subsection (a) for the taxable year shall not exceed $8,000 ($16,000 in the case of a joint return). (2)

Coordination with other contributions

The limitation which would (but for this paragraph) apply under this subsection to a taxpayer for any taxable year shall be reduced (but not below zero) by the sum of— (A)the aggregate amount paid for such taxable year to Archer MSAs of the taxpayer, and (B)the aggregate amount contributed to health savings accounts of the taxpayer which is excludable from the taxpayer's gross income for such taxable year under section 106(d) (and such amount shall not be allowed as a deduction under subsection (a)). (3)

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.

(2)

Conforming amendments

(A)Section 223 of such Code is amended by redesignating subsections (d), (e), (f), (g), and (h) as subsections (c), (d), (e), (f), and (g), respectively. (B)Section 223(f) of such Code (as redesignated by subparagraph (A)) is amended to read as follows:

(f)

Cost-of-living adjustment

(1)

In general

In the case of any taxable year beginning in a calendar year after 2006, each dollar amount in subsection (b)(1) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins, determined by substituting calendar year 2006 for calendar year 1992 in subparagraph (B) thereof. (2)

Rounding

If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.

(C)Section 26(b)(2)(S) of such Code is amended by striking section 223(f)(4) and inserting section 223(e)(4). (D)Each of the following sections of such Code is amended by striking section 223(d) and inserting section 223(c): (i)Section 35(g)(3). (ii)Section 106(d)(1). (iii)Section 220(f)(5)(A). (iv)Section 848(e)(1)(B)(v). (v)Section 4973(a)(5). (vi)Section 4973(g). (vii)Section 4975(c)(6). (viii)Section 4975(e)(1)(E). (ix)Section 6051(a)(12). (E)Section 4973(g) of such Code is amended— (i)in paragraph (1) by striking section 223(f)(5) and inserting section 223(e)(5), (ii)in paragraph (2)(A) by striking section 223(f)(2) and inserting section 223(e)(2), and (iii)in the matter following paragraph (2) by striking section 223(f)(3) and inserting section 223(e)(3). (F)Section 4975(c)(6) of such Code is amended by striking section 223(e)(2) and inserting section 223(d)(2). (G)Section 6693(a)(2)(C) of such Code is amended by striking section 223(h) and inserting section 223(g). (b)

Deduction allowed for premium payments for high deductible policies

Section 223(c)(2)(C) of such Code (as amended by subsection (a)) is amended by striking or at the end of clause (iii), by striking the period at the end of clause (iv) and inserting , or, and by inserting after clause (iv) the following new clause:

(v)a high deductible health plan.

(c)

Purchase of Medigap policies permitted

Clause (iv) of section 223(c)(2)(C) of such Code (as amended by this section) is amended by striking other than and inserting , including. (d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2005.

Repeal of 7.5 percent threshold on deduction for medical expenses

(a)

In general

Subsection (a) of section 213 of the Internal Revenue Code of 1986 (relating to deduction for medical expenses) is amended by striking to the extent that such expenses exceed 7.5 percent of adjusted gross income. (b)

Effective date

The amendment made by this section shall apply to taxable years beginning after December 31, 2005.