[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6065 Introduced in House (IH)]








109th CONGRESS
  2d Session
                                H. R. 6065

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
 for the payment of premiums for high deductible health plans, and for 
                            other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 13, 2006

  Mr. Cantor introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide tax incentives 
 for the payment of premiums for high deductible health plans, 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. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Tax Free Health 
Savings Act of 2006''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title, etc.
Sec. 2. Deduction of premiums for high deductible health plans.
Sec. 3. Credit for certain employment taxes paid with respect to 
                            premiums for high deductible health plans 
                            and contributions to health savings 
                            accounts.
Sec. 4. Refundable credit for health insurance coverage under high 
                            deductible health plan.
Sec. 5. Advance payment of credit as premium payment for high 
                            deductible health insurance.
Sec. 6. Increase in contribution limits for health savings accounts.
Sec. 7. Health reimbursement arrangements and spending arrangements in 
                            combination with health savings accounts.
Sec. 8. Certain expenses treated as qualified medical expenses.
Sec. 9. Exception to requirement for employers to make comparable 
                            health savings account contributions.

SEC. 2. DEDUCTION OF PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 224 as 
section 225 and by inserting after section 223 the following new 
section:

``SEC. 224. PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS.

    ``(a) Deduction Allowed.--In the case of an individual, there shall 
be allowed as a deduction for the taxable year the aggregate amount 
paid by the taxpayer as premiums under a high deductible health plan 
with respect to months during such year for which such individual is an 
eligible individual with respect to such health plan.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means an individual who--
                    ``(A) is described in section 223(c)(1), and
                    ``(B) is the taxpayer or the taxpayer's spouse and 
                dependents.
            ``(2) High deductible health plan.--The term `high 
        deductible health plan' has the meaning given such term by 
        section 223(c)(2).
    ``(c) Special Rules.--
            ``(1) Deduction limits.--
                    ``(A) Deduction allowable for only 1 plan.--For 
                purposes of this section, in the case of an individual 
                covered by more than 1 high deductible health plan for 
                any month, the individual may only take into account 
                amounts paid for such month for the plan with the 
                lowest premium.
                    ``(B) Plans covering ineligible individuals.--If 2 
                or more individuals are covered by a high deductible 
                health plan for any month but only 1 of such 
                individuals is an eligible individual for such month, 
                only 50 percent of the aggregate amount paid by such 
                eligible individual as premiums under the plan with 
                respect to such month shall be taken into account for 
                purposes of this section.
            ``(2) Group health plan coverage.--
                    ``(A) In general.--No deduction shall be allowed 
                for an individual under subsection (a) for any amount 
                paid for coverage under a high deductible health plan 
                for a month if that individual participates in any 
                coverage under a group health plan (within the meaning 
                of section 5000 without regard to section 5000(d)). For 
                purposes of the preceding sentence, an arrangement 
                which constitutes individual health insurance shall not 
                be treated as a group health plan if such arrangement 
                is a high deductible health plan (as defined in section 
                223(c)(2)), or is a payment by an employer or employee 
                organization with respect to such high deductible 
                health plan, notwithstanding that an employer or 
                employee organization negotiates the cost or benefits 
                of such arrangement.
                    ``(B) Exception for plans only providing 
                contributions to health savings accounts.--Subparagraph 
                (A) shall not apply to an individual if the 
                individual's only coverage under a group health plan 
                for a month consists of contributions by an employer to 
                a health savings account with respect to which the 
                individual is the account beneficiary.
                    ``(C) Exception for certain permitted coverage.--
                Subparagraph (A) shall not apply to an individual if 
                the individual's only coverage under a group health 
                plan for a month is coverage described in clause (i) or 
                (ii) of section 223(c)(1)(B).
            ``(3) Medical and health savings accounts.--Subsection (a) 
        shall not apply with respect to any amount which is paid or 
        distributed out of an Archer MSA or a health savings account 
        which is not included in gross income under section 220(f) or 
        223(f), as the case may be.
            ``(4) Coordination with deduction for health insurance of 
        self-employed individuals.--Any amount taken into account by 
        the taxpayer in computing the deduction under section 162(l) 
        shall not be taken into account under this section.
            ``(5) Coordination with medical expense deduction.--Any 
        amount taken into account by the taxpayer in computing the 
        deduction under this section shall not be taken into account 
        under section 213.''.
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting before the last sentence at the end the following new 
paragraph:
            ``(21) Premiums for high deductible health plans.--The 
        deduction allowed by section 224.''.
    (c) Coordination With Section 35 Health Insurance Costs Credit.--
Section 35(g)(2) of such Code is amended by striking ``or 213'' and 
inserting ``, 213, or 224''.
    (d) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by redesignating the 
item relating to section 224 as an item relating to section 225 and by 
inserting before such item the following new item:

``Sec. 224. Premiums for high deductible health plans.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 3. CREDIT FOR CERTAIN EMPLOYMENT TAXES PAID WITH RESPECT TO 
              PREMIUMS FOR HIGH DEDUCTIBLE HEALTH PLANS AND 
              CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.

    (a) Allowance of Credit.--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:

``SEC. 36. EMPLOYMENT TAXES PAID WITH RESPECT TO PREMIUMS FOR HIGH 
              DEDUCTIBLE HEALTH PLANS AND CONTRIBUTIONS TO HEALTH 
              SAVINGS ACCOUNTS.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this subtitle 
for the taxable year an amount equal to the product of--
            ``(1) the sum of the rates of tax in effect under sections 
        3101(a), 3101(b), 3111(a), and 3111(b) for the calendar year in 
        which the taxable year begins, multiplied by
            ``(2) the sum of--
                    ``(A) the aggregate amount paid by such individual 
                as premiums under a high deductible health plan which 
                is allowed as a deduction under section 224 for the 
                taxable year, and
                    ``(B) the aggregate amount paid to a health savings 
                account of such individual which is allowed as a 
                deduction under section 223 for the taxable year.
    ``(b) Credit Limited to Certain Employment Taxes.--
            ``(1) In general.--The credit allowed under subsection (a) 
        with respect to any individual for any taxable year shall not 
        exceed the specified employment taxes with respect to such 
        individual for such taxable year.
            ``(2) Specified employment taxes.--For purposes of this 
        subsection, the term `specified employment taxes' means, with 
        respect to any individual for any taxable year, the sum of--
                    ``(A) the taxes imposed under sections 3101(a), 
                3101(b), 3111(a), 3111(b), 3201(a), 3211(a), and 
                3221(a) (taking into account any adjustments or refunds 
                under section 6413) with respect to wages and 
                compensation received by such individual during the 
                calendar year in which such taxable year begins, and
                    ``(B) the taxes imposed under subsections (a) and 
                (b) of section 1401 with respect to the self-employment 
                income of such individual for such taxable year.
    ``(c) Special Rule for Employment Compensation in Excess of Social 
Security Contribution Base.--
            ``(1) In general.--If the aggregate amount of employment 
        compensation received by any individual during the calendar 
        year in which the taxable year begins exceeds the contribution 
        and benefit base (as determined under section 230 of the Social 
        Security Act), the amount of the credit determined under 
        subsection (a) (determined before application of subsection 
        (b)) shall be equal to the sum of--
                    ``(A) the amount determined under subsection (a) by 
                only taking into account so much of the amount 
                determined under subsection (a)(2) as does not exceed 
                such excess and by only taking into account the rates 
                of tax in effect under section 3101(b) and 3111(b), and
                    ``(B) the amount determined under subsection (a) by 
                only taking into account so much of the amount 
                determined under subsection (a)(2) as is not taken into 
                account under subparagraph (A) and by taking into 
                account each of the rates of tax referred to in 
                subsection (a)(1).
            ``(2) Employment compensation.--For purposes of this 
        subsection, the term `employment compensation' means, with 
        respect to any individual for any taxable year, the sum of--
                    ``(A) the wages (as defined in section 3121(a)) and 
                compensation (as defined in section 3231(e)) received 
                by such individual during the calendar year in which 
                such taxable year begins, and
                    ``(B) the self-employment income (as defined in 
                section 1402(b)) of such individual for such taxable 
                year.
    ``(d) Recapture of Contribution Credit in Case of Certain 
Nonqualified Distributions From Health Savings Accounts.--
            ``(1) In general.--In the case of a taxpayer whose gross 
        income for any taxable year includes a payment or distribution 
        from a health savings account of the taxpayer by reason of 
        section 223(f)(2) and with respect to whom there is a 
        contribution credit recapture amount for such taxable year, the 
        tax imposed by this chapter on such taxpayer for such taxable 
        year shall be increased by the lesser of--
                    ``(A) the product of--
                            ``(i) the sum of the rates of tax in effect 
                        under sections 3101(a), 3101(b), 3111(a), and 
                        3111(b) for the calendar year in which such 
                        taxable year begins, multiplied by
                            ``(ii) the amount which is so includible, 
                        or
                    ``(B) the contribution credit recapture amount for 
                such taxable year.
            ``(2) Contribution credit recapture amount.--For purposes 
        of this subsection, the term `contribution credit recapture 
        amount' means, with respect to any taxpayer for any taxable 
        year, the excess (if any) of--
                    ``(A) the aggregate HSA contribution credits 
                allowed to the taxpayer for such taxable year and the 
                three preceding taxable years, over
                    ``(B) the aggregate tax imposed under this 
                subsection with respect to such taxpayer for such three 
                preceding taxable years.
            ``(3) HSA contribution credit.--For purposes of this 
        subsection, the term `HSA contribution credit' means, with 
        respect to any taxable year, the credit which would have been 
        allowed under this section for such taxable year if the amount 
        described in subsection (a)(2)(A) for such taxable year were 
        zero.''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 223 of the Internal Revenue 
        Code of 1986 is amended by adding at the end the following new 
        paragraph:
            ``(9) Cross reference.--For rules providing for the 
        recapture of the HSA contribution credit in the case of certain 
        nonqualified distributions from health savings accounts, see 
        section 36(d).''.
            (2) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``or section 36'' after 
        ``section 35''.
            (3) 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 by 
        inserting after the item relating to section 35 the following 
        new items:

``Sec. 36. Employment taxes paid with respect to premiums for high 
                            deductible health plans and contributions 
                            to health savings accounts.
``Sec. 37. Overpayments of tax.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 4. REFUNDABLE CREDIT FOR HEALTH INSURANCE COVERAGE UNDER HIGH 
              DEDUCTIBLE HEALTH PLAN.

    (a) Allowance of Credit.--Subpart C of part IV of subchapter A of 
chapter 1 of the Internal Revenue Code of 1986 (as amended by this Act) 
is amended by inserting after section 36 the following new section:

``SEC. 36A. HEALTH INSURANCE COVERAGE UNDER HIGH DEDUCTIBLE HEALTH 
              PLAN.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this subtitle 
for the taxable year the aggregate amount paid in cash by the taxpayer 
for qualified coverage under a high deductible health plan for the 
taxpayer and the taxpayer's spouse and dependents.
    ``(b) Limitations.--
            ``(1) In general.--The amount allowable as a credit under 
        subsection (a) for the taxable year shall not exceed the sum of 
        the monthly limitations for months during such taxable year 
        that the taxpayer or the taxpayer's spouse or dependents is an 
        eligible individual.
            ``(2) Monthly limitation.--
                    ``(A) In general.--The monthly limitation for any 
                month is the credit percentage of \1/12\ of--
                            ``(i) $1,111 in the case of qualified 
                        health insurance covering only 1 adult or 1 or 
                        more children,
                            ``(ii) $2,222 in the case of qualified 
                        health insurance covering only 2 adults or 1 
                        adult and 1 or more children, and
                            ``(iii) $3,333 in the case of qualified 
                        health insurance covering at least 2 adults and 
                        1 or more children or at least 3 adults.
                    ``(B) Special rule for married individuals.--In the 
                case of a taxpayer who is married (within the meaning 
                of section 7703) as of the close of the taxable year 
                but does not file a joint return for such year and who 
                does not live apart from such taxpayer's spouse at all 
                times during the taxable year, any dollar limitation 
                imposed under subparagraph (A) shall be divided equally 
                between the taxpayer and the taxpayer's spouse unless 
                they agree on a different division.
            ``(3) Credit percentage.--For purposes of paragraph (2), 
        the credit percentage is 90 percent, reduced as provided in 
        paragraphs (4) and (5).
            ``(4) Phaseout of credit percentage for coverage of 1 adult 
        or children.--
                    ``(A) Joint return, surviving spouses, and heads of 
                household.--If--
                            ``(i) coverage described in paragraph 
                        (2)(A)(i) is provided under qualified health 
                        insurance for any month in the taxable year, 
                        and
                            ``(ii) taxpayer is a married individual, 
                        surviving spouse (as defined in section 2(a)), 
                        or head of household (as defined in section 
                        2(b)) and has modified adjusted gross income in 
                        excess of $25,000 for the taxable year,
                the 90 percent in paragraph (3) shall be reduced by the 
                number of percentage points which bears the same ratio 
                to 90 percentage points as such excess bears to 
                $15,000.
                    ``(B) Special rule for married filing separate 
                return.--In the case of a married individual who has 
                coverage described in paragraph (2)(A)(i) for any month 
                in the taxable year and who files a separate return for 
                the taxable year, subparagraph (A) shall be applied by 
                substituting for each dollar amount therein one-half of 
                such dollar amount.
                    ``(C) Single return.--In the case of any other 
                return by an individual who has coverage described in 
                paragraph (2)(A)(i) for any month in the taxable year, 
                and if--
                            ``(i) the taxpayer has modified adjusted 
                        gross income in excess of $15,000 for the 
                        taxable year but not in excess of $20,000, the 
                        90 percent in paragraph (3) shall be reduced by 
                        the number of percentage points which bears the 
                        same ratio to 40 percentage points as--
                                    ``(I) the excess of modified 
                                adjusted gross income in excess of 
                                $15,000, bears to
                                    ``(II) $5,000, or
                            ``(ii) the taxpayer has modified adjusted 
                        gross income in excess of $20,000 for the 
                        taxable year, the 90 percent in paragraph (3) 
                        shall be reduced by the sum of 40 percentage 
                        points plus the number of percentage points 
                        which bears the same ratio to 50 percentage 
                        points as--
                                    ``(I) the excess of modified 
                                adjusted gross income in excess of 
                                $20,000, bears to
                                    ``(II) $10,000.
            ``(5) Phaseout of credit percentage for coverage of 2 or 
        more adults and children.--
                    ``(A) In general.--If--
                            ``(i) coverage described in clause (ii) or 
                        (iii) of paragraph (2)(A) is provided under 
                        qualified health insurance for any month in the 
                        taxable year, and
                            ``(ii) the taxpayer has modified adjusted 
                        gross income in excess of $25,000 for the 
                        taxable year,
                the 90 percent in paragraph (3) shall be reduced by the 
                number of percentage points which bears the same ratio 
                to 90 percentage points as such excess bears to 
                $35,000.
                    ``(B) Special rule for married filing separate 
                return.--In the case of a married individual filing a 
                separate return, subparagraph (A) shall be applied by 
                substituting for each dollar amount therein one-half of 
                such dollar amount.
            ``(6) Rounding.--Any percentage resulting from a reduction 
        under paragraphs (4) and (5) shall be rounded to the nearest 
        one-tenth of a percent.
            ``(7) Modified adjusted gross income.--For purposes of this 
        subsection, the term `modified adjusted gross income' means 
        adjusted gross income determined--
                    ``(A) without regard to this section and sections 
                911, 931, and 933, and
                    ``(B) after application of sections 86, 135, 137, 
                219, 221, and 469.
            ``(8) Adult.--For purposes of this subsection, the term 
        `adult' means an individual who is the taxpayer, the taxpayer's 
        spouse, or a dependent of the taxpayer who has attained age 24 
        as of the close of the taxable year.
            ``(9) Child.--For purposes of this subsection, the term 
        `child' means a dependent of the taxpayer who has not attained 
        age 24 as of the close of the taxable year.
    ``(c) Qualified Coverage Under a High Deductible Health Plan.--For 
purposes of this section, the term `qualified coverage under a high 
deductible health plan' means coverage under a high deductible health 
plan (as defined in section 223(c)(2)) for any month for which each 
individual covered under such plan is an eligible individual.
    ``(d) Eligible Individual.--For purposes of this section--
            ``(1) In general.--The term `eligible individual' means, 
        with respect to any month, an individual who--
                    ``(A) is described in section 223(c)(1) and is not 
                covered by a group health plan, and
                    ``(B) does not have other specified coverage.
            ``(2) Group health plan.--The term `group health plan' has 
        the meaning given such term by section 5000 without regard to 
        subsection (d) thereof. For purposes of the preceding sentence, 
        an arrangement which constitutes individual health insurance 
        shall not be treated as a group health plan if such arrangement 
        is a high deductible health plan (as defined in section 
        223(c)(2)), or is a payment by an employer or employee 
        organization with respect to such high deductible health plan, 
        notwithstanding that an employer or employee organization 
        negotiates the cost or benefits of such arrangement.
            ``(3) Other specified coverage.--An individual has other 
        specified coverage for any month if, as of the first day of 
        such month--
                    ``(A) Medicare, medicaid, schip.--Such individual--
                            ``(i) is entitled to benefits under part A 
                        of title XVIII of the Social Security Act or 
                        enrolled under part B of such title,
                            ``(ii) is enrolled in the program under 
                        title XIX of the Social Security Act (other 
                        than under section 1928 of such Act), or
                            ``(iii) is enrolled in the program under 
                        title XXI of the Social Security Act.
                    ``(B) Imprisonment.--Such individual is imprisoned 
                under Federal, State, or local authority.
                    ``(C) Physical presence requirements.--Such 
                individual is present in the United States on fewer 
                than 183 days during the taxable year (determined in 
                accordance with section 7701(b)(7)).
    ``(e) Other Definitions.--
            ``(1) Dependents.--For purposes of this section--
                    ``(A) Dependent defined.--The term `dependent' has 
                the meaning given such term by section 152 (determined 
                without regard to subsections (b)(1), (b)(2), and 
                (d)(1)(B) thereof).
                    ``(B) Special rule for dependent child of divorced 
                parents.--An individual who is a child to whom section 
                152(e) applies shall be treated as a dependent of the 
                custodial parent for a coverage month unless the 
                custodial and noncustodial parent provide otherwise.
                    ``(C) 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(c) 
                is allowable to another taxpayer for a taxable year 
                beginning in the calendar year in which such 
                individual's taxable year begins.
    ``(f) Inflation Adjustments.--
            ``(1) Credit and health insurance amounts.--In the case of 
        any taxable year beginning after 2007, each dollar amount 
        referred to in subsection (b)(2)(A) shall be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 213(d)(10)(B)(ii) for the calendar year 
                in which the taxable year begins, determined by 
                substituting `2006' for `1996' in subclause (II) 
                thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $10, such amount shall be rounded to the nearest 
        multiple of $10.
            ``(2) Income phaseout amounts.--In the case of any taxable 
        year beginning after 2007, each dollar amount referred to in 
        paragraphs (4) and (5) of subsection (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, determined by substituting 
                `calendar year 2006' for `calendar year 1992' in 
                subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $50, such amount shall be rounded to the next 
        lowest multiple of $50.
    ``(g) Special Rules.--
            ``(1) Coordination with deduction for premiums for high 
        deductible health plans.--No credit shall be allowable under 
        this section for a taxable year if a deduction is allowed under 
        section 224 for the taxable year.
            ``(2) Coordination with deduction for health insurance 
        costs of self-employed individuals.--No credit shall be 
        allowable under this section for a taxable year if a deduction 
        is allowed under section 162(l) for the taxable year.
            ``(3) Coordination with advance payment.--Rules similar to 
        the rules of section 35(g)(1) shall apply to any credit to 
        which this section applies.
            ``(4) Coordination with section 35.--If a taxpayer is 
        eligible for the credit allowed under this section and section 
        35 for any month, the taxpayer shall elect which credit is to 
        be allowed with respect to such month.
    ``(h) Expenses Must Be Substantiated.--A payment for insurance to 
which subsection (a) applies may be taken into account under this 
section only if the taxpayer substantiates such payment in such form as 
the Secretary may prescribe.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, as amended by this Act, is amended by inserting 
        ``or section 36A'' after ``section 36''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        (as amended by this Act) is amended by inserting after the item 
        relating to section 36 the following new item:

``Sec. 36A. Health insurance coverage under high deductible health 
                            plan.''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 5. ADVANCE PAYMENT OF CREDIT AS PREMIUM PAYMENT FOR HIGH 
              DEDUCTIBLE HEALTH INSURANCE.

    (a) In General.--Chapter 77 of the Internal Revenue Code of 1986 
(relating to miscellaneous provisions) is amended by adding at the end 
the following:

``SEC. 7529. ADVANCE PAYMENT OF CREDIT AS PREMIUM PAYMENT FOR HIGH 
              DEDUCTIBLE HEALTH INSURANCE.

    ``Not later than January 1, 2008, the Secretary shall establish a 
program for making payments to providers of qualified coverage under a 
high deductible health plan (as defined by subsection (c) of section 
36A) on behalf of individuals eligible for the credit under section 
36A. Such payments shall be made on the basis of modified adjusted 
gross income of eligible individuals for the preceding taxable year.''.
    (b) Disclosure of Return Information for Purposes of Advance 
Payment of Credit as Premiums for High Deductible Health Insurance.--
            (1) In general.--Subsection (l) of section 6103 of such 
        Code is amended by adding at the end the following new 
        paragraph:
            ``(21) Disclosure of return information for purposes of 
        advance payment of credit as premiums for high deductible 
        health insurance.--The Secretary may, on behalf of individuals 
        eligible for the credit under section 36A, disclose to a 
        provider of qualified coverage under a high deductible health 
        plan (as defined by subsection (c) of section 36A), and persons 
        acting on behalf of such provider, return information with 
        respect to any such individual and the spouse and dependents of 
        such individual only to the extent necessary (as prescribed by 
        regulations issued by the Secretary) to carry out the program 
        established by section 7529 (relating to advance payment of 
        credit as premium payment for high deductible health 
        insurance).''.
            (2) Confidentiality of information.--Paragraph (3) of 
        section 6103(a) of such Code is amended by striking ``or (20)'' 
        and inserting ``(20), or (21)''.
            (3) Unauthorized disclosure.--Paragraph (2) of section 
        7213(a) of such Code is amended by striking ``or (20)'' and 
        inserting ``(20), or (21)''.
    (c) Information Reporting.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of such Code (relating to information concerning 
        transactions with other persons) is amended by inserting after 
        section 6050T the following new section:

``SEC. 6050U. RETURNS RELATING TO CREDIT FOR HEALTH INSURANCE COVERAGE 
              UNDER HIGH DEDUCTIBLE HEALTH PLAN.

    ``(a) Requirement of Reporting.--Every person who is entitled to 
receive payments for any month of any calendar year under section 7529 
(relating to advance payment of credit as premium payment for high 
deductible health insurance) with respect to any individual shall, at 
such time as the Secretary may prescribe, make the return described in 
subsection (b) with respect to each such individual.
    ``(b) Form and Manner of Returns.--A return is described in this 
subsection if such return--
            ``(1) is in such form as the Secretary may prescribe, and
            ``(2) contains--
                    ``(A) the name, address, and TIN of each individual 
                referred to in subsection (a),
                    ``(B) the number of months for which amounts were 
                entitled to be received with respect to such individual 
                under section 7529 (relating to advance payment of 
                credit as premium payment for high deductible health 
                insurance),
                    ``(C) the amount entitled to be received for each 
                such month, and
                    ``(D) such other information as the Secretary may 
                prescribe.
    ``(c) Statements to Be Furnished to Individuals With Respect to 
Whom Information Is Required.--Every person required to make a return 
under subsection (a) shall furnish to each individual whose name is 
required to be set forth in such return a written statement showing--
            ``(1) the name and address of the person required to make 
        such return and the phone number of the information contact for 
        such person, and
            ``(2) the information required to be shown on the return 
        with respect to such individual.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) is required to be 
made.''.
            (2) Assessable penalties.--
                    (A) Subparagraph (B) of section 6724(d)(1) of such 
                Code (relating to definitions) is amended by 
                redesignating clauses (xiii) through (xviii) as clauses 
                (xiv) through (xix), respectively, and by inserting 
                after clause (xii) the following new clause:
                            ``(xiii) section 6050U (relating to returns 
                        relating to credit for health insurance 
                        coverage under high deductible health plan),''.
                    (B) Paragraph (2) of section 6724(d) of such Code 
                is amended by striking ``or'' at the end of 
                subparagraph (AA), by striking the period at the end of 
                subparagraph (BB) and inserting ``, or'', and by adding 
                after subparagraph (BB) the following new subparagraph:
                    ``(CC) section 6050U (relating to returns relating 
                to credit for health insurance coverage under high 
                deductible health plan).''.
    (d) Clerical Amendments.--
            (1) The table of sections for chapter 77 of such Code is 
        amended by adding at the end the following new item:

``Sec. 7529. Advance payment of credit as premium payment for high 
                            deductible health insurance.''.
            (2) The table of sections for subpart B of part III of 
        subchapter A of chapter 61 of such Code is amended by adding at 
        the end the following new item:

``Sec. 6050U. Returns relating to credit for health insurance coverage 
                            under high deductible health plan.''.
    (e) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 6. INCREASE IN CONTRIBUTION LIMITS FOR HEALTH SAVINGS ACCOUNTS.

    (a) Increase in Monthly Limit.--
            (1) In general.--Paragraph (2) of section 223(b) of the 
        Internal Revenue Code of 1986 (relating to monthly limitation) 
        is amended to read as follows:
            ``(2) Monthly limitation.--
                    ``(A) In general.--In the case of an eligible 
                individual who has coverage under a high deductible 
                health plan, the monthly limitation for any month of 
                such coverage is \1/12\ of the lesser of--
                            ``(i) the sum of the annual deductible and 
                        the other annual out-of-pocket expenses (other 
                        than for premiums) required to be paid under 
                        the plan by the eligible individual for covered 
                        benefits, or
                            ``(ii) in the case of an eligible 
                        individual with--
                                    ``(I) self-only coverage, the 
                                dollar amount in effect under subclause 
                                (I) of subsection (c)(2)(A)(ii), or
                                    ``(II) family coverage, the dollar 
                                amount in effect under subclause (II) 
                                of subsection (c)(2)(A)(ii).
                    ``(B) Special rules relating to out-of-pocket 
                expenses.--
                            ``(i) Reduction for separate plan.--The 
                        annual out-of-pocket expenses taken into 
                        account under subparagraph (A)(i) with respect 
                        to any eligible individual shall be reduced by 
                        any out-of-pocket expense payable under a 
                        separate plan covering the individual.
                            ``(ii) Secretarial authority.--The 
                        Secretary may by regulations provide that 
                        annual out-of-pocket expenses will not be taken 
                        into account under subparagraph (A)(i) to the 
                        extent that there is only a remote likelihood 
                        that such amounts will be required to be 
                        paid.''.
            (2) Conforming amendments.--
                    (A) Section 223(b)(3)(A) of such Code is amended by 
                striking ``subparagraphs (A) and (B) of''.
                    (B) Section 223(d)(1)(A)(ii)(I) of such Code is 
                amended by striking ``subsection (b)(2)(B)(ii)'' and 
                inserting ``subsection (c)(2)(A)(ii)(II)''.
                    (C) Section 223(c)(2)(D)(ii) of such Code is 
                amended to read as follows:
                            ``(ii) Certain items disregarded in 
                        computing monthly limitation.--Such plan's 
                        annual deductible, and such plan's annual out-
                        of-pocket limitation, for services provided 
                        outside of such network shall not be taken into 
                        account for purposes of subsection (b)(2).''.
                    (D) Section 223(g)(1) of such Code is amended by 
                striking ``subsections (b)(2) and (c)(2)(A)'' and 
                inserting ``subsection (c)(2)(A)''.
    (b) Application of Special Rules for Married Individuals.--
Paragraph (5) of section 223(b) of such Code (relating to special rule 
for married individuals) is amended to read as follows:
            ``(5) Special rules for married individuals.--
                    ``(A) In general.--In the case of individuals who 
                are married to each other and who are both eligible 
                individuals, the limitation under paragraph (1) for 
                each spouse shall be equal to the spouse's applicable 
                share of the combined marital limit.
                    ``(B) Combined marital limit.--For purposes of 
                subparagraph (A), the combined marital limit is the 
                excess (if any) of--
                            ``(i) the lesser of--
                                    ``(I) subject to subparagraph (C), 
                                the sum of the limitations computed 
                                separately under paragraph (1) for each 
                                spouse (including any additional 
                                contribution amount under paragraph 
                                (3)), or
                                    ``(II) the dollar amount in effect 
                                under subsection (c)(2)(A)(ii)(II), 
                                over
                            ``(ii) the aggregate amount paid to Archer 
                        MSAs of such spouses for the taxable year.
                    ``(C) Special rule where both spouses have family 
                coverage under same plan.--For purposes of subparagraph 
                (B)(i)(I), if either spouse has family coverage which 
                covers both spouses, both spouses shall be treated as 
                having only such coverage (and if both spouses each 
                have such coverage under different plans, shall be 
                treated as having only family coverage with the plan 
                with respect to which the lowest amount is determined 
                under paragraph (2)(A)(i)).
                    ``(D) Applicable share.--For purposes of 
                subparagraph (A), a spouse's applicable share is one-
                half of the combined marital limit unless both spouses 
                agree on a different division.
                    ``(E) Couples not married entire year.--The 
                Secretary shall prescribe rules for the application of 
                this paragraph in the case of any taxable year for 
                which the individuals were not married to each other 
                during all months included in the taxable year, 
                including rules which allow individuals in appropriate 
                cases to take into account coverage prior to marriage 
                in computing the combined marital limit for purposes of 
                this paragraph.''.
    (c) Self-Only Coverage.--Section 223(c)(4) of such Code (defining 
family coverage) is amended to read as follows:
            ``(4) Coverage.--
                    ``(A) Family coverage.--The term `family coverage' 
                means any coverage other than self-only coverage.
                    ``(B) Self-only coverage.--If more than 1 
                individual is covered by a high deductible health plan 
                but only 1 of the individuals is an eligible 
                individual, the coverage shall be treated as self-only 
                coverage.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 7. HEALTH REIMBURSEMENT ARRANGEMENTS AND SPENDING ARRANGEMENTS IN 
              COMBINATION WITH HEALTH SAVINGS ACCOUNTS.

    (a) In General.--Subparagraph (B) of section 223(c)(1) of the 
Internal Revenue Code of 1986 (relating to certain coverage 
disregarded) is amended by striking ``and'' at the end of clause (i), 
by striking the period at the end of clause (ii) and inserting ``, 
and'', and by inserting after clause (ii) the following new clause:
                            ``(iii) coverage under a flexible spending 
                        arrangement or a health reimbursement 
                        arrangement, or both, which meets the 
                        requirements of paragraph (6).''.
    (b) Combination Health Reimbursement, Savings, and Spending 
Arrangements.--Subsection (c) of section 223 of such Code (relating to 
definitions and special rules) is amended by adding at the end the 
following new paragraph:
            ``(6) Combined limit for contributions or credits to health 
        reimbursement, arrangements and spending arrangements.--
                    ``(A) In general.--In the case of coverage under a 
                flexible spending arrangement or a health reimbursement 
                arrangement, or both, such coverage meets the 
                requirements of this paragraph if, with respect to an 
                individual--
                            ``(i) the sum of--
                                    ``(I) the amount allowable as a 
                                deduction under subsection (a),
                                    ``(II) the salary reduction amount 
                                elected by the individual and, if 
                                applicable, the employer contribution 
                                or credit allocated to the individual 
                                for the taxable year under the flexible 
                                spending arrangement (as defined in 
                                section 106(c)(2)), plus
                                    ``(III) the amounts that the 
                                individual is permitted, under the 
                                terms of the plan, to receive in 
                                reimbursements for the taxable year 
                                under the health reimbursement 
                                arrangement, does not exceed
                            ``(ii) the sum of the annual deductible and 
                        the other annual out-of-pocket expenses (other 
                        than for premiums) required to be paid under 
                        the plan by the eligible individual for covered 
                        benefits.
                    ``(B) Exceptions for disregarded coverage.--For 
                purposes of subparagraph (A)--
                            ``(i) Certain flexible spending 
                        arrangements.--Any flexible spending 
                        arrangement salary reduction amounts or 
                        employer contributions or credits that are 
                        restricted by the employer to use for coverage 
                        described in paragraph (1)(B) shall not be 
                        taken into account under subparagraph 
                        (A)(i)(II).
                            ``(ii) Certain health reimbursement 
                        arrangements.--Any reimbursements from a health 
                        reimbursement arrangement for coverage 
                        described in paragraph (1)(B) shall not be 
                        taken into account under subparagraph 
                        (A)(i)(III).
                    ``(C) Termination.--Coverage shall not be treated 
                as meeting the requirements of this paragraph for any 
                taxable year beginning after December 31, 2011.''.
    (c) One-Time FSA and HRA Rollovers to HSAs.--
            (1) In general.--A plan shall not fail to be treated as a 
        flexible spending arrangement or health reimbursement 
        arrangement under section 105 or 106 of the Internal Revenue 
        Code of 1986 merely because--
                    (A) such plan provides for a contribution to the 
                health savings account (as defined in section 223 of 
                such Code) of the employee which meets the requirements 
                of paragraph (2), and
                    (B) such plan thereafter terminates with respect to 
                such employee.
            (2) Requirements.--A contribution meets the requirements of 
        this paragraph if--
                    (A) in the case of a flexible spending arrangement 
                (as defined in section 106(c)(2) of such Code) in 
                existence on April __, 2006, such contribution is the 
                remaining balance in such arrangement as of the last 
                day of the plan year ending in or before the taxable 
                year in which such contribution is made,
                    (B) in the case of a health reimbursement 
                arrangement in existence on April __, 2006, such 
                contribution is the remaining balance of the amount to 
                be received in reimbursements under such arrangement as 
                of the last day of the plan year ending in or before 
                the taxable year in which such contribution is made, 
                and
                    (C) such contribution is made by the employer 
                directly to the health savings account of the employee 
                not later than 60 days after the end of the plan year 
                of such flexible spending arrangement or health 
                reimbursement arrangement.
            (3) Treatment as rollover contribution.--For purposes of 
        sections 223 and 4973 of such Code, a contribution which meets 
        the requirements of paragraph (2) shall be treated as a 
        rollover contribution described in section 223(f)(5) of such 
        Code.
            (4) Tax treatment relating to contributions.--For purposes 
        of this title--
                    (A) Income tax.--Gross income shall not include the 
                amount of any contribution under this subsection.
                    (B) Employment taxes.--Amounts contributed to a 
                health savings account under this subsection shall be 
                treated as a payment described in section 106(d).
                    (C) Comparability excise tax.--Section 4980G shall 
                not apply to contributions made under this subsection.
            (5) Termination.--This paragraph shall not apply to any 
        taxable year beginning after December 31, 2011.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 8. CERTAIN EXPENSES TREATED AS QUALIFIED MEDICAL EXPENSES.

    (a) Premiums for Non-Group High Deductible Health Plans Treated as 
Qualified Medical Expenses.--Subparagraph (C) of section 223(d)(2) of 
the Internal Revenue Code of 1986 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 adding at the end the following new 
clause:
                            ``(v) in the case of any individual who 
                        meets the requirements of subsection 
                        (c)(1)(A)(ii) (after application of subsection 
                        (c)(1)(B)) and section 224(c)(2), a high 
                        deductible health plan.''.
    (b) Special Rule for Certain Medical Expenses Incurred Before 
Establishment of Account.--Paragraph (2) of section 223(d) of such Code 
is amended by adding at the end the following new subparagraph:
                    ``(E) Certain medical expenses incurred before 
                establishment of account treated as qualified.--An 
                expense shall not fail to be treated as a qualified 
                medical expense solely because such expense was 
                incurred before the establishment of the health savings 
                account if such expense was incurred--
                            ``(i) during either--
                                    ``(I) the taxable year in which the 
                                health savings account was established, 
                                or
                                    ``(II) the preceding taxable year 
                                in the case of a health savings account 
                                established after the taxable year in 
                                which such expense was incurred but 
                                before the time prescribed by law for 
                                filing the return for such taxable year 
                                (not including extensions thereof), and
                            ``(ii) for medical care of an individual 
                        during a period that such individual was 
                        covered by a high deductible health plan and 
                        met the requirements of subsection 
                        (c)(1)(A)(ii) (after application of subsection 
                        (c)(1)(B)).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2006.

SEC. 9. EXCEPTION TO REQUIREMENT FOR EMPLOYERS TO MAKE COMPARABLE 
              HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.

    (a) In General.--Section 4980G of the Internal Revenue Code of 1986 
(relating to failure of employer to make comparable health savings 
account contributions) is amended by adding at the end the following 
new subsection:
    ``(d) Exception.--
            ``(1) In general.--To the extent that an employer's 
        contributions to the health savings accounts of qualified 
        employees exceed the employer's comparable contributions to the 
        health savings accounts of other employees, this section shall 
        not apply with respect to the employer's contributions to the 
        health savings accounts of qualified employees.
            ``(2) Qualified employee.--For purposes of this subsection, 
        with respect to an employer, the term `qualified employee' 
        means an individual--
                    ``(A) reasonably expected to incur a higher level 
                of medical expenses than the majority of the employer's 
                other employees due to a disease, illness, or other 
                medical condition, and
                    ``(B) with respect to whom such elevated expenses 
                are reasonably expected to continue over a period in 
                excess of 1 year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2006.
                                 <all>