[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2701 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2701

  To amend the Internal Revenue Code of 1986 to provide a refundable 
   credit for high deductible health plans for uninsured individuals.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 3, 2006

Mr. Santorum (for himself, Mrs. Dole, and Ms. Murkowski) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to provide a refundable 
   credit for high deductible health plans for uninsured individuals.

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

SECTION 1. REFUNDABLE CREDIT FOR HIGH DEDUCTIBLE HEALTH PLANS FOR 
              UNINSURED INDIVIDUALS.

    (a) Allowance of Credit.--
            (1) In general.--Subpart C of part IV of subchapter A of 
        chapter 1 of the Internal Revenue Code of 1986 (relating to 
        refundable personal credits) is amended by inserting after 
        section 35 the following new section:

``SEC. 35A. HIGH DEDUCTIBLE HEALTH PLANS FOR UNINSURED INDIVIDUALS.

    ``(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 amount paid by the taxpayer 
during such taxable year for qualified health insurance for the 
taxpayer and the taxpayer's spouse and dependents.
    ``(b) Limitations.--
            ``(1) In general.--The amount allowed as a credit under 
        subsection (a) to the taxpayer for the taxable year shall not 
        exceed the lesser of--
                    ``(A) 90 percent of the sum of the amounts paid by 
                the taxpayer for qualified health insurance for each 
                individual referred to in subsection (a) for coverage 
                months of such individual during the taxable year, or
                    ``(B) $3,000.
            ``(2) Monthly limitation.--
                    ``(A) In general.--For purposes of paragraph (1), 
                amounts paid by the taxpayer for qualified health 
                insurance for an individual for any coverage month of 
                such individual during the taxable year shall not be 
                taken into account to the extent such amounts exceed 
                the amount equal to \1/12\ of--
                            ``(i) $1,111 if such individual is the 
                        taxpayer,
                            ``(ii) $1,111 if--
                                    ``(I) such individual is the spouse 
                                of the taxpayer,
                                    ``(II) the taxpayer and such spouse 
                                are married as of the first day of such 
                                month, and
                                    ``(III) the taxpayer files a joint 
                                return for the taxable year, and
                            ``(iii) $1,111 if such individual has 
                        attained the age of 24 as of the close of the 
                        taxable year and is a dependent of the taxpayer 
                        for such taxable year,
                            ``(iv) one-half of the amount described in 
                        clause (i) if such individual has not attained 
                        the age of 24 as of the close of the taxable 
                        year and is a dependent of the taxpayer for 
                        such taxable year.
                    ``(B) Limitation to 2 young dependents.--If there 
                are more than 2 individuals described in subparagraph 
                (A)(iv) with respect to the taxpayer for any coverage 
                month, the aggregate amounts paid by the taxpayer for 
                qualified health insurance for such individuals which 
                may be taken into account under paragraph (1) shall not 
                exceed \1/12\ of the dollar amount in effect under 
                subparagraph (A)(i) for the coverage month.
                    ``(C) Special rule for married individuals.--In the 
                case of a taxpayer--
                            ``(i) 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
                            ``(ii) who does not live apart from such 
                        taxpayer's spouse at all times during the 
                        taxable year,
                any dollar limitation imposed under this paragraph on 
                amounts paid for qualified health insurance for 
                individuals described in subparagraph (A)(iv) shall be 
                divided equally between the taxpayer and the taxpayer's 
                spouse unless they agree on a different division.
            ``(3) Income phaseout of credit percentage for one-person 
        coverage.--
                    ``(A) Phaseout for unmarried individuals (other 
                than surviving spouses and heads of households).--In 
                the case of an individual (other than a surviving 
                spouse, the head of a household, or a married 
                individual) with one-person coverage, if such 
                individual has modified adjusted gross income--
                            ``(i) in excess of $15,000 for a taxable 
                        year but not in excess of $20,000, the 90 
                        percent under paragraph (1)(B) 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) in excess of $20,000 for a taxable 
                        year, the 90 percent under paragraph (1)(B) 
                        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.
                    ``(B) Phaseout for other individuals.--In the case 
                of a taxpayer (other than an individual described in 
                subparagraph (A) or (C)) with one-person coverage, if 
                the taxpayer has modified adjusted gross income in 
                excess of $25,000 for a taxable year, the 90 percent 
                under paragraph (1)(B) shall be reduced by the number 
                of percentage points which bears the same ratio to 90 
                percentage points as--
                            ``(i) the excess of modified adjusted gross 
                        income in excess of $25,000, bears to
                            ``(ii) $15,000.
                    ``(C) Married filing separate return.--In the case 
                of a taxpayer who is married filing a separate return 
                for the taxable year and who has one-person coverage, 
                if the taxpayer has modified adjusted gross income in 
                excess of $12,500 for the taxable year, the 90 percent 
                under paragraph (1)(B) shall be reduced by the number 
                of percentage points which bears the same ratio to 90 
                percentage points as--
                            ``(i) the excess of modified adjusted gross 
                        income in excess of $12,500, bears to
                            ``(ii) $7,500.
            ``(4) Income phaseout of credit percentage for coverage of 
        more than one person.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), in the case of a taxpayer with 
                coverage of more than one person, if the taxpayer has 
                modified adjusted gross income in excess of $25,000 for 
                a taxable year, the 90 percent under paragraph (1)(B) 
                shall be reduced by the number of percentage points 
                which bears the same ratio to 90 percentage points as--
                            ``(i) the excess of modified adjusted gross 
                        income in excess of $25,000, bears to
                            ``(ii) $35,000.
                    ``(B) Married filing separate return.--In the case 
                of a taxpayer who is married filing a separate return 
                for the taxable year and who has coverage of more than 
                one person, if the taxpayer has modified adjusted gross 
                income in excess of $12,500 for the taxable year, the 
                90 percent under paragraph (1)(B) shall be reduced by 
                the number of percentage points which bears the same 
                ratio to 90 percentage points as--
                            ``(i) the excess of modified adjusted gross 
                        income in excess of $12,500, bears to
                            ``(ii) $17,500.
            ``(5) Rounding.--Any percentage resulting from a reduction 
        under paragraphs (3) and (4) shall be rounded to the nearest 
        one-tenth of a percent.
            ``(6) Modified adjusted gross income.--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.
            ``(7) Adjustments of phaseout levels for areas with higher 
        poverty levels.--The $15,000 and $20,000 dollar amounts 
        contained in paragraph (3)(A), the $25,000 dollar amounts 
        contained in paragraphs (3)(B) and (4)(A), and the $12,500 
        dollar amounts contained in paragraphs (3)(C) and (4)(B) shall 
        (after any adjustment under subsection (g)(2) for any taxable 
        year) be adjusted for such taxable year by multiplying each 
        such dollar amount--
                    ``(A) by 1.15, in the case of any taxpayer residing 
                in a State or territory where the official poverty line 
                for a family of 4 exceeds $20,000 but does not exceed 
                $24,000, and
                    ``(B) by 1.25, in the case of any taxpayer residing 
                in a State or territory where the official poverty line 
                for a family of 4 exceeds $24,000.
    ``(c) Coverage Month.--For purposes of this section--
            ``(1) In general.--The term `coverage month' means, with 
        respect to an individual, any month if--
                    ``(A) as of the first day of such month such 
                individual is covered by qualified health insurance, 
                and
                    ``(B) the premium for coverage under such insurance 
                for such month is paid by the taxpayer.
            ``(2) Group health plan coverage.--
                    ``(A) In general.--The term `coverage month' shall 
                not include any month for which such individual 
                participates in any group health plan (within the 
                meaning of section 5000 without regard to section 
                5000(d)).
                    ``(B) 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) Employer-provided coverage.--The term `coverage 
        month' shall not include any month during a taxable year if any 
        amount is not includible in the gross income of the taxpayer 
        for such year under section 106 (other than coverage described 
        in clause (i) or (ii) of section 223(c)(1)(B)).
            ``(4) Medicare, medicaid, and schip.--The term `coverage 
        month' shall not include any month with respect to an 
        individual if, as of the first day of such month, such 
        individual--
                    ``(A) is entitled to any benefits under part A of 
                title XVIII of the Social Security Act or is enrolled 
                under part B of such title, or
                    ``(B) is enrolled in the program under title XIX or 
                XXI of such Act (other than under section 1928 of such 
                Act).
            ``(5) Certain other coverage.--The term `coverage month' 
        shall not include any month with respect to an individual if, 
        at any time during such month, any benefit is provided to such 
        individual under--
                    ``(A) chapter 89 of title 5, United States Code, or
                    ``(B) chapter 55 of title 10, United States Code.
            ``(6) Prisoners.--The term `coverage month' shall not 
        include any month with respect to an individual if, as of the 
        first day of such month, such individual is imprisoned under 
        Federal, State, or local authority.
            ``(7) Insufficient presence in united states.--The term 
        `coverage month' shall not include any month during a taxable 
        year with respect to an individual if such individual is 
        present in the United States on fewer than 183 days during such 
        year (determined in accordance with section 7701(b)(7)).
    ``(d) Qualified Health Insurance.--For purposes of this section, 
the term `qualified health insurance' means any high deductible health 
plan (within the meaning of section 223(c)(2)).
    ``(e) Archer MSA and Health Savings Account Contributions.--
            ``(1) In general.--If a deduction would (but for paragraph 
        (2)) be allowed under section 220 or 223 to the taxpayer for a 
        payment for the taxable year to the Archer MSA or health 
        savings account of an individual, subsection (a) shall be 
        applied by treating such payment as a payment for qualified 
        health insurance for such individual.
            ``(2) Denial of double benefit.--No deduction shall be 
        allowed under section 220 or 223 for that portion of the 
        payments otherwise allowable as a deduction under section 220 
        or 223 for the taxable year which is equal to the amount of 
        credit allowed for such taxable year by reason of this 
        subsection.
    ``(f) Dependents.--For purposes of this section--
            ``(1) Dependent defined.--The term `dependent' has the 
        meaning given to such term by section 152 (determined without 
        regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
            ``(2) 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.
            ``(3) 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.
    ``(g) Inflation Adjustments.--
            ``(1) Credit and health insurance amounts.--In the case of 
        any taxable year beginning after 2007, each dollar amount 
        referred to in subsections (b)(1)(B) and (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 
        paragraph (3), (4), (7)(A), and (7)(B) 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.
    ``(h) Special Rules.--
            ``(1) Coordination with medical expense deduction and 
        deduction for premiums for high deductible health plans.--The 
        amount which would (but for this paragraph) be taken into 
        account by the taxpayer under section 213 for the taxable year 
        shall be reduced by the credit (if any) allowed by this section 
        to the taxpayer for such 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.
    ``(i) 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.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Information Reporting.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 of the Internal Revenue Code of 1986 (relating to 
        information concerning transactions with other persons) is 
        amended by inserting after section 6050T the following:

``SEC. 6050U. RETURNS RELATING TO PAYMENTS FOR QUALIFIED HEALTH 
              INSURANCE.

    ``(a) In General.--Any person who, in connection with a trade or 
business conducted by such person, receives payments during any 
calendar year from any individual for coverage of such individual or 
any other individual under creditable health insurance, shall make the 
return described in subsection (b) (at such time as the Secretary may 
by regulations prescribe) with respect to each individual from whom 
such payments were received.
    ``(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 the individual 
                from whom payments described in subsection (a) were 
                received,
                    ``(B) the name, address, and TIN of each individual 
                who was provided by such person with coverage under 
                creditable health insurance by reason of such payments 
                and the period of such coverage,
                    ``(C) the aggregate amount of payments described in 
                subsection (a), and
                    ``(D) such other information as the Secretary may 
                reasonably prescribe.
    ``(c) Creditable Health Insurance.--For purposes of this section, 
the term `creditable health insurance' means qualified health insurance 
(as defined in section 35A(d)).
    ``(d) 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 under subsection (b)(2)(A) 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,
            ``(2) the aggregate amount of payments described in 
        subsection (a) received by the person required to make such 
        return from the individual to whom the statement is required to 
        be furnished, and
            ``(3) the information required under subsection (b)(2)(B) 
        with respect to such payments.
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.
    ``(e) Returns Which Would Be Required to Be Made by 2 or More 
Persons.--Except to the extent provided in regulations prescribed by 
the Secretary, in the case of any amount received by any person on 
behalf of another person, only the person first receiving such amount 
shall be required to make the return under subsection (a).''.
            (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:
                            ``(xiii) section 6050U (relating to returns 
                        relating to payments for qualified health 
                        insurance),''.
                    (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 
                the subparagraph (BB) and inserting ``, or'', and by 
                adding at the end the following:
                    ``(CC) section 6050U(d) (relating to returns 
                relating to payments for qualified health 
                insurance).''.
            (3) Clerical amendment.--The table of sections for subpart 
        B of part III of subchapter A of chapter 61 of such Code is 
        amended by inserting after the item relating to section 6050T 
        the following:

``Sec.  6050U. Returns relating to payments for qualified health 
                            insurance.''.
    (c) Criminal Penalty for Fraud.--Subchapter B of chapter 75 of the 
Internal Revenue Code of 1986 (relating to other offenses) is amended 
by adding at the end the following:

``SEC. 7276. PENALTIES FOR OFFENSES RELATING TO HEALTH INSURANCE TAX 
              CREDIT.

    ``Any person who knowingly misuses Department of the Treasury 
names, symbols, titles, or initials to convey the false impression of 
association with, or approval or endorsement by, the Department of the 
Treasury of any insurance products or health coverage in connection 
with the credit for health insurance costs under section 35A shall on 
conviction thereof be fined not more than $10,000, or imprisoned not 
more than 1 year, or both.''.
    (d) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 35A of such Code''.
            (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 inserting after the item relating to section 36 
        the following new item:

``Sec. 35A. High deductible health plans for uninsured individuals.''.
            (3) The table of sections for subchapter B of chapter 75 of 
        such Code is amended by adding at the end the following:

``Sec.  7276. Penalties for offenses relating to health insurance tax 
                            credit.''.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2006.
            (2) Penalties.--The amendments made by subsections (c) and 
        (d)(3) shall take effect on the date of the enactment of this 
        Act.

SEC. 2. ADVANCE PAYMENT OF CREDIT TO ISSUERS OF QUALIFIED 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 FOR HIGH DEDUCTIBLE HEALTH PLAN 
              COSTS OF ELIGIBLE INDIVIDUALS.

    ``Not later than July 1, 2007, the Secretary shall establish a 
program for making payments to providers of qualified health insurance 
(as defined in section 35A(d)) on behalf of individuals eligible for 
the credit under section 35A. Such payments shall be made on the basis 
of modified adjusted gross income of eligible individuals for the 
preceding taxable year.''.
    (b) Clerical Amendment.--The table of sections for chapter 77 of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following:

``Sec.  7529. Advance payment of credit for high deductible health plan 
                            costs of eligible individuals.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on July 1, 2007.
                                 <all>