[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 978 Introduced in Senate (IS)]







109th CONGRESS
  1st Session
                                 S. 978

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
for the purchase of qualified health insurance, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 9, 2005

  Mr. Santorum (for himself and Mr. DeMint) 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 tax incentives 
for the purchase of qualified health insurance, 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; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Healthcare Tax 
Relief for the Uninsured Act of 2005''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Deduction of premiums for high deductible health plans.
Sec. 3. Refundable credit for contributions to health savings accounts 
                            of small business employees.
Sec. 4. Refundable health insurance costs credit.
Sec. 5. Advance payment of credit to issuers of qualified health 
                            insurance.

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 such individual 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' 
        has the meaning given such term by section 223(c)(1).
            ``(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 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 1 of such plans for 
        such month.
            ``(2) Group health plan coverage.--
                    ``(A) In general.--No deduction shall be allowed to 
                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)).
                    ``(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) Contributions to health savings account required.--A 
        deduction shall not be allowed under subsection (a) for a 
        taxable year with respect to such individual if a deduction is 
        not allowable under section 223 with respect to such individual 
        for the taxable year.
            ``(4) 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.
            ``(5) Coordination with deduction for health insurance of 
        self-employed individuals.--The amount taken into account by 
        the taxpayer in computing the deduction under section 162(l) 
        shall not be taken into account under this section.
            ``(6) Coordination with medical expense deduction.--The 
        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, 2005.

SEC. 3. REFUNDABLE CREDIT FOR CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS 
              OF SMALL BUSINESS EMPLOYEES.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by redesignating 
section 36 as section 37 and by inserting after section 35 the 
following new section:

``SEC. 36. SMALL EMPLOYER CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.

    ``(a) General Rule.--In the case of an eligible employer, there 
shall be allowed as a credit against the tax imposed by this subtitle 
an amount equal to the lesser of--
            ``(1) the amount contributed by the employer to any 
        qualified health savings account of any employee who is an 
        eligible individual (as defined in section 223(c)(1)) during 
        the taxable year and who is covered by a high deductible health 
        plan maintained by the employer, or
            ``(2) an amount equal to the product of--
                    ``(A) $200 ($500 if coverage for all months 
                described in subparagraph (B)(i) is family coverage), 
                and
                    ``(B) a fraction--
                            ``(i) the numerator of which is the number 
                        of months that the employee was covered under a 
                        high deductible health plan maintained by the 
                        employer, and
                            ``(ii) the denominator of which is the 
                        number of months in the taxable year.
    ``(b) Eligible Employer.--For purposes of this section--
            ``(1) In general.--The term `eligible employer' means, with 
        respect to any taxable year, an employer which--
                    ``(A) is a small employer, and
                    ``(B) maintains a high deductible health plan under 
                which all employees of the employer reasonably expected 
                to receive at least $5,000 of compensation during the 
                taxable year are eligible to participate.
        An employer may exclude from consideration under subparagraph 
        (B) employees who are covered by an agreement described in 
        section 410(b)(3)(A) if there is evidence that health benefits 
        were the subject of good faith bargaining.
            ``(2) Exception for governmental and tax-exempt 
        employers.--The term `eligible employer' shall not include the 
        Federal Government or any employer described in section 
        457(e)(1).
            ``(3) Small employer.--
                    ``(A) In general.--The term `small employer' means, 
                with respect to any calendar year, any employer if such 
                employer employed an average of 100 or fewer employees 
                on business days during either of the 2 preceding 
                calendar years. For purposes of the preceding sentence, 
                a preceding calendar year may be taken into account 
                only if the employer was in existence throughout such 
                year.
                    ``(B) Employers not in existence in preceding 
                year.--In the case of an employer which was not in 
                existence throughout the 1st preceding calendar year, 
                the determination under subparagraph (A) shall be based 
                on the average number of employees that it is 
                reasonably expected such employer will employ on 
                business days in the current calendar year.
                    ``(C) Special rule.--Any reference in this 
                paragraph to an employer shall include a reference to 
                any predecessor of such employer.
    ``(c) Definitions.--For purposes of this section--
            ``(1) High deductible health plan.--The term `high 
        deductible health plan' has the meaning given such term by 
        section 223(c)(2).
            ``(2) Qualified health savings account.--
                    ``(A) In general.--The term `qualified health 
                savings account' means a health savings account (as 
                defined in section 223(d))--
                            ``(i) which is designated (in such form as 
                        the Secretary may prescribe) as a qualified 
                        account for purposes of this section or section 
                        36A,
                            ``(ii) which may not include any amount 
                        other than contributions described in 
                        subsection (a) or section 36A(e), and earnings 
                        on such contributions, and
                            ``(iii) with respect to which section 
                        223(f)(4)(A) is applied by substituting `100 
                        percent' for `10 percent'.
                    ``(B) Subaccounts and separate accounting.--The 
                Secretary may prescribe rules under which a subaccount 
                within a health savings account, or separate accounting 
                with respect to contributions and earnings described in 
                subparagraph (A)(ii), may be treated in the same manner 
                as a qualified health savings account for purposes of 
                this section and section 36A.
                    ``(C) Rollovers.--A contribution of a distribution 
                from a qualified health savings account to another 
                health savings account shall be treated as a rollover 
                contribution for purposes of section 223(f)(5) only if 
                the other account is a qualified health savings 
                account.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Aggregation rules.--All persons treated as a single 
        employer under subsection (a) or (b) of section 52, or 
        subsection (n) or (o) of section 414, shall be treated as one 
        person.
            ``(2) Disallowance of deduction.--No deduction shall be 
        allowed for that portion of contributions to any health savings 
        accounts for the taxable year which is equal to the credit 
        determined under subsection (a).
            ``(3) Election not to claim credit.--This section shall not 
        apply to a taxpayer for any taxable year if such taxpayer 
        elects to have this section not apply for such taxable year.''.
    (b) 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 36 of such Code''.
            (2) The table of sections for subpart C of part IV of 
        chapter 1 of the Internal Revenue Code of 1986 is amended by 
        redesignating the item relating to section 36 as an item 
        relating to section 37 and by inserting before the item 
        relating to section 37 the following new item:

        ``Sec. 36. Small employer contributions to health savings 
                            accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2005.

SEC. 4. REFUNDABLE HEALTH INSURANCE COSTS CREDIT.

    (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 36 the following new section:

``SEC. 36A. HEALTH INSURANCE COSTS 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.
    ``(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--
            ``(1) In general.--The term `qualified health insurance' 
        means health insurance coverage (as defined in section 
        9832(b)(1)) which--
                    ``(A) is coverage described in paragraph (2), and
                    ``(B) meets the requirements of paragraph (3).
            ``(2) Eligible coverage.--Coverage described in this 
        paragraph is the following:
                    ``(A) Coverage under individual health insurance.
                    ``(B) Coverage through a private sector health care 
                coverage purchasing pool.
                    ``(C) Coverage through a State health care coverage 
                purchasing pool.
                    ``(D) Coverage under a State high risk pool 
                described in subparagraph (C) of section 35(e)(1).
                    ``(E) Coverage, after December 31, 2006, under an 
                eligible State buyin program.
            ``(3) Requirements.--The requirements of this paragraph are 
        as follows:
                    ``(A) Cost limits.--The coverage meets the 
                requirements of section 223(c)(2)(A)(ii).
                    ``(B) Maximum benefits.--Under the coverage, the 
                annual and lifetime maximum benefits are not less than 
                $700,000.
                    ``(C) Broad coverage.--The coverage includes 
                inpatient and outpatient care, emergency benefits, and 
                physician care.
                    ``(D) Guaranteed renewability.--Such coverage is 
                guaranteed renewable by the provider.
            ``(4) Eligible state buyin program.--For purposes of 
        paragraph (2)(E)--
                    ``(A) In general.--The term `eligible State buyin 
                program' means a State program under which an 
                individual who--
                            ``(i) is not eligible for assistance under 
                        the State medicaid program under title XIX of 
                        the Social Security Act,
                            ``(ii) is not eligible for assistance under 
                        the State children's health insurance program 
                        under title XXI of such Act, or
                            ``(iii) is not a State employee,
                is able to buy health insurance coverage through a 
                purchasing arrangement entered into between the State 
                and a private sector health care purchasing group or 
                health plan.
                    ``(B) Requirements.--Subparagraph (A) shall only 
                apply to a State program if--
                            ``(i) the program uses private sector 
                        health care purchasing groups or health plans, 
                        and
                            ``(ii) the State maintains separate risk 
                        pools for participants under the State program.
                    ``(C) Subsidies.--
                            ``(i) In general.--A State program shall 
                        not fail to be treated as an eligible State 
                        buyin program merely because the State 
                        subsidizes the costs of an individual in buying 
                        health insurance coverage under the program.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply if the State subsidy under the program 
                        for any adult for any consecutive 12-month 
                        period exceeds the applicable dollar amount.
                            ``(iii) Applicable dollar amount.--
                                    ``(I) In general.--For purposes of 
                                clause (ii), the applicable dollar 
                                amount is $2,000.
                                    ``(II) Reduction.--In the case of a 
                                family with annual income in excess of 
                                133 percent of the applicable poverty 
                                line (as determined in accordance with 
                                criteria established by the Director of 
                                the Office of Management and Budget) 
                                but not in excess of 200 percent of 
                                such line, the dollar amount under 
                                clause (i) shall be ratably reduced 
                                (but not below $500) for each dollar of 
                                such excess. In the case of a family 
                                with annual income in excess of 200 
                                percent of such line, the applicable 
                                dollar amount shall be zero.
    ``(e) Arrangements Under Which Insurers Contribute to HSA.--
            ``(1) In general.--For purposes of this section, health 
        insurance shall not be treated as qualified health insurance if 
        the insurer makes contributions to a health savings account of 
        the taxpayer unless such insurance is provided under an 
        arrangement described in paragraph (2).
            ``(2) Arrangements described.--
                    ``(A) Amounts paid for coverage exceed monthly 
                limitation.--In the case of amounts paid under an 
                arrangement for health insurance for a coverage month 
                in excess of the amount in effect under subsection 
                (b)(2)(A) for such month, an arrangement is described 
                in this subparagraph if under the arrangement--
                            ``(i) the aggregate amount contributed by 
                        the insurer to any health savings account of 
                        the taxpayer does not exceed 90 percent of the 
                        excess of--
                                    ``(I) the amount paid by the 
                                taxpayer for qualified health insurance 
                                under such arrangement for such month, 
                                over
                                    ``(II) the amount in effect under 
                                subsection (b)(2)(A) for such month, 
                                and
                            ``(ii) the amount contributed by the 
                        insurer to a qualified health savings account 
                        of the taxpayer, reduced by the amount of the 
                        excess under clause (i), does not exceed 27 
                        percent of the amount in effect under 
                        subsection (b)(2)(A) for such month.
                    ``(B) Amounts paid for coverage less than monthly 
                limitation.--In the case of an arrangement under which 
                the amount paid for qualified health insurance for a 
                coverage month does not exceed the amount in effect 
                under subsection (b)(2)(A) for such month, an 
                arrangement is described in this subparagraph if--
                            ``(i) under the arrangement the value of 
                        the insured benefits (excluding overhead) 
                        exceeds 65 percent of the amount paid for 
                        qualified health insurance for such month, and
                            ``(ii) the amount contributed by the 
                        insurer to a qualified health savings account 
                        of the taxpayer does not exceed 27 percent of 
                        the amount in effect under subsection (b)(2)(A) 
                        for such month.
            ``(3) Qualified health savings account.--The term 
        `qualified health savings account' has the meaning given such 
        term by section 36(c)(2).
    ``(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 2006, each dollar amount 
        referred to in subsections (b)(1)(B), (b)(2)(A), (d)(3)(B), and 
        (d)(4)(C)(iii)(I) 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 `2005' 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 2006, each dollar amount referred to in 
        paragraph (3) and (4) 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 2005' 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 or 224 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 36A(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 36A 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 36A 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. 36A. Health insurance costs 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, 2005.
            (2) Penalties.--The amendments made by subsections (c) and 
        (d)(4) shall take effect on the date of the enactment of this 
        Act.

SEC. 5. 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 HEALTH INSURANCE 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 36A(d)) 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) 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 health insurance 
                            costs of eligible individuals.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on July 1, 2007.
                                 <all>