[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 3626 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 3626

To amend the Internal Revenue Code of 1986 to improve access to health 
 care through expanded health savings accounts, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

           September 26 (legislative day, September 17), 2008

   Mr. Hatch 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 improve access to health 
 care through expanded health savings accounts, 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 ``Family and 
Retirement Health Investment Act of 2008''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title, etc.
Sec. 2. Allow both spouses to make catch-up contributions to the same 
                            HSA account.
Sec. 3. Provisions relating to Medicare.
Sec. 4. Individuals eligible for veterans benefits for a service-
                            connected disability.
Sec. 5. Individuals eligible for Indian Health Service assistance.
Sec. 6. FSA and HRA termination to fund HSAS.
Sec. 7. Purchase of health insurance from HSA account.
Sec. 8. Special rule for certain medical expenses incurred before 
                            establishment of account.
Sec. 9. Preventive care prescription drug clarification.
Sec. 10. Certain exercise equipment and physical fitness programs 
                            treated as medical care.
Sec. 11. Certain nutritional and dietary supplements to be treated as 
                            medical care.
Sec. 12. Certain physician fees to be treated as medical care.

SEC. 2. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS TO THE SAME 
              HSA ACCOUNT.

    (a) In General.--Paragraph (3) of section 223(b) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Special rule where both spouses are eligible 
                individuals with 1 account.--If--
                            ``(i) an individual and the individual's 
                        spouse have both attained age 55 before the 
                        close of the taxable year, and
                            ``(ii) the spouse is not an account 
                        beneficiary of a health savings account as of 
                        the close of such year,
                the additional contribution amount shall be 200 percent 
                of the amount otherwise determined under subparagraph 
                (B).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 3. PROVISIONS RELATING TO MEDICARE.

    (a) Individuals Over Age 65 Only Enrolled in Medicare Part A.--
Section 223(b)(7) (relating to contribution limitation on Medicare 
eligible individuals) is amended by adding at the end the following new 
sentence: ``This paragraph shall not apply to any individual during any 
period the individual's only entitlement to such benefits is an 
entitlement to hospital insurance benefits under part A of title XVIII 
of such Act pursuant to an enrollment for such hospital insurance 
benefits under section 226(a)(1) of such Act.''.
    (b) Medicare Beneficiaries Participating in Medicare Advantage MSA 
May Contribute Their Own Money to Their MSA.--Subsection (b) of section 
138 is amended by striking paragraph (2) and by redesignating 
paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. INDIVIDUALS ELIGIBLE FOR VETERANS BENEFITS FOR A SERVICE-
              CONNECTED DISABILITY.

    (a) In General.--Section 223(c)(1) (defining eligible individual) 
is amended by adding at the end the following new subparagraph:
                    ``(C) Special rule for individuals eligible for 
                certain veterans benefits.--For purposes of 
                subparagraph (A)(ii), an individual shall not be 
                treated as covered under a health plan described in 
                such subparagraph merely because the individual 
                receives periodic hospital care or medical services for 
                a service-connected disability under any law 
                administered by the Secretary of Veterans Affairs but 
                only if the individual is not eligible to receive such 
                care or services for any condition other than a 
                service-connected disability.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 5. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH SERVICE ASSISTANCE.

    (a) In General.--Section 223(c)(1), as amended by section 4, is 
amended by adding at the end the following new subparagraph:
                    ``(D) Special rule for individuals eligible for 
                assistance under indian health service programs.--For 
                purposes of subparagraph (A)(ii), an individual shall 
                not be treated as covered under a health plan described 
                in such subparagraph merely because the individual 
                receives hospital care or medical services under a 
                medical care program of the Indian Health Service or of 
                a tribal organization.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 6. FSA AND HRA TERMINATION TO FUND HSAS.

    (a) Eligible Individuals Include FSA and HRA Participants.--Section 
223(c)(1)(B) is amended--
            (1) by striking ``and'' at the end of clause (ii),
            (2) by striking the period at the end of clause (iii) and 
        inserting ``, and'', and
            (3) by inserting after clause (iii) the following new 
        clause:
                            ``(iv) coverage under a health flexible 
                        spending arrangement or a health reimbursement 
                        arrangement in the plan year a qualified HSA 
                        distribution as described in section 106(e) is 
                        made on behalf of the individual if after the 
                        qualified HSA distribution is made and for the 
                        remaining duration of the plan year, the 
                        coverage provided under the health flexible 
                        spending arrangement or health reimbursement 
                        arrangement is converted to--
                                    ``(I) coverage that does not pay or 
                                reimburse any medical expense incurred 
                                before the minimum annual deductible 
                                under section 223(c)(2)(A)(i) (prorated 
                                for the period occurring after the 
                                qualified HSA distribution is made) is 
                                satisfied,
                                    ``(II) coverage that, after the 
                                qualified HSA distribution is made, 
                                does not pay or reimburse any medical 
                                expense incurred after the qualified 
                                HSA distribution is made other than 
                                preventive care as defined in section 
                                223(c)(2)(3),
                                    ``(III) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses benefits for 
                                coverage described in section 
                                223(c)(1)(B)(ii) (but not through 
                                insurance or for long-term care 
                                services),
                                    ``(IV) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses benefits for 
                                permitted insurance as defined in 
                                section 223(c)(1)(B)(i) or coverage 
                                described in section 223(c)(1)(B)(ii) 
                                (but not for long-term care services),
                                    ``(V) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses only those medical 
                                expenses incurred after an individual's 
                                retirement (and no expenses incurred 
                                before retirement), or
                                    ``(VI) coverage that, after the 
                                qualified HSA distribution is made, is 
                                suspended, pursuant to an election made 
                                on or before the date the individual 
                                elects a qualified HSA distribution or, 
                                if later, on the date of the individual 
                                enrolls in a high deductible health 
                                plan (as defined in section 223(c)(2)), 
                                that does not pay or reimburse, at any 
                                time, any medical expense incurred 
                                during the suspension period except as 
                                defined in subclauses (I) through (V) 
                                above.''.
    (b) Qualified HSA Distribution Shall Not Affect Flexible Spending 
Arrangement.--Section 106(e)(1) is amended to read as follows:
            ``(1) In general.--A plan shall not fail to be treated as a 
        health flexible spending arrangement under this section, 
        section 105, or section 125, or as a health reimbursement 
        arrangement under this section or section 105, merely because 
        such plan provides for a qualified HSA distribution.''.
    (c) FSA Balances at Year End Shall Not Forfeit.--Section 125(d)(2) 
is amended by adding at the end the following new subparagraph:
                    ``(E) Exception for qualified hsa distributions.--
                Subparagraph (A) shall not apply to the extent that 
                there is an amount remaining in a health flexible 
                spending account at the end of a plan year that an 
                individual elects to contribute to a health savings 
                account pursuant to a qualified HSA distribution (as 
                defined in section 106(e)(2)).''.
    (d) Simplification of Limitations on FSA and HRA Rollovers.--
Section 106(e)(2) (relating to qualified HSA distribution) is amended 
to read as follows:
            ``(2) Qualified hsa distribution.--
                    ``(A) In general.--The term `qualified HSA 
                distribution' means a distribution from a health 
                flexible spending arrangement or health reimbursement 
                arrangement to the extent that such distribution does 
                not exceed the lesser of--
                            ``(i) the balance in such arrangement as of 
                        the date of such distribution, or
                            ``(ii) the amount determined under 
                        subparagraph (B).
                Such term shall not include more than 1 distribution 
                with respect to any arrangement.
                    ``(B) Dollar limitations.--
                            ``(i) Distributions from a health flexible 
                        spending arrangement.--A qualified HSA 
                        distribution from a health flexible spending 
                        arrangement shall not exceed the applicable 
                        amount.
                            ``(ii) Distributions from a health 
                        reimbursement arrangement.--A qualified HSA 
                        distribution from a health reimbursement 
                        arrangement shall not exceed--
                                    ``(I) the applicable amount divided 
                                by 12, multiplied by
                                    ``(II) the number of months during 
                                which the individual is a participant 
                                in the health reimbursement 
                                arrangement.
                            ``(iii) Applicable amount.--For purposes of 
                        this subparagraph, the applicable amount is--
                                    ``(I) $2,250 in the case of an 
                                eligible individual who has self-only 
                                coverage under a high deductible health 
                                plan at the time of such distribution, 
                                and
                                    ``(II) $4,500 in the case of an 
                                eligible individual who has family 
                                coverage under a high deductible health 
                                plan at the time of such 
                                distribution.''.
    (e) Elimination of Additional Tax for Failure To Maintain High 
Deductible Health Plan Coverage.--Section 106(e) is amended--
            (1) by striking paragraph (3) and redesignating paragraphs 
        (4) and (5) as paragraphs (3) and (4), respectively, and
            (2) by striking subparagraph (A) of paragraph (3), as so 
        redesignated, and redesignating subparagraphs (B) and (C) of 
        such paragraph as subparagraphs (A) and (B) thereof, 
        respectively.
    (f) Limited Purpose FSAs and HRAs.--Section 106(e), as amended by 
this section, is amended by adding at the end the following new 
paragraph:
            ``(5) Limited purpose fsas and hras.--A plan shall not fail 
        to be a health flexible spending arrangement or health 
        reimbursement arrangement under this section or section 105 
        merely because the plan converts coverage for individuals who 
        enroll in a high deductible health plan described in section 
        223(c)(2) to coverage described in section 223(c)(1)(B)(iv). 
        Coverage for such individuals may be converted as of the date 
        of enrollment in the high deductible health plan, without 
        regard to the period of coverage under the health flexible 
        spending arrangement or health reimbursement arrangement, and 
        without requiring any change in coverage to individuals who do 
        not enroll in a high deductible health plan.''.
    (g) Distribution Amounts Adjusted for Cost-of-Living.--Section 
106(e), as amended by this section, is amended by adding at the end the 
following new paragraph:
            ``(6) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning after December 31, 2008, each of the dollar 
                amounts in paragraph (2)(B)(iii) shall be increased by 
                an amount equal to such dollar amount, multiplied by 
                the cost-of-living adjustment determined under section 
                1(f)(3) for the calendar year in which such taxable 
                year begins by substituting `calendar year 2007' for 
                `calendar year 1992' in subparagraph (B) thereof.
                    ``(B) Rounding.--If any increase under paragraph 
                (1) is not a multiple of $50, such increase shall be 
                rounded to the nearest multiple of $50.''.
    (h) Disclaimer of Disqualifying Coverage.--Section 223(c)(1)(B), as 
amended by this section, is amended--
            (1) by striking ``and'' at the end of clause (iii),
            (2) by striking the period at the end of clause (iv) and 
        inserting ``, and'', and
            (3) by inserting after clause (iv) the following new 
        clause:
                            ``(v) any coverage (including prospective 
                        coverage) under a health plan that is not a 
                        high deductible health plan which is disclaimed 
                        in writing, at the time of the creation or 
                        organization of the health savings account, 
                        including by execution of a trust described in 
                        subsection (d)(1) through a governing 
                        instrument that includes such a disclaimer, or 
                        by acceptance of an amendment to such a trust 
                        that includes such a disclaimer.''.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 7. PURCHASE OF HEALTH INSURANCE FROM HSA ACCOUNT.

    (a) In General.--Paragraph (2) of section 223(d) (defining 
qualified medical expenses) is amended to read as follows:
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account 
                beneficiary, amounts paid by such beneficiary for 
                medical care (as defined in section 213(d)) for any 
                individual covered by a high deductible health plan of 
                the account beneficiary, but only to the extent such 
                amounts are not compensated for by insurance or 
                otherwise.
                    ``(B) Health insurance may not be purchased from 
                account.--Except as provided in subparagraph (C), 
                subparagraph (A) shall not apply to any payment for 
                insurance.
                    ``(C) Exceptions.--Subparagraph (B) shall not apply 
                to any expense for coverage under--
                            ``(i) a health plan during any period of 
                        continuation coverage required under any 
                        Federal law,
                            ``(ii) a qualified long-term care insurance 
                        contract (as defined in section 7702B(b)),
                            ``(iii) a health plan during any period in 
                        which the individual is receiving unemployment 
                        compensation under any Federal or State law,
                            ``(iv) a high deductible health plan, or
                            ``(v) any health insurance under title 
                        XVIII of the Social Security Act, other than a 
                        Medicare supplemental policy (as defined in 
                        section 1882 of such Act).''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to insurance purchased after the date of the enactment of 
this Act in taxable years beginning after such date.

SEC. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE 
              ESTABLISHMENT OF ACCOUNT.

    Paragraph (2) of section 223(d), as amended by section 7, is 
amended by adding at the end the following new subparagraph:
                    ``(D) 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)).''.

SEC. 9. PREVENTIVE CARE PRESCRIPTION DRUG CLARIFICATION.

    (a) Clarify Use of Drugs in Preventive Care.--Subparagraph (C) of 
section 223(c)(2) is amended by adding at the end the following: 
``Preventive care shall include prescription and over-the-counter drugs 
and medicines which have the primary purpose of preventing the onset 
of, further deterioration from, or complications associated with 
chronic conditions, illnesses, or diseases.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 10. CERTAIN EXERCISE EQUIPMENT AND PHYSICAL FITNESS PROGRAMS 
              TREATED AS MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213 is amended by adding 
at the end the following new paragraph:
            ``(12) Exercise equipment and physical fitness programs.--
                    ``(A) In general.--The term `medical care' shall 
                include amounts paid--
                            ``(i) to purchase or use equipment used in 
                        a program (including a self-directed program) 
                        of physical exercise,
                            ``(ii) to participate, or receive 
                        instruction, in a program of physical exercise, 
                        and
                            ``(iii) for membership dues in a fitness 
                        club the primary purpose of which is to provide 
                        access to equipment and facilities for physical 
                        exercise.
                    ``(B) Limitation.--Amounts treated as medical care 
                under subparagraph (A) shall not exceed $1,000 with 
                respect to any individual for any taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 11. CERTAIN NUTRITIONAL AND DIETARY SUPPLEMENTS TO BE TREATED AS 
              MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213, as amended by 
section 10, is amended by adding at the end the following new 
paragraph:
            ``(13) Nutritional and dietary supplements.--
                    ``(A) In general.--The term `medical care' shall 
                include amounts paid to purchase herbs, vitamins, 
                minerals, homeopathic remedies, meal replacement 
                products, and other dietary and nutritional 
                supplements.
                    ``(B) Limitation.--Amounts treated as medical care 
                under subparagraph (A) shall not exceed $1,000 with 
                respect to any individual for any taxable year.
                    ``(C) Meal replacement product.--For purposes of 
                this paragraph, the term `meal replacement product' 
                means any product that--
                            ``(i) is permitted to bear labeling making 
                        a claim described in section 403(r)(3) of the 
                        Federal Food, Drug, and Cosmetic Act, and
                            ``(ii) is permitted to claim under such 
                        section that such product is low in fat and is 
                        a good source of protein, fiber, and multiple 
                        essential vitamins and minerals.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 12. CERTAIN PHYSICIAN FEES TO BE TREATED AS MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213, as amended by 
sections 10 and 11, is amended by adding at the end the following new 
paragraph:
            ``(14) Pre-paid physician fees.--The term `medical care' 
        shall include amounts paid by patients to their primary 
        physician in advance for the right to receive medical services 
        on an as-needed basis.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.
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