[Congressional Record Volume 141, Number 97 (Wednesday, June 14, 1995)]
[Extensions of Remarks]
[Pages E1243-E1244]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



[[Page E1243]]

    ARCHER-JACOBS FAMILY MEDICAL SAVINGS AND INVESTMENT ACT OF 1995

                                 ______


                            HON. BILL ARCHER

                                of texas

                    in the house of representatives

                         Tuesday, June 13, 1995
  Mr. ARCHER. Mr. Speaker, I am introducing H.R. 1818, the Family 
Medical Savings and Investment Act of 1995. The American people want 
health care reform--but not health care reform that relies on one-size-
fits-all big Government solutions. Medical savings accounts will allow 
Americans to find affordable health care tailored to their personal 
needs. By allowing businesses and individuals to set up tax-free 
accounts to use for their health care expenses, this bill accomplishes 
three things. It makes health care more affordable and more accessible, 
and it promotes savings.
  One of the reasons health care costs have skyrocketed is overuse and 
abuse of the system. By giving patients incentives to purchase health 
care more carefully, medical savings accounts will reduce the pressures 
that cause costs to rise.
  Medical savings accounts also increase access to health care. If you 
have your own account, you won't lose your health care if you change 
jobs or lose your job.
  Finally, MSA's promote personal savings. Nearly all of the economists 
who have come before the Ways and Means Committee agree on one thing: 
we badly need more savings. MSA's provide a savings-based answer to the 
health care dilemma.
  Last year, the American people were denied meaningful health care 
reform because the administration took an all-or-nothing big Government 
approach that left them with nothing. Our incremental approach looks to 
be just what the doctor--and the American people--ordered.
  Medical savings accounts legislation has long been a goal of mine. 
And now, this is an idea whose time has come. I hope that my 
colleagues, on both sides of the aisle, will join me in supporting this 
legislation which will allow Americans to find better quality, more 
affordable health care.
           Family Medical Savings and Investment Act of 1995


                   technical description of the bill

                               in general

       The bill would permit individuals who are covered by a 
     catastrophic health plan to maintain a medical savings 
     account (MSA) to assist in saving for expenses not covered by 
     the health plan. Within limits, contributions would be 
     excludable from gross income if made by the employer and 
     deductible if made by the individual. In general, the 
     aggregate amount of individual and employer contributions 
     that could be deducted or excluded for a taxable year would 
     be the lesser of (1) the deductible under the catastrophic 
     health plan, or (2) $2,500 if the MSA covers only the 
     individual or $5,000 if the MSA covers the individual and the 
     spouse or a dependent of the individual. Withdrawals from an 
     MSA would be excludable from income if used for medical 
     expenses for the individual and his or her spouse or 
     dependents.


                    deductible contributions to MSAs

       A deductible contribution could be made to an MSA for any 
     month in which the individual is an eligible individual. In 
     general, a person would be an eligible individual for a month 
     if, at any time during the month, he or she is covered under 
     a catastrophic health plan and (at the same time) is not 
     covered under a health plan other than a plan that provides 
     certain permitted coverage.\1\ No deduction would be allowed 
     for a year if employer contributions (including transfers 
     from flexible spending arrangements) are made to an MSA for 
     the individual. (As discussed below, such employer 
     contributions would be excludable from income.)
       A catastrophic health plan would be defined as a health 
     plan that has a deductible amount of at least $1,800 (or 
     $3,600 if the plan provides coverage for more than one 
     individual). These dollar limits would be indexed annually 
     for inflation (rounded to the nearest multiple of $50).
       The maximum deductible contribution to an MSA would be 
     determined separately for
      each month based on the individual's status for each month, 
     including whether the individual is an eligible 
     individual, whether or not the MSA covers more than one 
     eligible individual, and the amount of the deductible 
     under the catastrophic health plan.
       In general, the maximum annual deductible contribution 
     would be the sum of the following amounts determined 
     separately for each month. 1/12 of the lesser of $2,500 or 
     the deductible under the catastrophic health plan for each 
     month\2\ in which the individual is an eligible individual 
     and the MSA covers only the individual, and 1/12 of the 
     lesser of $5,000 or the deductible under the catastrophic 
     health plan for each month in which the individual is an 
     eligible individual and the MSA covers the individual and 
     another eligible individual who is the spouse or dependent of 
     the individual. The maximum annual deduction limit would be 
     reduced by any employer contribution to an MSA and any 
     amounts transferred to an MSA from a flexible spending 
     arrangement (FSA). After 1995, the dollar limits would be 
     indexed for increases in the medical care component of the 
     consumer price index. Such increases would be rounded to the 
     nearest multiple of $50.
       The deduction limit generally would be determined 
     separately for each spouse of a married couple. If both 
     spouses are covered under the same catastrophic health plan, 
     then the deduction limit generally would be divided equally 
     between the spouses unless they agree on a different division 
     in the time and manner prescribed by the Secretary of the 
     Treasury.
       Example: Individual A, who has compensation of $50,000 a 
     year, is covered by a catastrophic health plan with a 
     deductible of $2,400 for individual coverage and $4,800 in 
     the case of family coverage (and no other health plan) for 
     all of 1996. Individual A is single at the beginning of 1996, 
     but marries in July 1996. A's spouse is also covered by the 
     same catastrophic health plan as A (and no other health 
     plan). The maximum deduction limit for A is calculated as 
     follows. For each of the months January through June of 1996, 
     the contribution limit is $200 and for each of the months 
     July through December of 1996, the contribution limit is 
     $400. Thus, the maximum limit for the entire year is $3,800.
       The deduction for contributions to an MSA would be taken in 
     arriving at adjusted gross income (i.e., ``above the line''). 
     No deduction would be allowed to an individual if any other 
     individual is entitled to a personal exemption for such 
     individual.
       Contributions to an MSA for a taxable year could be made 
     until the due date for filing the individual's tax return for 
     the year (determined without regard to extensions).


                    employer contributions to an msa
       Employe contributions to an MSA on behalf of an eligible 
     individual would be excludable from gross income and wages 
     for employment tax purposes. The amount excludable could not 
     exceed the deduction limit applicable to the individual 
     (determined without regard to the employer contributions).


        definition and tax treatment of medical savings accounts

       In general, an MSA would be a trust created exclusively for 
     the purpose of paying the qualified medical expenses of the 
     MSA holder (or his or her spouse or dependents) that meets 
     requirements similar to those applicable to individual 
     retirement arrangements (IRAs) The trustee of an MSA could be 
     a bank, insurance company, or other person that demonstrates 
     to the satisfaction of the Secretary that the manner in which 
     such person will administer the trust will be consistent with 
     applicable requirements.
       MSAs generally would be taxable under the rules relating to 
     grantor trusts. Any capital loss for a taxable year from an 
     asset held in an MSA would be allowed only to the extent of 
     capital gains from such assets for the taxable year.
       An MSA trustee would be required to make such reports as 
     may be required by the Secretary.


                     tax treatment of distributions

       Distributions used to pay the qualified medical expenses 
     (not reimbursed by insurance or otherwise) of the individual 
     or the individual's spouse or dependents would be excludable 
     from gross income. Qualified medical expenses would be 
     defined as under the rules relating to the itemized deduction 
     for medical expenses (sec. 213), except that for this purpose 
     medical expenses would not include insurance premiums other 
     than premiums for a catastrophic health plan and would 
     include premiums for long-term care insurance.
       Distributions from an MSA that are excludable from gross 
     income could not be taken into account for purposes of the 
     itemized deduction for medical expenses.
       Amounts not used for qualified medical expenses would be 
     included in gross income to the extent such distributions do 
     not exceed the excess of (1) the aggregate contributions to 
     such account which were deductible or excludable from gross 
     income, over (2) the aggregate prior payments from such 
     account which were includable in gross income. An additional 
     tax of 10 percent of the amount includable in income would 
     also apply unless the distribution is made after the 
     individual dies or becomes disabled.


                     flexible spending arrangements

       The bill would provide that amounts in a health FSA could 
     be transferred to an MSA for an eligible individual. A health 
     FSA would not fail to be such merely because it permits such 
     transfers. Such transfers would be excludable from gross 
     income and would reduce the otherwise applicable contribution 
     limit to an MSA.
       An FSA generally would be defined as a benefit program 
     which provides employees with coverage under which specified 
     incurred medical expenses may be reimbursed (subject to 
     reimbursement maximums and other reasonable conditions) and 
     the maximum amount of reimbursement which is reasonably 
     available to a participant for such coverage is less than 500 
     percent of the cost of such coverage. In the case of an 
     insured plan, the maximum amount reasonably available would 
     be determined on the basis of the underlying coverage.


                             effective date

       The bill would be effective with respect to taxable years 
     beginning after December 31, 1995.
     [[Page E1244]]
     
                               footnotes

     \1\The following types of coverage would be permitted 
     coverage and therefore would not preclude an individual from 
     being eligible to contribute to an MSA: (1) coverage only for 
     accidents, dental care, vision care, disability income, or 
     long-term care; (2) Medicare supplemental health insurance; 
     (3) coverage issued as a supplement to liability insurance; 
     (4) liability insurance, including general liability 
     insurance and automobile liability insurance; (5) worker's 
     compensation or similar insurance; (6) automobile medical-
     payment insurance; (7) coverage for a specified disease or 
     illness; and (8) a hospital or fixed indemnity policy. Other 
     types of coverage, e.g., a flexible spending arrangement, 
     would not be permitted coverage.
     \2\If the individual is covered under different catastrophic 
     plans at different times during the month, the limit would be 
     the lowest deductible under such plans.
     

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