[House Report 112-515]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-515

======================================================================



 
     HEALTH FLEXIBLE SPENDING ARRANGEMENTS IMPROVEMENTS ACT OF 2012

                                _______
                                

  June 5, 2012.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1004]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1004) to amend the Internal Revenue Code of 1986 to 
increase participation in medical flexible spending 
arrangements, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................2
 II. Explanation of Provision.........................................3
          A. Taxable Distributions of Unused Balances Under 
              Health Flexible Spending Arrangements (sec. 2 of 
              the bill and sec. 125 of the Code).................     3
III. Votes of the Committee...........................................6
 IV. Budget Effects of the Provision..................................7
  V. Other Matters To Be Discussed Under the Rules of the House......13
 VI. Changes in Existing Law Made by Bill, as Reported...............17
VII. Dissenting Views................................................20

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Health Flexible Spending Arrangements 
Improvements Act of 2012''.

SEC. 2. TAXABLE DISTRIBUTIONS OF UNUSED BALANCES UNDER HEALTH FLEXIBLE 
                    SPENDING ARRANGEMENTS.

  (a) In General.--Section 125 of the Internal Revenue Code of 1986 is 
amended by redesignating subsections (k) and (l) as subsections (l) and 
(m), respectively, and by inserting after subsection (j) the following 
new subsection:
  ``(k) Taxable Distributions of Unused Balances Under Health Flexible 
Spending Arrangements.--
          ``(1) In general.--For purposes of this section and sections 
        105(b) and 106, a plan or other arrangement which (but for any 
        qualified distribution) would be a health flexible spending 
        arrangement shall not fail to be treated as a cafeteria plan or 
        health flexible spending arrangement (and shall not fail to be 
        treated as an accident or health plan) merely because such 
        arrangement provides for qualified distributions.
          ``(2) Qualified distributions.--For purposes of this 
        subsection, the term `qualified distribution' means any 
        distribution to an individual under the arrangement referred to 
        in paragraph (1) with respect to any plan year if--
                  ``(A) such distribution is made after the last date 
                on which requests for reimbursement under such 
                arrangement for such plan year may be made and not 
                later than the end of the 7th month following the close 
                of such plan year, and
                  ``(B) such distribution does not exceed the lesser 
                of--
                          ``(i) $500, or
                          ``(ii) the excess of--
                                  ``(I) the salary reduction 
                                contributions made under such 
                                arrangement for such plan year, over
                                  ``(II) the reimbursements for 
                                expenses incurred for medical care made 
                                under such arrangement for such plan 
                                year.
          ``(3) Tax treatment of qualified distributions.--Qualified 
        distributions shall be includible in the gross income of the 
        employee in the taxable year in which distributed and shall be 
        taken into account as wages or compensation under the 
        applicable provisions of subtitle C when so distributed.
          ``(4) Coordination with qualified reservist distributions.--A 
        qualified reservist distribution (as defined in subsection 
        (h)(2)) shall not be treated as a qualified distribution and 
        shall not be taken into account in applying the limitation of 
        paragraph (2)(B)(i).''.
  (b) Conforming Amendment.--Paragraph (1) of section 409A(d) of such 
Code is amended by striking ``and'' at the end of subparagraph (A), by 
striking the period at the end of subparagraph (B) and inserting ``, 
and'', and by adding at the end the following new subparagraph:
                  ``(C) a health flexible spending arrangement to which 
                subsection (h) or (k) of section 125 applies.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to plan years beginning after December 31, 2012.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1004, as reported by the Committee on Ways 
and Means, modifies the so-called ``use-it-or-lose-it'' rule 
applicable to health flexible spending arrangements (``Health 
FSAs''), permitting participants to cash out up to $500 in 
Health FSA balances at the end of each year.

                 B. Background and Need for Legislation

    Over 85 percent of large employers offer health flexible 
spending arrangements (``Health FSAs'') but only 20-22 percent 
of eligible employees enroll in Health FSAs. One reason often 
cited for not enrolling, or for underfunding, is fear of the 
use-it-or-lose-it provision. Under current law, employees 
either must spend their Health FSA balances by the end of the 
year (or by March 15 of the next year if their employers adopt 
the two-and-one-half month grace period) or forfeit the money 
to their employers under the use-it-or-lose-it rule. Employers 
may not return employees' unused Health FSA balances or 
allocate funds to them in a way that is directly or indirectly 
based on their unused Health FSA balances.
    One-in-four Health FSA participants suffer forfeitures of 
their own compensation every year. Other employees may spend 
money on unnecessary items at the end of the year to avoid 
forfeiture (thus potentially contributing to overconsumption of 
health care). Legislation is needed to encourage more Americans 
to enroll in Health FSAs and give those already enrolled 
confidence to save more funds for potential health care 
expenditures. Further, enrollees should not be encouraged to 
spend their money frivolously for fear of losing their 
balances, and providing Health FSA participants an appropriate 
cash-out opportunity will help address that concern.

                         C. Legislative History


Background

    H.R. 1004 was introduced on March 10, 2011, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 1004 on May 
31, 2012, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The utility of Health FSAs--including the importance of 
expanding these arrangement to allow more flexibility and 
control costs--was discussed at four hearings during the 112th 
Congress.
     Full Committee Hearing on the Health Care Law's 
Impact on Jobs, Employers, and the Economy (January 26, 2011)
     Full Committee hearing on the President's FY 2013 
Budget Proposal with U.S. Department of Health and Human 
Services Secretary Sebelius (February 28, 2012)
     Health Subcommittee hearing on the Individual and 
Employer Mandates in the Democrats' Health Care Law (March 29, 
2012)
     Oversight Subcommittee hearing on the Impact of 
Limitations on the Use of Tax-Advantaged Accounts for the 
Purchase of Over-The-Counter Medication (April 25, 2012)

                      II. EXPLANATION OF PROVISION


   A. Taxable Distributions of Unused Balances Under Health Flexible 
  Spending Arrangements (sec. 2 of the bill and sec. 125 of the Code)


                              PRESENT LAW

Exclusion from income for employer-provided health coverage

    Employees are not taxed on (that is, may exclude from gross 
income) the value of employer-provided health coverage under an 
accident or health plan.\1\ In addition, any reimbursements 
under an employer-provided accident or health plan for medical 
care expenses for employees, their spouses, their dependents, 
and adult children under age 27 generally are excluded from 
gross income.\2\ The exclusion applies both to health coverage 
in the case in which an employer directly pays the cost of 
employees' medical expenses not covered by insurance (i.e., a 
self-insured plan) as well as in the case in which the employer 
purchases health insurance coverage for its employees. There 
generally is no limit on the amount of employer-provided health 
coverage that is excludible. A similar rule excludes employer-
provided health insurance coverage from the employees' wages 
for employment tax purposes.\3\
---------------------------------------------------------------------------
    \1\Sec 106.
    \2\Sec. 105(b).
    \3\Secs. 3121(a)(2), 3231(e)(1) and 3306(a)(2).
---------------------------------------------------------------------------
    Employers may also provide health coverage in the form of 
an agreement to reimburse medical expenses of their employees, 
their spouses, their dependents, and adult children under age 
27, not reimbursed by a health insurance plan, through 
arrangements which allow reimbursement for medical care not in 
excess of a specified dollar amount (either elected by an 
employee under a cafeteria plan or otherwise specified by the 
employer). An employer may agree to reimburse expenses for 
medical care of its employees (and their spouses and 
dependents), not covered by a health insurance plan, through a 
flexible spending arrangement (``FSA'') which allows 
reimbursement for medical expenses not in excess of a specified 
dollar amount. The amounts available for reimbursement must be 
exclusively for reimbursement for medical care because the 
exclusion does not apply to amounts which the employee would be 
entitled to irrespective of whether he or she incurs expenses 
for medical care.\4\
---------------------------------------------------------------------------
    \4\Treas. Reg. sec. 1.105-2.
---------------------------------------------------------------------------
    Such dollar amount is either elected by an employee under a 
cafeteria plan (``Health FSA'') or otherwise specified by the 
employer under a health reimbursement arrangement (``HRA''). 
Reimbursements under these arrangements are also excludible 
from gross income as reimbursements for medical care under 
employer-provided health coverage.\5\
---------------------------------------------------------------------------
    \5\Sec. 106.
---------------------------------------------------------------------------

Cafeteria plan

            General rules
    A cafeteria plan is a separate written plan of an employer 
under which all participants are employees, and participants 
are permitted to choose among at least one permitted taxable 
benefit (for example, current cash compensation) and at least 
one qualified benefit (generally an employer-provided benefit 
excludible from gross income, such as employer-provided health 
coverage). If an employee receives a qualified benefit based on 
his or her election between the qualified benefit and a taxable 
benefit under a cafeteria plan, the qualified benefit generally 
is not includible in gross income.\6\ However, in order to be 
excludible, any qualified benefit elected under a cafeteria 
plan must independently satisfy any requirements under the Code 
section that provides the exclusion. The amount of the cash 
compensation forgone pursuant to an election under a cafeteria 
plan is generally referred to as a salary reduction 
contribution. However, if a plan offering an employee an 
election between taxable benefits (including cash) and 
nontaxable qualified benefits does not meet the requirements 
for being a cafeteria plan, the election between taxable and 
nontaxable benefits generally results in gross income to the 
employee, regardless of what benefit is elected and when the 
election is made.\7\ A cafeteria plan generally may not provide 
for deferral of compensation.
---------------------------------------------------------------------------
    \6\Sec. 125(a).
    \7\Prop. Treas. Reg. sec. 1.125-1(b).
---------------------------------------------------------------------------
            Health flexible spending arrangement under a cafeteria plan
    A flexible spending arrangement for medical expenses under 
a cafeteria plan (commonly called a ``Health FSA'') is health 
coverage in the form of an arrangement under which employees 
are given the option to reduce their current cash compensation 
and instead have the amount of the salary reduction 
contributions made available for use in reimbursing the 
employee for his or her medical expenses.\8\ For years before 
2013, there is no statutory limit on the dollar amount of 
salary reduction contributions that an employer may permit to 
be contributed to a Health FSA under its cafeteria plan. 
Beginning with 2013, the maximum amount of salary reduction 
contributions for a year is limited to $2,500.\9\
---------------------------------------------------------------------------
    \8\Sec. 125 and Prop. Treas. Reg. sec. 1.125-5.
    \9\Sec. 125(i).
---------------------------------------------------------------------------
    Health FSAs are subject to the general requirements for 
cafeteria plans, including a requirement that amounts remaining 
under a Health FSA at the end of a plan year must be forfeited 
by the employee (referred to as the ``use-it-or-lose-it 
rule'').\10\ A Health FSA is permitted to allow a grace period 
not to exceed two and one-half months immediately following the 
end of the plan year during which unused amounts may be 
used.\11\ A Health FSA can also include employer flex-credits 
which are nonelective employer contributions that the employer 
makes for every employee eligible to participate in the 
employer's cafeteria plan, to be used only for one or more 
excludible qualified benefits (but not as cash or a taxable 
benefit).\12\
---------------------------------------------------------------------------
    \10\Sec. 125(d)(2) and Prop. Treas. Reg. sec. 1.125-5(c).
    \11\Notice 2005-42, 2005-1 C.B. 1204, and Prop. Treas. Reg. sec. 
1.125-1(e).
    \12\Prop. Treas. Reg. sec. 1-125-5(b).
---------------------------------------------------------------------------

Health reimbursement arrangement

    Rather than offering a Health FSA through a cafeteria plan, 
an employer may specify a dollar amount that is available for 
medical expense reimbursement. These flexible spending 
arrangements are commonly called health reimbursement 
arrangements (``HRAs''). Some of the rules applicable to HRAs 
and Health FSAs are similar (e.g., the amounts in the 
arrangements can only be used to reimburse medical expenses and 
not for other purposes), but the rules are not identical. In 
particular, HRAs cannot include salary reduction contributions 
and the use-it-or-lose-it rule does not apply. Thus, amounts 
remaining at the end of the year may be carried forward to be 
used to reimburse medical expenses in following years.\13\
---------------------------------------------------------------------------
    \13\Guidance with respect to HRAs, including the interaction of 
FSAs and HRAs in the case of an individual covered under both, is 
provided in Notice 2002-45, 2002-2 C.B. 93.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the use-it-or-lose-it rule for 
Health FSAs discourages the use of FSAs and encourages 
unnecessary medical expenditures to avoid loss of funds in 
health FSAs. The Committee believes it is therefore appropriate 
to allow a limited amount of funds to be distributed to the 
taxpayer after the end of the plan year, rather than be 
forfeited to the employer.

                        EXPLANATION OF PROVISION

    Under the provision, a Health FSA under a cafeteria plan is 
permitted to provide for distributions of an amount remaining 
at the end of the plan year (or grace period if applicable) 
that is not used to reimburse medical expenses incurred during 
the plan year (plus the plan's grace period, if any). The 
amount of the distribution for any employee must be limited to 
the lesser of $500 or the amount of salary reduction 
contributions for the employee reduced by reimbursements for 
medical expenses for the plan year. Such a distribution is 
called a ``qualified distribution'' under the provision. In 
order to be a qualified distribution, the distribution also 
must be made after the deadline for reimbursement of claims for 
the plan year and no later than the end of the seventh month 
after the close of the plan year.
    Under the provision, qualified distributions will not cause 
the cafeteria plan and Health FSA to violate the use-it-lose-it 
rule or the requirement that amounts available for 
reimbursement for medical expenses under a Health FSA not be 
available for any other purpose. The amount of a qualified 
distribution is includible in gross income for the year in 
which the distribution is made and is taken into account as 
wages for employment tax purposes.

                             EFFECTIVE DATE

    The provision is effective for plan years beginning after 
December 31, 2012.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the votes of the Committee on Ways and Means in its 
consideration of H.R. 1004.

                    MOTION TO REPORT RECOMMENDATION

    The bill H.R. 1004, as amended, was ordered favorably 
reported by a roll call vote of 23 yeas to 6 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................        X   ........  .........  Mr. Levin........  ........  ........  .........
Mr. Herger.....................        X   ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Johnson....................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Brady......................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Ryan.......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Neal.........        X   ........  .........
Mr. Tiberi.....................        X   ........  .........  Mr. Becerra......  ........  ........  .........
Mr. Davis......................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Boustany...................        X   ........  .........  Mr. Larson.......        X   ........  .........
Mr. Roskam.....................  ........  ........  .........  Mr. Blumenauer...  ........        X   .........
Mr. Gerlach....................        X   ........  .........  Mr. Kind.........        X   ........  .........
Mr. Price......................        X   ........  .........  Mr. Pascrell.....  ........  ........  .........
Mr. Buchanan...................        X   ........  .........  Ms. Berkley......        X   ........  .........
Mr. Smith......................        X   ........  .........  Mr. Crowley......        X   ........  .........
Mr. Schock.....................        X   ........  .........
Ms. Jenkins....................        X   ........  .........
Mr. Paulsen....................        X   ........  .........
Mr. Marchant...................  ........  ........  .........
Mr. Berg.......................        X   ........  .........
Ms. Black......................  ........  ........  .........
Mr. Reed.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                  IV. BUDGET EFFECTS OF THE PROVISION


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the revenue provisions 
of the bill, H.R. 1004 as reported.
    The bill, as reported, is estimated to have the following 
effects on budget receipts for fiscal years 2013-2022:

                                                                                          FISCAL YEARS
                                                                                      [Millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                      Item                           2013        2014        2015        2016        2017        2018        2019        2020        2021        2022       2013-17     2013-22
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Permit $500 cash out of amounts under Health FSA       -261        -380        -383        -395        -407        -419        -432        -445        -459        -471      -1,826      -4,051
 not used to reimburse medical expenses incurred
 during plan year (plus any grace period)\1\....
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.
\1\Estimate includes the following off-budget effects:


                                            2013         2014         2015         2016         2017         2018         2019         2020         2021         2022      2013-17      2013-22
                                     -----------------------------------------------------------------------------------------------------------------------------------------------------------
                                             -69          -94          -93          -95          -97          -99         -101         -104         -106         -108         -447         -965


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provisions involve increased tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by the CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 4, 2012.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1004, the Health 
Flexible Spending Arrangements Improvements Act of 2012.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Pamela 
Greene.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 1004--Health Flexible Spending Arrangements Improvements Act of 
        2012

    Summary: H.R. 1004 would amend the Internal Revenue Code to 
allow up to $500 of unused balances in health flexible spending 
arrangements (FSAs) to be distributed back to the account 
holder within seven months of the close of the plan year. The 
staff of the Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 1004 would reduce revenues by about $4 billion 
over the 2012-2022 period. Of that reduction, about $3 billion 
would result from changes in on-budget revenues, and about $1 
billion would result from changes in off-budget revenues (from 
Social Security payroll taxes, which are categorized as off-
budget revenues). Pay-as-you-go procedures apply because 
enacting the legislation would affect on-budget revenues.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Ggovernment: The estimated 
budgetary impact of H.R. 1004 is shown in the following table.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2012       2013       2014       2015       2016       2017       2018       2019       2020       2021       2022    2012-2017  2012-2022
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Estimated Revenues...............................          0       -261       -380       -383       -395       -407       -419       -432       -445       -459       -471     -1,826     -4,051
    On-budget....................................          0       -192       -286       -290       -300       -310       -320       -331       -341       -353       -363     -1,379     -3,086
    Off-budget...................................          0        -69        -94        -93        -95        -97        -99       -101       -104       -106       -108       -447      -965
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum to totals because of rounding.
Source: Staff of the Joint Committee on Taxation.

    Basis of estimate: H.R. 1004 would allow taxpayers to 
receive distributions of unused amounts from their health FSAs 
at the end of the plan year. The distribution would be the 
lesser of $500 or the amount of total contributions less 
reimbursements for medical expenses during the plan year. Under 
current law, unused balances in those FSAs at the end of the 
plan year are generally forfeited by the employee. Under this 
bill, distributions of unused balances would be included in 
gross income of the individual and would become a tax 
deductible compensation expense for the employer. By lowering 
the risk to the employee of losing contributed amounts, it is 
expected that the bill would result in increases in the amounts 
contributed to health FSAs, which provide tax-favored treatment 
for medical expenses. JCT estimates that enacting H.R. 1004 
would reduce on-budget revenues by about $3 billion and reduce 
off-budget revenues by about $1 billion from 2013 through 2022, 
thereby increasing federal budget deficits by about $4 billion 
over that period.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in revenues that are subject to those 
pay-as-you-go procedures are shown in the following table. Only 
on-budget changes to outlays or revenues are subject to pay-as-
you-go procedures.

                                CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1004, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON MAY 31, 2012
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      By fiscal year, in millions of dollars--
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                      2012       2013       2014       2015       2016       2017       2018       2019       2020       2021       2022    2012-2017  2012-2022
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              NET INCREASE IN THE ON-BUDGET DEFICIT

Statutory Pay-As-You-Go Impact...................          0        192        286        290        300        310        320        331        341        353        363      1,379      3,086
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains no intergovernmental or 
private-sector mandates as defined in UMRA.
    Estimate prepared by: Pamela Greene.
    Estimate approved by: Frank Sammartino, Assistant Director 
for Tax Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 1004 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for any 
measure that authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the reported bill does 
not contain any Federal private sector mandates within the 
meaning of Public Law No. 104-4, the Unfunded Mandates Reform 
Act of 1995. The costs required to comply with each Federal 
private sector mandate generally are no greater than the 
aggregate estimated budget effects of the provision.
    The Committee has determined that the bill does not impose 
a private sector mandate, and has determined that the bill does 
not impose a Federal intergovernmental mandate on State, local, 
or tribal governments.

                D. Applicability of House Rule XXI 5(b)

    Clause 5(b) of rule XXI of the Rules of the House of 
Representatives provides, in part, that ``A bill or joint 
resolution, amendment, or conference report carrying a Federal 
income tax rate increase may not be considered as passed or 
agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting, a quorum being present.'' 
The Committee has carefully reviewed the provisions of the 
bill, and states that the provisions of the bill do not involve 
any Federal income tax rate increases within the meaning of the 
rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
staff of the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Treasury Department) to 
provide a tax complexity analysis. The complexity analysis is 
required for all legislation reported by the Senate Committee 
on Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
and has widespread applicability to individuals or small 
businesses. Pursuant to clause 3(h)(1) of rule XIII of the 
Rules of the House of Representatives, for each such provision 
identified by the staff of the Joint Committee on Taxation, a 
summary description of the provision is provided along with a 
discussion regarding the relevant complexity and administrative 
issues. Below is a summary description of the provision and 
discussion regarding the relevant complexity and administrative 
issues provided by the Internal Revenue Service with which the 
staff of the Joint Committee on Taxation concurs.


  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

         VI. CHANGES IN EXISTING LAW MADE BY BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *



SEC. 125. CAFETERIA PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Taxable Distributions of Unused Balances Under Health 
Flexible Spending Arrangements.--
          (1) In general.--For purposes of this section and 
        sections 105(b) and 106, a plan or other arrangement 
        which (but for any qualified distribution) would be a 
        health flexible spending arrangement shall not fail to 
        be treated as a cafeteria plan or health flexible 
        spending arrangement (and shall not fail to be treated 
        as an accident or health plan) merely because such 
        arrangement provides for qualified distributions.
          (2) Qualified distributions.--For purposes of this 
        subsection, the term ``qualified distribution'' means 
        any distribution to an individual under the arrangement 
        referred to in paragraph (1) with respect to any plan 
        year if--
                  (A) such distribution is made after the last 
                date on which requests for reimbursement under 
                such arrangement for such plan year may be made 
                and not later than the end of the 7th month 
                following the close of such plan year, and
                  (B) such distribution does not exceed the 
                lesser of--
                          (i) $500, or
                          (ii) the excess of--
                                  (I) the salary reduction 
                                contributions made under such 
                                arrangement for such plan year, 
                                over
                                  (II) the reimbursements for 
                                expenses incurred for medical 
                                care made under such 
                                arrangement for such plan year.
          (3) Tax treatment of qualified distributions.--
        Qualified distributions shall be includible in the 
        gross income of the employee in the taxable year in 
        which distributed and shall be taken into account as 
        wages or compensation under the applicable provisions 
        of subtitle C when so distributed.
          (4) Coordination with qualified reservist 
        distributions.--A qualified reservist distribution (as 
        defined in subsection (h)(2)) shall not be treated as a 
        qualified distribution and shall not be taken into 
        account in applying the limitation of paragraph 
        (2)(B)(i).
  [(k)] (l) Cross Reference.--For reporting and recordkeeping 
requirements, see section 6039D.
  [(l)] (m) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this section.

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, Etc

           *       *       *       *       *       *       *


PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC

           *       *       *       *       *       *       *


Subpart A--General Rule

           *       *       *       *       *       *       *


SEC. 409A. INCLUSION IN GROSS INCOME OF DEFERRED COMPENSATION UNDER 
                    NONQUALIFIED DEFERRED COMPENSATION PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Other Definitions and Special Rules.--For purposes of 
this section:
          (1) Nonqualified deferred compensation plan.--The 
        term ``nonqualified deferred compensation plan'' means 
        any plan that provides for the deferral of 
        compensation, other than--
                  (A) a qualified employer plan, [and]
                  (B) any bona fide vacation leave, sick leave, 
                compensatory time, disability pay, or death 
                benefit plan[.], and
                  (C) a health flexible spending arrangement to 
                which subsection (h) or (k) of section 125 
                applies.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS 

    We voted against this bill because it costs $4 billion in 
lost tax revenues and this revenue loss is not offset. When 
combined with the three other health care measures under 
consideration at the Markup, the total cost for all bills is 
nearly $42 billion--and the Majority has not set forth any 
options to pay for this cost. Not one option was set forth at 
the Markup. It is simply unacceptable in this time of fiscal 
austerity to not pay the cost of these bills. It is 
irresponsible to add nearly $42 billion to the deficit.
    This Markup continues the Majority's attempt to repeal the 
Affordable Care Act (ACA) without offering a replacement. In 
January of 2009, the Majority voted to repeal and replace the 
ACA. If their replacement solution is expanded access to Health 
Flexible Spending Accounts and Health Savings Accounts, then it 
falls far short of the needs of American families. Neither 
Health Flexible Spending Accounts nor Health Savings Accounts 
provide health coverage to participants. They only provide tax 
breaks for certain health costs. They are not real solutions to 
the problems facing our nation with respect to health care and 
insurance coverage.

                                   Sander M. Levin.
                                   Fortney Pete Stark.
                                   Jim McDermott.
                                   John Lewis.
                                   Xavier Becerra.
                                   Earl Blumenauer.

                                  
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