[House Report 112-55]
[From the U.S. Government Publishing Office]


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     112-55

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



 
  AMENDING THE INTERNAL REVENUE CODE OF 1986 TO ELIMINATE CERTAIN TAX 
                     BENEFITS RELATING TO ABORTION

                                _______
                                

 April 6, 2011.--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 AND ADDITIONAL VIEWS

                        [To accompany H.R. 1232]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1232) to amend the Internal Revenue Code of 1986 to 
eliminate certain tax benefits relating to abortion, 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...........................................3
 II. EXPLANATION OF THE BILL..........................................4
          A. Deduction for Medical Expenses Not Allowed for 
              Abortions (sec. 1 of the bill and sec. 213 of the 
              Code)..............................................     4
          B. Disallowance of Refundable Credit for Coverage Under 
              Qualified Health Plan Which Provides Coverage for 
              Abortion (sec. 2 of the bill and sec. 36B of the 
              Code)..............................................     6
          C. Disallowance of Small Employer Health Insurance 
              Expense Credit for Plan Which Includes Coverage for 
              Abortion (sec. 3 of the bill and sec. 45R of the 
              bill)..............................................     9
          D. Distributions from Certain Accounts and Arrangements 
              Includible in Gross Income.........................    12
            1. Health flexible spending arrangements (sec. 4 of 
                the bill and secs. 105(b) and 125 of the Code)...    12
            2. Health savings accounts and Archer medical savings 
                accounts (sec. 4 of the bill and secs. 220 and 
                223 of the Code).................................    15
III. VOTES OF THE COMMITTEE..........................................17
 IV. BUDGET EFFECTS OF THE BILL......................................18
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......21
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........22
VII. DISSENTING AND ADDITIONAL VIEWS.................................26

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

SECTION 1. DEDUCTION FOR MEDICAL EXPENSES NOT ALLOWED FOR ABORTIONS.

  (a) In General.--Section 213 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subsection:
  ``(g) Amounts Paid for Abortion Not Taken Into Account.--
          ``(1) In general.--An amount paid during the taxable year for 
        an abortion shall not be taken into account under subsection 
        (a).
          ``(2) Exceptions.--Paragraph (1) shall not apply to--
                  ``(A) an abortion--
                          ``(i) in the case of a pregnancy that is the 
                        result of an act of rape or incest, or
                          ``(ii) in the case where a woman suffers from 
                        a physical disorder, physical injury, or 
                        physical illness that would, as certified by a 
                        physician, place the woman in danger of death 
                        unless an abortion is performed, including a 
                        life-endangering physical condition caused by 
                        or arising from the pregnancy, and
                  ``(B) the treatment of any infection, injury, 
                disease, or disorder that has been caused by or 
                exacerbated by the performance of an abortion.''.
  (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. 2. DISALLOWANCE OF REFUNDABLE CREDIT FOR COVERAGE UNDER QUALIFIED 
                    HEALTH PLAN WHICH PROVIDES COVERAGE FOR ABORTION.

  (a) In General.--Subparagraph (A) of section 36B(c)(3) of the 
Internal Revenue Code of 1986 is amended by inserting before the period 
at the end the following: ``or any health plan that includes coverage 
for abortions (other than any abortion or treatment described in 
section 213(g)(2))''.
  (b) Option to Purchase or Offer Separate Coverage or Plan.--Paragraph 
(3) of section 36B(c) of such Code is amended by adding at the end the 
following new subparagraph:
                  ``(C) Separate abortion coverage or plan allowed.--
                          ``(i) Option to purchase separate coverage or 
                        plan.--Nothing in subparagraph (A) shall be 
                        construed as prohibiting any individual from 
                        purchasing separate coverage for abortions 
                        described in such subparagraph, or a health 
                        plan that includes such abortions, so long as 
                        no credit is allowed under this section with 
                        respect to the premiums for such coverage or 
                        plan.
                          ``(ii) Option to offer coverage or plan.--
                        Nothing in subparagraph (A) shall restrict any 
                        non-Federal health insurance issuer offering a 
                        health plan from offering separate coverage for 
                        abortions described in such subparagraph, or a 
                        plan that includes such abortions, so long as 
                        premiums for such separate coverage or plan are 
                        not paid for with any amount attributable to 
                        the credit allowed under this section (or the 
                        amount of any advance payment of the credit 
                        under section 1412 of the Patient Protection 
                        and Affordable Care Act).''.
  (c) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 2013.

SEC. 3. DISALLOWANCE OF SMALL EMPLOYER HEALTH INSURANCE EXPENSE CREDIT 
                    FOR PLAN WHICH INCLUDES COVERAGE FOR ABORTION.

  (a) In General.--Subsection (h) of section 45R of the Internal 
Revenue Code of 1986 is amended--
          (1) by striking ``Any term'' and inserting the following:
          ``(1) In general.--Any term'', and
          (2) by adding at the end the following new paragraph:
          ``(2) Exclusion of health plans including coverage for 
        abortion.--The terms `qualified health plan' and `health 
        insurance coverage' shall not include any health plan or 
        benefit that includes coverage for abortions (other than any 
        abortion or treatment described in section 213(g)(2)).''.
  (b) 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. DISTRIBUTIONS FOR ABORTION EXPENSES FROM CERTAIN ACCOUNTS AND 
                    ARRANGEMENTS INCLUDED IN GROSS INCOME.

  (a) Flexible Spending Arrangements Under Cafeteria Plans.--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) Abortion Reimbursement From Flexible Spending Arrangement 
Included in Gross Income.--Notwithstanding section 105(b), gross income 
shall include any reimbursement for expenses incurred for an abortion 
(other than any abortion or treatment described in section 213(g)(2)) 
from a health flexible spending arrangement provided under a cafeteria 
plan. Such reimbursement shall not fail to be a qualified benefit for 
purposes of this section merely as a result of such inclusion in gross 
income.''.
  (b) Archer MSAs.--Paragraph (1) of section 220(f) of such Code is 
amended by inserting before the period at the end the following: ``, 
except that any such amount used to pay for an abortion (other than any 
abortion or treatment described in section 213(g)(2)) shall be included 
in the gross income of such holder''.
  (c) HSAs.--Paragraph (1) of section 223(f) of such Code is amended by 
inserting before the period at the end the following: ``, except that 
any such amount used to pay for an abortion (other than any abortion or 
treatment described in section 213(g)(2)) shall be included in the 
gross income of such beneficiary''.
  (d) Effective Dates.--
          (1) FSA reimbursements.--The amendment made by subsection (a) 
        shall apply to expenses incurred with respect to taxable years 
        beginning after the date of the enactment of this Act.
          (2) Distributions from savings accounts.--The amendments made 
        by subsection (b) and (c) shall apply to amounts paid with 
        respect to taxable years beginning after the date of the 
        enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1232, as amended, reported by the Committee 
on Ways and Means, extends the principles of the Hyde 
amendment\1\ to certain tax expenditures. The bill amends the 
Internal Revenue Code to include the principles of the Hyde 
amendment and to eliminate certain tax benefits relating to 
abortion.
---------------------------------------------------------------------------
    \1\  The Hyde amendment is language added to appropriations bills 
to prevent the use of Federal funds for abortions except where the life 
of the mother would be endangered unless an abortion is performed or 
where the pregnancy is the result of an act of rape or incest. For 
examples of this provision, see section 508 of Title V of Division D of 
the Consolidated Appropriations Act, 2010, Pub. L. No. 111-117.
---------------------------------------------------------------------------
    Specifically, section 1 provides that an itemized personal 
deduction is not allowed for an amount paid for an abortion. 
Section 2 disallows the refundable premium assistance credit 
for coverage under any qualified health plan that includes 
coverage for abortions. Section 3 disallows the small employer 
health insurance tax credit with respect to health plans that 
include coverage for abortions. Section 4 provides that any 
reimbursement from a health flexible spending arrangement under 
a cafeteria plan for the expenses incurred for an abortion is 
includible in the gross income of the employee. Section 4 also 
provides that a distribution from a health savings account or 
Archer medical savings account that is used for the cost of an 
abortion is includible in gross income. The bill includes the 
exceptions provided under the Hyde amendment for abortion of 
any pregnancy that places the mother in danger of death unless 
an abortion is performed, or is the result of rape or incest. 
The provisions of the bill do not apply to amounts paid, health 
coverage, reimbursements, or amounts used, for abortions in 
these limited circumstances. The bill also does not apply to 
treatment for infection, injury, disease, or disorder that has 
been caused by or exacerbated by the performance of an 
abortion. The provisions of the bill generally apply to taxable 
years beginning after the date of enactment except for section 
2, which applies to taxable years ending after December 31, 
2013.

                 B. Background and Need for Legislation

    On January 20, 2011, two Members of Congress introduced 
bills seeking to codify the Hyde Amendment prohibiting taxpayer 
funding of abortion, and extending the principles of the Hyde 
Amendment to certain tax expenditures that encourage abortion. 
Rep. Chris Smith (R-NJ) introduced H.R. 3, the ``No Taxpayer 
Funding for Abortion Act,'' and Rep. Joseph Pitts (R-PA) 
introduced H.R. 358, the ``Protect Life Act.'' The Committee on 
Ways and Means received sequential referrals on both bills 
because the bills include tax provisions that fall within the 
jurisdiction of the Committee. The Committee believed it was 
appropriate to review the tax language in both bills to ensure 
the tax provisions would be clear for taxpayers and 
administrable for the Internal Revenue Service. The tax 
language in H.R. 3, specifically, created ambiguities and thus 
the Committee on Ways and Means decided to develop substitute 
tax provisions, embodied in the text of H.R. 1232, that provide 
greater clarity to taxpayers, with the intent that these 
provisions be added to the non-tax provisions of H.R. 3.

                         C. Legislative History


Background

    H.R. 1232 was introduced on March 29, 2011, and was 
referred to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up the bill on March 
31, 2011, and ordered the bill, as amended, favorably reported.

Committee hearings

    On March 16, 2011, the Subcommittee on Select Revenue 
Measures of the House Committee on Ways and Means held a 
hearing on H.R. 3, the ``No Taxpayer Funding for Abortion 
Act,'' as ordered reported by the House Committee on the 
Judiciary, and H.R. 358, the ``Protect Life Act,'' as reported 
by the Committee on Energy and Commerce.

                      II. EXPLANATION OF THE BILL


A. Deduction for Medical Expenses Not Allowed for Abortions (Sec. 1 of 
                   the Bill and Sec. 213 of the Code)


                              PRESENT LAW

    Section 213 of the Internal Revenue Code (``Code'')\2\ 
allows a deduction\3\ for certain expenses paid for medical 
care of the taxpayer, the taxpayer's spouse, and the taxpayer's 
dependents to the extent that such expenses exceed 7.5 percent 
of the taxpayer's adjusted gross income\4\ (generally 10 
percent for taxable years beginning after December 31, 
2012).\5\
---------------------------------------------------------------------------
    \2\Except where otherwise noted, all section references are to the 
Internal Revenue Code of 1986, as amended.
    \3\This deduction is available both to insured and uninsured 
individuals; thus, for example, an individual with employer-provided 
health insurance (or certain other forms of tax-subsidized health 
benefits) may also claim the itemized deduction for the individual's 
medical expenses not covered by that insurance if the 7.5 (or 10) 
percent adjusted gross income threshold is met.
    \4\For purposes of the alternative minimum tax, medical expenses 
are deductible only to the extent that they exceed 10 percent of 
adjusted gross income.
    \5\For taxable years ending before January 1, 2017, if either the 
taxpayer or the taxpayer's spouse turns 65 before the end of the 
taxable year, the threshold remains at 7.5 percent of adjusted gross 
income.
---------------------------------------------------------------------------
    Medical care is defined for purposes of the deduction as 
amounts paid for the diagnosis, cure, mitigation, treatment, or 
prevention of disease, or for the purpose of affecting the 
structure or function of the body, for certain transportation 
costs associated with such care, and for insurance covering 
such care.\6\ Operations or treatments affecting any portion of 
the body, including obstetric procedures, but excluding illegal 
procedures or treatments, are considered to be for the purpose 
of affecting the structure or function of the body, and thus 
constitute medical care.\7\ Costs associated with legal 
abortions are medical care expenses that are deductible under 
section 213.\8\
---------------------------------------------------------------------------
    \6\Sec. 213(d). Section 213(b) provides that any amount paid during 
a taxable year for medicine or drugs is taken into account for this 
deduction as a medical expense only if the medicine or drug is a 
prescribed drug or is insulin even though such medicine and drugs are 
included in the definition of medical care under section 213(d).
    \7\Treas. Reg. sec. 1.213-1(e).
    \8\Rev. Rul. 73-201, 1973-1 C.B. 140.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
principles of the Hyde amendment, which generally precludes the 
use of Federal funds to be expended for any abortion (except 
where the life of the mother would be endangered unless an 
abortion is performed or where the pregnancy is the result of 
an act of rape or incest) to certain tax expenditures under the 
Internal Revenue Code. As a result, the Committee does not 
believe that taxpayers should generally be able to claim a tax 
benefit for expenses paid for an abortion and thus believes 
that it is inappropriate for a deduction to be allowed for such 
expenses.

                        EXPLANATION OF PROVISION

    Under the provision, an amount paid for an abortion is not 
taken into account for purposes of the deduction for medical 
expenses under section 213. Thus, such amount is both not 
deductible and not taken into account in determining whether 
the taxpayer has met the 7.5 (or 10) percent of adjusted gross 
income threshold for medical expenses that qualify for the 
deduction.
    However, the provision does not apply to amounts paid for 
an abortion in the case of a pregnancy that is the result of 
rape or incest, or in the case of a woman who suffers from a 
physical disorder, injury, or illness that would, as certified 
by a physician, place the woman in danger of death unless an 
abortion is performed, including a life-endangering physical 
condition caused by or arising from the pregnancy itself 
(``excluded abortions''). The provision also does not apply to 
medical expenses for any treatment of any infection, injury, 
disease, or disorder that has been caused by or exacerbated by 
the performance of an abortion (``excluded abortion-related 
treatment'').

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after date 
of enactment.

   B. Disallowance of Refundable Credit for Coverage Under Qualified 
 Health Plan Which Provides Coverage for Abortion (Sec. 2 of the Bill 
                       and Sec. 36B of the Code)


                              PRESENT LAW

In general

    Section 36B, added to the Code by the Patient Protection 
and Affordable Care Act, as amended (``PPACA''),\9\ provides a 
refundable tax credit (the ``premium assistance credit'') for 
eligible individuals and families who purchase health insurance 
through a health insurance exchange.\10\ The premium assistance 
credit, which is refundable and payable in advance directly to 
the insurer, subsidizes the purchase of qualified health plans 
through an exchange.\11\
---------------------------------------------------------------------------
    \9\Pub. L. No. 111-148.
    \10\Individuals enrolled in multi-state plans, pursuant to section 
1334 of PPACA, are also eligible for the credit.
    \11\Under PPACA, States are to establish American Health Benefit 
Exchanges, commonly referred to simply as ``exchanges.'' These 
exchanges will be governmental agencies or nonprofit entities that, 
among other services, facilitate the purchase of health plans that meet 
certain minimum enrollment and benefit requirements.
---------------------------------------------------------------------------
    In order to receive advance payment of the premium 
assistance credit, an eligible individual enrolls in a plan 
offered through an exchange and reports his or her income to 
the exchange. Based on the information provided to the 
exchange, the individual receives a premium assistance credit 
based on income and the Treasury pays the premium assistance 
credit amount directly to the insurance plan in which the 
individual is enrolled. The individual then pays to the plan in 
which he or she is enrolled the dollar difference between the 
premium tax credit amount and the total premium charged for the 
plan.\12\ Individuals who fail to pay all or part of the 
remaining premium amount are given a mandatory three-month 
grace period prior to an involuntary termination of their 
participation in the plan. Initial eligibility for the premium 
assistance credit is based on the individual's income for the 
taxable year ending two years prior to the enrollment period. 
Individuals (or couples) who experience a change in marital 
status or other household circumstance, experience a decrease 
in income of more than 20 percent, or receive unemployment 
insurance, may update eligibility information or request a 
redetermination of their tax credit eligibility. Excess advance 
payments may be subject to recapture.\13\
---------------------------------------------------------------------------
    \12\Although the credit is generally payable in advance directly to 
the insurer, individuals may choose to purchase health insurance out-
of-pocket and claim the credit at the end of the taxable year. The 
amount of the reduction in premium is required to be included with each 
bill sent to the individual.
    \13\Sec. 36B(f)(2).
---------------------------------------------------------------------------

Eligible individuals

    The premium assistance credit is available for individuals 
(single or joint filers) with household incomes between 100 and 
400 percent of the Federal poverty level (``FPL'') for the 
family size involved.\14\ Individuals who are eligible for 
certain other health insurance, including certain health 
insurance through an employer or a spouse's employer, may not 
be eligible for the credit. Household income is defined as the 
sum of: (1) the taxpayer's modified adjusted gross income, plus 
(2) the aggregate modified adjusted gross incomes of all other 
individuals taken into account in determining that taxpayer's 
family size (but only if such individuals are required to file 
a tax return for the taxable year). To be eligible for the 
premium assistance credit, taxpayers who are married (within 
the meaning of section 7703) must file a joint return. 
Individuals who are listed as dependents on a return are 
ineligible for the premium assistance credit.
---------------------------------------------------------------------------
    \14\Individuals who are lawfully present in the United States but 
are not eligible for Medicaid because of their immigration status are 
treated as having a household income equal to 100 percent of FPL (and 
thus eligible for the premium assistance credit) as long as their 
household income does not actually exceed 100 percent of FPL.
---------------------------------------------------------------------------

Calculation of the credit

    The premium assistance credit amount is determined based on 
the percentage of income the cost of premiums represents, 
rising from two percent of income for those at 100 percent of 
FPL to 9.5 percent of income for those at 400 percent of FPL. 
Beginning in 2014, the percentages of income are indexed to the 
excess of premium growth over income growth for the preceding 
calendar year. Beginning in 2018, if the aggregate amount of 
premium assistance credits and cost-sharing reductions\15\ 
exceeds 0.504 percent of the gross domestic product for that 
year, the percentage of income is also adjusted to reflect the 
excess (if any) of premium growth over the rate of growth in 
the consumer price index for the preceding calendar year. For 
purposes of calculating family size, individuals who are in the 
country illegally are not included.
---------------------------------------------------------------------------
    \15\As described in section 1402 of PPACA.
---------------------------------------------------------------------------
    Premium assistance credits are not available for months in 
which an individual has a free choice voucher (as defined in 
section 10108 of PPACA).

Qualified health plans

    In general, qualified health plans are those plans that are 
certified as being qualified by the Secretary of Health and 
Human Services (``HHS''), provide essential health benefits 
packages,\16\ are offered by a qualifying health insurance 
issuer, and comply with the regulations and requirements 
developed by the Secretary of HHS for exchange 
participation.\17\ For purposes of the premium assistance 
credit, however, catastrophic plans (as described in section 
1302(e) of PPACA) are not considered qualified health plans.
---------------------------------------------------------------------------
    \16\As defined in section 1302(a) of PPACA.
    \17\Section 1301 of PPACA.
---------------------------------------------------------------------------

Treatment of abortions

    Premium assistance credits, or any amounts that are 
attributable to them, cannot be used to pay for abortions for 
which Federal funding is prohibited. To prevent the premium 
assistance credit from being used for the cost of abortion 
coverage, section 1303 of PPACA requires that the portion of 
any premium attributable to the cost of abortion coverage be 
paid separately, either with a separate check or, in the case 
of payroll deductions, a separate deduction. Section 1303 
further requires that the separate payments be allocated to a 
segregated account under the health plan and that the cost of 
abortion services covered under the plan only be reimbursed 
from funds in the segregated account. Under preexisting law, 
this separate payment of premiums and segregation of the assets 
alone is not sufficient to treat abortion coverage as being 
offered under a separate health plan. Rather, there must also 
be a separate election to purchase the coverage of abortion and 
a separate election to purchase the portion of the plan that 
does not cover abortion.\18\
---------------------------------------------------------------------------
    \18\See Treas. Reg. sec. 54.9831-1(c)(3) for the rules for 
determining when limited excepted benefits are not an integral part of 
a group health plan.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
principles of the Hyde amendment, which generally precludes the 
use of Federal funds to be expended for any abortion (except 
where the life of the mother would be endangered unless an 
abortion is performed or where the pregnancy is the result of 
an act of rape or incest) to certain tax expenditures under the 
Internal Revenue Code. In the case of premium assistance 
credits, Federal outlays constitute most of the budget effect, 
and therefore it is proper to view the credits similarly to 
Federal spending programs already subject to the Hyde 
amendment. Given this, the Committee believes it is 
inappropriate for a premium assistance credit to be used for 
health plans that include abortion coverage.

                        EXPLANATION OF PROVISION

    The provision amends section 36B in three ways. First, it 
amends the definition of qualified health plan so that the 
definition excludes health plans that cover abortion. As a 
result, premium assistance credits may not be applied towards 
plans that offer such coverage.
    Second, the provision adds a new subparagraph to section 
36B stating that, despite the change to the definition of 
qualified health plan, individuals are not prohibited from 
purchasing separate abortion coverage or health plans that 
include abortion coverage, as long as premium assistance 
credits are not used to purchase the separate coverage or plan. 
Third, the provision adds a second new subparagraph to section 
36B explicitly stating that, despite the change to the 
definition of qualified health plan, non-Federal health 
insurance issuers (for example, private issuers that offer 
plans through an exchange) that offer qualified health plans 
are not prohibited from offering separate abortion coverage, or 
plans that have abortion coverage, as long as the premiums for 
such coverage are not paid for with premium assistance credits.
    For purposes of the provision, qualified health plans may 
cover excluded abortions and excluded abortion-related 
treatment.

                             EFFECTIVE DATE

    The provision applies to taxable years ending after 
December 31, 2013.

 C. Disallowance of Small Employer Health Insurance Expense Credit for 
Plan Which Includes Coverage for Abortion (Sec. 3 of the Bill and Sec. 
                            45R of the Bill)


                              PRESENT LAW

Small business employers eligible for the credit

    PPACA provides a tax credit for qualified small employers 
for nonelective contributions to purchase health insurance for 
their employees. A qualified small employer for this purpose 
generally is an employer with no more than 25 full-time 
equivalent employees (``FTEs'') employed during the employer's 
taxable year, and whose employees have annual full-time 
equivalent wages that average no more than $50,000. However, 
the full amount of the credit is available only to an employer 
with 10 or fewer FTEs and whose employees have average annual 
full-time equivalent wages from the employer of not more than 
$25,000. These wage limits are indexed to the Consumer Price 
Index for Urban Consumers (``CPI-U'') for years beginning in 
2014.
    An employer's FTEs are calculated by dividing the total 
hours worked by all employees during the employer's taxable 
year by 2080. For this purpose, the maximum number of hours 
that are counted for any single employee is 2080 (rounded down 
to the nearest whole number). Wages are defined in the same 
manner as under section 3121(a) (as determined for purposes of 
FICA taxes but without regard to the dollar limit for covered 
wages) and the average wage is determined by dividing the total 
wages paid by the small employer by the number of FTEs (rounded 
down to the nearest $1,000).
    The number of hours of service worked by, and wages paid 
to, a seasonal worker of an employer is not taken into account 
in determining the FTEs and average annual wages of the 
employer unless the worker works for the employer on more than 
120 days during the taxable year.
    The contributions must be provided under an arrangement 
that requires the eligible small employer to make a nonelective 
contribution on behalf of each employee who enrolls in certain 
defined qualifying health insurance offered to employees by the 
employer equal to a uniform percentage (not less than 50 
percent) of the premium cost of the qualifying health plan.
    The credit is not payable in advance to the taxpayer or 
refundable. Thus, the employer must pay the employees' premiums 
during the year and claim the credit at the end of the year on 
its income tax return. The credit is a general business credit, 
and may be carried back for one year and carried forward for 20 
years. The credit is available to offset tax liability under 
the alternative minimum tax.

Years the credit is available

    The credit is initially available for any taxable year of 
an employer beginning in 2010, 2011, 2012, or 2013. Qualifying 
health insurance for claiming the credit for this first phase 
of the credit is health insurance coverage within the meaning 
of section 9832, which is generally health insurance coverage 
purchased from an insurance company licensed under State law.
    For taxable years beginning in years after 2013, the credit 
is only available to a qualified small employer that purchases 
health insurance coverage for its employees through a State 
exchange and is only available for a maximum coverage period of 
two consecutive taxable years beginning with the first year in 
which the employer or any predecessor first offers one or more 
qualified plans to its employees through an exchange.
    The maximum two-year coverage period does not take into 
account any taxable years beginning before 2014. Thus a 
qualified small employer could potentially qualify for this 
credit for six taxable years, four years under the first phase 
and two years under the second phase.

Calculation of credit amount

    Only nonelective contributions by the employer are taken 
into account in calculating the credit. Therefore, any amount 
contributed pursuant to a salary reduction arrangement under a 
cafeteria plan within the meaning of section 125 is not treated 
as an employer contribution for purposes of this credit. The 
credit is equal to the lesser of the following two amounts 
multiplied by an applicable tax credit percentage: (1) the 
amount of contributions the employer made on behalf of the 
employees during the taxable year for the qualifying health 
coverage, and (2) the amount of contributions that the employer 
would have made during the taxable year if each employee had 
enrolled in coverage with a small business benchmark premium. 
As discussed above, this tax credit is only available if this 
uniform percentage is at least 50 percent.
    For the first phase of the credit (any taxable years 
beginning in 2010, 2011, 2012, or 2013), the applicable tax 
credit percentage is 35 percent. The benchmark premium is the 
average total premium cost in the small group market for 
employer-sponsored coverage in the employer's State. The 
premium and the benchmark premium vary based on the type of 
coverage provided to the employee (e.g., single or family).
    For taxable years beginning in years after 2013, the 
applicable tax credit percentage is 50 percent. The benchmark 
premium is the average premium cost in the small group market 
in the rating area in which the employee enrolls in coverage. 
The premium and the benchmark premium vary based on the type of 
coverage being provided to the employee (e.g., single or 
family).
    The credit is reduced for an employer with between 10 and 
25 FTEs. The amount of this reduction is equal to the amount of 
the credit (determined before any reduction) multiplied by a 
fraction, the numerator of which is the number of FTEs of the 
employer in excess of 10 and the denominator of which is 15. 
The credit is also reduced for an employer for whom the average 
wages per employee is between $25,000 and $50,000. The amount 
of this reduction is equal to the amount of the credit 
(determined before any reduction) multiplied by a fraction, the 
numerator of which is the average annual wages of the employer 
in excess of $25,000 and the denominator of which is $25,000. 
For an employer with both more than 10 FTEs and average annual 
wages in excess of $25,000, the reduction is the sum of the 
amounts of the two reductions.

Tax-exempt organizations as qualified small employers

    Any organization described in section 501(c) that is exempt 
under section 501(a) and otherwise qualifies for the small 
business tax credit is eligible to receive the credit. However, 
for tax-exempt organizations, the applicable percentage for the 
credit during the first phase of the credit (any taxable year 
beginning in 2010, 2011, 2012, or 2013) is limited to 25 
percent, and the applicable percentage for the credit during 
the second phase (taxable years beginning in years after 2013) 
is limited to 35 percent. The small business tax credit is 
otherwise calculated in the same manner for tax-exempt 
organizations that are qualified small employers as for all 
other qualified small employers. However, for tax-exempt 
organizations, instead of being a general business credit, the 
small business tax credit is a refundable tax credit limited to 
the amount of the payroll taxes of the employer during the 
calendar year in which the taxable year begins. For this 
purpose, payroll taxes of an employer means: (1) the amount of 
income tax required to be withheld from its employees' wages; 
(2) the amount of hospital insurance tax under section 3101(b) 
required to be withheld from its employees' wages; and (3) the 
amount of the hospital insurance tax under section 3111(b) 
imposed on the employer.

Special rules

    The employer is entitled to a deduction under section 162 
equal to the amount of the employer contribution minus the 
dollar amount of the credit.
    The employer is determined by applying the employer 
aggregations rules in section 414(b), (c), and (m). In 
addition, the definition of employee includes a leased employee 
within the meaning of section 414(n).
    Self-employed individuals, including partners and sole 
proprietors, two percent share-holders of an S Corporation, and 
five percent owners of the employer (within the meaning of 
section 416(i)(1)(B)(i)) are not treated as employees for 
purposes of this credit. There is also a special rule to 
prevent sole proprietorships from receiving the credit for the 
owner and their family members. Thus, no credit is available 
for any contribution to the purchase of health insurance for 
these individuals and these individuals are not taken into 
account in determining the number of FTEs or average full-time 
equivalent wages.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
principles of the Hyde amendment, which generally precludes the 
use of Federal funds to be expended for any abortion (except 
where the life of the mother would be endangered unless an 
abortion is performed or where the pregnancy is the result of 
an act of rape or incest) to certain tax expenditures under the 
Internal Revenue Code. In the case of small employer health 
insurance expense credits, Federal outlays constitute much of 
the budget effect, and therefore it is proper to view the 
credits similarly to Federal spending programs already subject 
to the Hyde amendment. Given this, the Committee believes that 
it is inappropriate for an employer to be eligible for the 
small employer health insurance tax credit on the basis of 
health insurance that includes abortion coverage.

                        EXPLANATION OF PROVISION

    Under the provision, health plans that include abortion 
coverage are not considered qualifying health plans for 
purposes of determining eligibility for the small employer 
health insurance tax credit. Thus, contributions by small 
employers toward the cost of health insurance premiums for 
plans that cover abortion are disregarded when determining 
whether the employer is eligible for the small employer health 
insurance tax credit.
    For purposes of the provision, qualified health plans may 
cover excluded abortions and excluded abortion-related 
treatment.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after date 
of enactment.

 D. Distributions From Certain Accounts and Arrangements Includible in 
                              Gross Income


1. Health flexible spending arrangements (sec. 4 of the bill and secs. 
        105(b) and 125 of the Code)

                              PRESENT LAW

Exclusion from income for employer-provided health coverage

    Section 106 generally provides that the value of coverage 
under an employer-provided health plan for employees (including 
retirees) and their dependents\19\ is excludible from gross 
income.\20\ The exclusion applies both to coverage under a 
self-funded health plan (self-insured coverage) and health 
insurance purchased from an insurance company. In addition, 
under section 105(b), any reimbursements under the health plan 
for incurred expense for medical care for employees (including 
retirees) and their dependents (such as when the plan pays the 
doctor and the hospital for an employee's surgery) generally 
are excludible from gross income. A similar rule excludes the 
value of coverage under an employer-provided health plan, and 
reimbursement for incurred expenses for medical care, from the 
employees' wages for payroll tax purposes.\21\
---------------------------------------------------------------------------
    \19\For purposes of employer sponsored coverage, the term 
dependents when used with respect to an individual (including an 
employee) is intended to include the individual's spouse, dependents 
(as defined in section 152, determined without regard to section 
152(b)(1), (b)(2), and (d)(1)(B)), and any child (as defined in section 
152(f)(1)) of the individual who as of the end of the taxable year has 
not attained age 27.
    \20\Health coverage provided to active members of the uniformed 
services, military retirees, and their dependents is excludable under 
section 134. That section provides an exclusion for ``qualified 
military benefits,'' defined as benefits received by reason of status 
or service as a member of the uniformed services and which were 
excludable from gross income on September 9, 1986, under any provision 
of law, regulation, or administrative practice then in effect.
    \21\Secs. 3121(a)(2), 3306(a)(2), and 3401(a)(20). Also see sec. 
3231(e)(1) for a similar rule with respect to compensation for purposes 
of Railroad Retirement Tax.
---------------------------------------------------------------------------
    Medical care for purposes of section 105(b) generally has 
the same meaning as for purposes of the deduction for medical 
expenses under section 213 except that medical care includes an 
amount paid for medicine or a drug only if such medicine or 
drug is insulin or is prescribed by a physician but does 
include prescribed drugs that are also available without a 
prescription. Medical care is defined as including amounts paid 
for the diagnosis, cure, mitigation, treatment, or prevention 
of disease, or for the purpose of affecting the structure or 
function of the body, and for certain transportation costs 
associated with such care. Operations or treatments affecting 
any portion of the body, including obstetric procedures, but 
excluding illegal procedures or treatments, are considered to 
be for the purpose of affecting the structure or function of 
the body, and thus constitute medical care.\22\ The costs 
associated with legal abortions are medical care under this 
definition.\23\
---------------------------------------------------------------------------
    \22\Treas. Reg. sec. 1.213-1(e).
    \23\Rev. Rul. 73-201, 1973-1 C.B. 140.
---------------------------------------------------------------------------

Requirements for a cafeteria plan

    If an employee receives a qualified benefit based on the 
employee's election between the qualified benefit and a taxable 
benefit under a cafeteria plan, the qualified benefit generally 
is not includible in gross income.\24\ Qualified benefits under 
a cafeteria plan are generally employer-provided benefits that 
are excludible from gross income under an express provision of 
the Code and include employer-provided coverage under a health 
plan. The one specified qualified benefit that is not 
excludible from gross income is group term life insurance in 
excess of the $50,000 limit.\25\ 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 results in gross income to the 
employee, regardless of what benefit is elected and when the 
election is made.\26\
---------------------------------------------------------------------------
    \24\Sec. 125(a).
    \25\Under section 79, employer-provided group term life insurance 
is only excludable from gross income to the extent not in excess of 
$50,000. Group term life insurance not in excess of the $50,000 limit 
is also a qualified benefit under a cafeteria plan.
    \26\Prop. Treas. Reg. sec. 1.125-1(b).
---------------------------------------------------------------------------
    A cafeteria plan is required to be a separate written plan 
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. Finally, a cafeteria plan must not 
provide for deferral of compensation, except as specifically 
permitted in sections 125(d)(2)(B), (C), or (D). Some employer-
provided benefits that are not includible in gross income under 
an express provision of the Code are explicitly not allowed in 
a cafeteria plan. These benefits are generally referred to as 
nonqualified benefits. Examples of nonqualified benefits 
include scholarships,\27\ employer-provided meals and 
lodging,\28\ educational assistance,\29\ and fringe 
benefits.\30\ A plan offering any nonqualified benefit is not a 
cafeteria plan.\31\
---------------------------------------------------------------------------
    \27\Sec. 117.
    \28\Sec. 119.
    \29\Sec. 127.
    \30\Sec. 132.
    \31\Prop. Treas. Reg. sec. 1.125-1(q). Long-term care services, 
contributions to Archer medical savings accounts, group term life 
insurance for an employee's spouse, child or dependent, and elective 
deferrals to section 403(b) plans are also nonqualified benefits.
---------------------------------------------------------------------------

Flexible spending arrangement under a cafeteria plan

    A flexible spending arrangement for medical expenses under 
a cafeteria plan (``health FSA'') is health coverage in the 
form of an unfunded 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 incurred 
expenses for medical care of the employee and the employee's 
dependents.\32\ In the case of a health FSA, the employee makes 
a choice under a cafeteria plan before the beginning of the 
coverage period between (1) receiving cash compensation, and 
(2) a reduction in salary\33\ equal to an amount not exceeding 
the maximum amount of reimbursement. Under a health FSA, the 
maximum amount of reimbursement must be available at all times 
during the coverage period (reduced by any reimbursements 
already made during the coverage period) even though salary 
reduction contributions are made ratably over the coverage 
period.\34\ The reimbursements for incurred expense for medical 
care under a health FSA are excludible from gross income under 
section 105(b). A health FSA is not required to reimburse all 
medical expenses within the definition of medical care for 
purposes of section 105(b). The employer can specify that only 
certain medical expenses are reimbursed.
---------------------------------------------------------------------------
    \32\Under Prop. Treas. Reg. sec. 1.125-5(b), a health FSA is 
generally distinguishable from other employer-provided health coverage 
offered under a cafeteria plan by the relationship between the value of 
the coverage for a year and the maximum amount of reimbursement 
reasonably available during the same period. A health FSA generally is 
defined as a benefit program that provides employees with coverage 
under which specific incurred medical care expenses may be reimbursed 
(subject to reimbursement maximums and other conditions) and the 
maximum amount of reimbursement reasonably available is less than 500 
percent of the value of such coverage.
    \33\Under section 125(i), for taxable years beginning after 
December 31, 2012, salary reduction contributions under a health FSA 
are not permitted to exceed $2,500.
    \34\Prop. Treas. Reg. sec. 125-5(d).
---------------------------------------------------------------------------
    Health FSAs are subject to the general requirements for 
cafeteria plans, including the requirement that the plan not 
provide deferred compensation. This requires that amounts 
remaining under a health FSA at the end of a plan year be 
forfeited by the employee (referred to as the ``use-it-or-lose-
it rule'').\35\ 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.\36\ A health FSA can also include employer flex-
credits, which are non-elective 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 
qualified benefits.\37\
---------------------------------------------------------------------------
    \35\Sec. 125(d)(2) and Prop. Treas. Reg. sec. 1.125-5(c).
    \36\Notice 2005-42, 2005-1 C.B. 1204 and Prop. Treas. Reg. sec. 
1.125-1(e).
    \37\Prop. Treas. Reg. sec. 1-125-5(b).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
principles of the Hyde amendment, which generally precludes the 
use of Federal funds to be expended for any abortion (except 
where the life of the mother would be endangered unless an 
abortion is performed or where the pregnancy is the result of 
an act of rape or incest) to certain tax expenditures under the 
Internal Revenue Code. Thus, the Committee does not believe 
that reimbursements from a health FSA under a cafeteria plan 
that may be attributable to salary reduction contributions that 
reimburse the medical expenses of an abortion should generally 
be tax-preferred and believes that such reimbursements should 
not be excludible from gross income.

                        EXPLANATION OF PROVISION

    Under the provision, any reimbursement from a health FSA 
under a cafeteria plan for the expenses incurred for an 
abortion (other than for excluded abortions and excluded 
abortion-related treatment) is includible in the gross income 
of the employee. However, the reimbursement does not cause the 
health FSA to fail to satisfy the requirements of section 125.

                             EFFECTIVE DATE

    The provision applies to expenses incurred with respect to 
taxable years beginning after date of enactment.

2. Health savings accounts and Archer medical savings accounts (sec. 4 
        of the bill and secs. 220 and 223 of the Code)

                              PRESENT LAW

Health savings account

    Present law provides that individuals with a high 
deductible health plan (and generally no other health plan) may 
establish and make tax-deductible contributions to a health 
savings account (``HSA'').\38\ An HSA is a tax-exempt account 
held by a trustee or custodian for the benefit of the 
individual. An HSA is subject to a condition that the 
individual is covered under a high deductible health plan 
(purchased either through the individual market or through an 
employer). The decision to create and fund an HSA is made on an 
individual-by-individual basis and does not require any action 
on the part of the employer.
---------------------------------------------------------------------------
    \38\An individual with other coverage in addition to a high 
deductible health plan is still eligible for an HSA if such other 
coverage is ``permitted insurance'' or ``permitted coverage.'' 
Permitted insurance is: (1) insurance if substantially all of the 
coverage provided under such insurance relates to (a) liabilities 
incurred under worker's compensation law, (b) tort liabilities, (c) 
liabilities relating to ownership or use of property (e.g., auto 
insurance), or (d) such other similar liabilities as the Secretary may 
prescribe by regulations; (2) insurance for a specified disease or 
illness; and (3) insurance that provides a fixed payment for 
hospitalization. Permitted coverage is coverage (whether provided 
through insurance or otherwise) for accidents, disability, dental care, 
vision care, or long-term care. With respect to coverage for years 
beginning after December 31, 2006, certain coverage under a Health FSA 
is disregarded in determining eligibility for an HSA.
---------------------------------------------------------------------------
    Subject to certain limitations, contributions made to an 
HSA by an employer, including contributions made through a 
cafeteria plan through salary reduction, are excludible from 
income (and from wages for payroll tax purposes). Contributions 
made by individuals are deductible for income tax purposes, 
regardless of whether the individuals itemize their deductions 
on their tax return (rather than claiming the standard 
deduction).
    For 2011, the maximum aggregate annual contribution that 
can be made to an HSA is $3,050 in the case of self-only 
coverage and $6,150 in the case of family coverage. The annual 
contribution limits are increased for individuals who have 
attained age 55 by the end of the taxable year (referred to as 
``catch-up contributions''). In the case of policyholders and 
covered spouses who are age 55 or older, the HSA annual 
contribution limit is greater than the otherwise applicable 
limit by $1,000 in 2011 and thereafter. Contributions, 
including catch-up contributions, cannot be made once an 
individual is enrolled in Medicare.
    A high deductible health plan is a health plan that has an 
annual deductible that is at least $1,200 for self-only 
coverage or $2,400 for family coverage for 2011 and that limits 
the sum of the annual deductible and other payments that the 
individual must make with respect to covered benefits to no 
more than $5,950 in the case of self-only coverage and $11,900 
in the case of family coverage for 2011.

Archer medical savings account

    An Archer medical savings account (``Archer MSA'') is also 
a tax-exempt trust or custodial account to which tax-deductible 
contributions may be made by individuals with a high deductible 
health plan.\39\ Archer MSAs provide tax benefits similar to, 
but generally not as favorable as, those provided by HSAs for 
individuals covered by high deductible health plans. The main 
differences include: (1) only self-employed individuals and 
employees of small employers are eligible to have an Archer 
MSA; (2) for Archer MSA purposes, a high deductible health plan 
is a health plan with (a) an annual deductible for 2011 of at 
least $2,050 and no more than $3,050 in the case of self-only 
coverage and at least $4,100 and no more than $6,050 in the 
case of family coverage and (b) maximum out-of pocket expenses 
for 2011 of no more than $4,100 in the case of self-only 
coverage and no more than $7,500 in the case of family 
coverage. After 2007, no new contributions can be made to 
Archer MSAs except by or on behalf of individuals who 
previously had made Archer MSA contributions and employees who 
are employed by a participating employer.
---------------------------------------------------------------------------
    \39\Sec. 220.
---------------------------------------------------------------------------

Tax treatment of distributions

            General rule
    Distributions from an HSA or Archer MSA that are used for 
qualified medical expenses are excludible from gross income. 
Distributions from an HSA or Archer MSA that are not used for 
qualified medical expenses are includible in gross income. An 
additional 20-percent tax is added for all HSA and Archer MSA 
distributions not used for qualified medical expenses. The 
additional 20-percent tax does not apply, however, if the 
distribution is made after death, disability, or attainment of 
age of Medicare eligibility (currently, age 65).
            Qualified medical expenses
    The definition of qualified medical expense generally means 
amounts paid for medical care as defined for purposes of the 
deduction for medical expenses under section 213 with the 
exception that insurance premiums are qualified medical 
expenses in only limited circumstances. Also qualified medical 
expense includes an amount paid for medicine or a drug (other 
than insulin) only if such medicine or drug is prescribed by a 
physician but does include prescribed drugs that are also 
available without a prescription.
    Medical care is defined for purposes of the deduction for 
medical expenses under section 213 as including amounts paid 
for the diagnosis, cure, mitigation, treatment, or prevention 
of disease, or for the purpose of affecting the structure or 
function of the body, and for certain transportation costs 
associated with such care. Operations or treatments affecting 
any portion of the body, including obstetric procedures, but 
excluding illegal procedures or treatments, are considered to 
be for the purpose of affecting the structure or function of 
the body, and thus constitute medical care.\40\ The costs 
associated with legal abortions are medical care under this 
definition.\41\
---------------------------------------------------------------------------
    \40\Treas. Reg. sec. 1.213-1(e).
    \41\Rev. Rul. 73-201, 1973-1 C.B. 140.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
principles of the Hyde amendment, which generally precludes the 
use of Federal funds to be expended for any abortion (except 
where the life of the mother would be endangered unless an 
abortion is performed or where the pregnancy is the result of 
an act of rape or incest) to certain tax expenditures under the 
Internal Revenue Code. Thus, the Committee does not believe 
that distributions from a taxpayer's funds in HSAs and Archer 
MSAs that are used to pay for an abortion should generally be 
tax-preferred and thus believes that such distributions should 
not be excludible from gross income.

                        EXPLANATION OF PROVISION

    Under the provision, a distribution from an HSA or Archer 
MSA used for the cost of an abortion (other than for excluded 
abortions and excluded abortion-related treatment) is 
includible in gross income. However, because the distribution 
is a qualified medical expense for purposes of the HSA and 
Archer MSA rules, the distribution is not subject to the 20-
percent additional tax applicable to distributions not used for 
qualified medical expenses.

                             EFFECTIVE DATE

    The provision applies to amounts paid from an HSA or Archer 
MSA with respect to taxable years beginning after date of 
enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 1232.
    The bill H.R. 1232, was ordered favorably reported, as 
amended, by a rollcall vote of 22 yeas to 14 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
 Mr. Camp......................        X   ........  .........   Mr. Levin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Johnson....................        X   ........  .........  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......  ........        X   .........
Mr. Davis......................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Boustany...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Heller.....................        X   ........  .........  Mr. Blumenauer...  ........        X   .........
Mr. Roskam.....................        X   ........  .........  Mr. Kind.........  ........        X   .........
Mr. Gerlach....................        X   ........  .........  Mr. Pascrell.....  ........  ........  .........
Mr. Price......................        X   ........  .........  Ms. Berkley......  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Crowley......  ........        X   .........
Mr. Smith......................        X   ........  .........
Mr. Schock.....................        X   ........  .........
Ms. Jenkins....................        X   ........  .........
Mr. Paulsen....................        X   ........  .........
Mr. Marchant...................        X   ........  .........
Mr. Berg.......................        X   ........  .........
Ms. Black......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          Votes on Amendments

    The Crowley Amendment to the Chairman's Amendment in the 
Nature of a Substitute to H.R. 1232 failed to pass by a 
rollcall vote of 14 yeas to 22 nays (with a quorum being 
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Camp.......................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Johnson....................  ........        X   .........  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......        X   ........  .........
Mr. Davis......................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Reichert...................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Boustany...................  ........        X   .........  Mr. Larson.......        X   ........  .........
Mr. Heller.....................  ........        X   .........  Mr. Blumenauer...        X   ........  .........
Mr. Roskam.....................  ........        X   .........  Mr. Kind.........        X   ........  .........
Mr. Gerlach....................  ........        X   .........  Mr. Pascrell.....  ........  ........  .........
Mr. Price......................  ........        X   .........  Ms. Berkley......        X   ........  .........
Mr. Buchanan...................  ........        X   .........  Mr. Crowley......        X   ........  .........
Mr. Smith......................  ........        X   .........
Mr. Schock.....................  ........        X   .........
Ms. Jenkins....................  ........        X   .........
Mr. Paulsen....................  ........        X   .........
Mr. Marchant...................  ........        X   .........
Mr. Berg.......................  ........        X   .........
Ms. Black......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL


               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. 1232 as reported.
    The bill, as reported, is estimated to have the following 
effects on budget receipts for fiscal years 2011-2021:


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 states further that the bill involves no new or 
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 CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 5, 2011.
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. 1232, a bill to 
amend the Internal Revenue Code of 1986 to eliminate certain 
tax benefits relating to abortion.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 1232--A bill to amend the Internal Revenue Code of 1986 to 
        eliminate certain tax benefits relating to abortion

    H.R. 1232 would amend the Internal Revenue Code to remove 
certain tax benefits relating to abortion, except in cases of 
rape, incest, or when the life of the pregnant woman is in 
danger. The bill would not allow the costs of abortion 
services, other than under the excepted circumstances mentioned 
above, to count as a deductible medical expense in determining 
income tax liability. The bill would change the definition of a 
``qualified health plan'' to exclude plans that offer coverage 
of abortion services, other than under the excepted 
circumstances. In addition, health insurance tax credits for 
small employers would not be available for health insurance 
plans that include such coverage. The bill also would require 
any reimbursements from health flexible spending arrangements 
and distributions by Archer medical savings accounts and health 
savings accounts for abortion services to be included as gross 
income.
    Enacting H.R. 1232 could affect direct spending or 
revenues; therefore, pay-as-you-go procedures apply. According 
to the staff of the Joint Committee on Taxation (JCT), the bill 
would have negligible effects on tax revenues. Similarly, CBO 
estimates that any effects on direct spending would be 
negligible for each year and over the 2011-2021 period.
    JCT has determined that H.R. 1232 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.

                    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 a result of the Committee's 
review of the tax provisions of H.R. 3, as ordered reported by 
the Committee on the Judiciary, 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 which 
any measure 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 revenue provisions of 
the bill do not contain Federal mandates on the private sector. 
The Committee has determined that the revenue provisions of the 
bill do 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, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses, within the meaning of the rule.

  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.

         Changes in Existing Law Made by the 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 A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart C--Refundable Credits

           *       *       *       *       *       *       *



SEC. 36B. REFUNDABLE CREDIT FOR COVERAGE UNDER A QUALIFIED HEALTH PLAN.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definition and Rules Relating to Applicable Taxpayers, 
Coverage Months, and Qualified Health Plan.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Definitions and other rules.--
                  (A) Qualified health plan.--The term 
                ``qualified health plan'' has the meaning given 
                such term by section 1301(a) of the Patient 
                Protection and Affordable Care Act, except that 
                such term shall not include a qualified health 
                plan which is a catastrophic plan described in 
                section 1302(e) of such Act or any health plan 
                that includes coverage for abortions (other 
                than any abortion or treatment described in 
                section 213(g)(2)).

           *       *       *       *       *       *       *

                  (C) Separate abortion coverage or plan 
                allowed.--
                          (i) Option to purchase separate 
                        coverage or plan.--Nothing in 
                        subparagraph (A) shall be construed as 
                        prohibiting any individual from 
                        purchasing separate coverage for 
                        abortions described in such 
                        subparagraph, or a health plan that 
                        includes such abortions, so long as no 
                        credit is allowed under this section 
                        with respect to the premiums for such 
                        coverage or plan.
                          (ii) Option to offer coverage or 
                        plan.--Nothing in subparagraph (A) 
                        shall restrict any non-Federal health 
                        insurance issuer offering a health plan 
                        from offering separate coverage for 
                        abortions described in such 
                        subparagraph, or a plan that includes 
                        such abortions, so long as premiums for 
                        such separate coverage or plan are not 
                        paid for with any amount attributable 
                        to the credit allowed under this 
                        section (or the amount of any advance 
                        payment of the credit under section 
                        1412 of the Patient Protection and 
                        Affordable Care Act).

           *       *       *       *       *       *       *


Subpart D--Business Related Credits

           *       *       *       *       *       *       *


SEC. 45R. EMPLOYEE HEALTH INSURANCE EXPENSES OF SMALL EMPLOYERS.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Insurance Definitions.--[Any term]   
          (1) In general.--Any term used in this section which 
        is also used in the Public Health Service Act or 
        subtitle A of title I of the Patient Protection and 
        Affordable Care Act shall have the meaning given such 
        term by such Act or subtitle.
          (2) Exclusion of health plans including coverage for 
        abortion.--The terms ``qualified health plan'' and 
        ``health insurance coverage'' shall not include any 
        health plan or benefit that includes coverage for 
        abortions (other than any abortion or treatment 
        described in section 213(g)(2)).

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 125. CAFETERIA PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Abortion Reimbursement From Flexible Spending Arrangement 
Included in Gross Income.--Notwithstanding section 105(b), 
gross income shall include any reimbursement for expenses 
incurred for an abortion (other than any abortion or treatment 
described in section 213(g)(2)) from a health flexible spending 
arrangement provided under a cafeteria plan. Such reimbursement 
shall not fail to be a qualified benefit for purposes of this 
section merely as a result of such inclusion in gross income.
  [(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.

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 213. MEDICAL, DENTAL, ETC., EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Amounts Paid for Abortion Not Taken Into Account.--
          (1) In general.--An amount paid during the taxable 
        year for an abortion shall not be taken into account 
        under subsection (a).
          (2) Exceptions.--Paragraph (1) shall not apply to--
                  (A) an abortion--
                          (i) in the case of a pregnancy that 
                        is the result of an act of rape or 
                        incest, or
                          (ii) in the case where a woman 
                        suffers from a physical disorder, 
                        physical injury, or physical illness 
                        that would, as certified by a 
                        physician, place the woman in danger of 
                        death unless an abortion is performed, 
                        including a life-endangering physical 
                        condition caused by or arising from the 
                        pregnancy, and
                  (B) the treatment of any infection, injury, 
                disease, or disorder that has been caused by or 
                exacerbated by the performance of an abortion.

           *       *       *       *       *       *       *


SEC. 220. ARCHER MSAS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Tax Treatment of Distributions.--
          (1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of an Archer MSA which 
        is used exclusively to pay qualified medical expenses 
        of any account holder shall not be includible in gross 
        income, except that any such amount used to pay for an 
        abortion (other than any abortion or treatment 
        described in section 213(g)(2)) shall be included in 
        the gross income of such holder.

           *       *       *       *       *       *       *


SEC. 223. HEALTH SAVINGS ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Tax Treatment of Distributions.--
          (1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a health savings 
        account which is used exclusively to pay qualified 
        medical expenses of any account beneficiary shall not 
        be includible in gross income, except that any such 
        amount used to pay for an abortion (other than any 
        abortion or treatment described in section 213(g)(2)) 
        shall be included in the gross income of such 
        beneficiary.

           *       *       *       *       *       *       *


                    DISSENTING AND ADDITIONAL VIEWS

                              ----------                              


                            DISSENTING VIEWS

    We want the record to show that we strongly oppose H.R. 
1232, a bill to amend the Internal Revenue Code of 1986 to 
eliminate certain tax benefits relating to abortion.
    Our Republican colleagues on Ways and Means assert that 
H.R. 1232 represents the mere codification of the annual Hyde 
Amendment. The Hyde Amendment prohibits the use of federal 
funds to pay for abortions. However, H.R. 1232 goes well beyond 
the Hyde Amendment. For the first time, the bill would equate 
health expenses that are the subject of preferential tax 
treatment with federal spending under programs such as 
Medicaid. H.R. 1232 is a tax increase on women and families 
with respect to one of the most personal and private decisions 
that they will ever face.
    H.R. 1232 is very injurious because of its effect on middle 
class and lower income women and families who do not have an 
employer offer of health insurance coverage. This is because 
H.R. 1232 would deny the use of premium tax credits that are 
available under the Affordable Care Act for women and families 
under 400 percent of the poverty line ($89,400 in 2011 for a 
family of four) if the coverage includes abortion services. If 
this bill becomes law, the over-riding economic incentive for 
these women and families will be to choose coverage that does 
not include abortion services--there is no doubt about this 
conclusion. It is possible that, if H.R. 1232 is enacted, 
insurance companies would respond in the individual market by 
solely offering coverage that does not include abortion 
services given the value of the premium tax credits. The 
majority observes that insurance companies may offer 
``unplanned pregnancy only'' coverage policies and that nothing 
in their bill would prevent a family from purchasing this 
additional coverage. This offers no practical assistance to 
middle class and lower income women and families. It is highly 
questionable that women and families would purchase coverage 
for unplanned pregnancies. Indeed, the likelihood of an 
insurance company even offering such coverage is also highly 
questionable--in fact, there is no evidence that this market 
even exists--and the likelihood that any woman or family would 
buy such coverage is even more remote.
    We are also extremely concerned that H.R. 1232 represents 
an attack on the Affordable Care Act and the compromise 
contained in the Act on health coverage and abortion services. 
The Affordable Care Act is consistent with long standing 
federal law by prohibiting the use of federal funds to pay for 
abortions except under certain circumstances. The Act requires 
two separate premium payments for those women and families who 
receive premium tax credits and choose coverage that includes 
abortion services. The Affordable Care Act is clear--no portion 
of premium tax credits may be used to pay for the portion of 
comprehensive health coverage that is purchased on state 
exchanges that relates to abortion services. The Act recognizes 
that the likelihood that insurers will offer unplanned 
pregnancy coverage is remote and the likelihood of purchase of 
such policies by women and families is even more remote. H.R. 
1232, however, would require that insurers offer these 
improbable policies as the only source of coverage for middle 
class and lower income women and families.
    H.R. 1232 is also injurious because it creates a 
significant divide between the coverage that large employers 
are able to offer their employees and the coverage that will be 
available to employees of smaller employers. This is because 
H.R. 1232 would deny a small employer the ability to use tax 
credits created by the Affordable Care Act to provide employee 
health coverage if the coverage includes abortion services. 
H.R. 1232 contains no similar restrictions on medium and large 
employers. The burden is placed only on the smallest employers. 
If this bill is enacted, the over-riding economic incentive of 
small employers will be to choose coverage for their employees 
that does not include abortion services--there is no doubt 
about this conclusion. It is even possible that, if H.R. 1232 
is enacted, insurance companies would respond in the small 
group market by solely offering coverage that does not include 
abortion services given the value of the small business tax 
credits. There is no doubt that women who work for small 
businesses would lose access to the same type of comprehensive 
coverage they currently have today and that will remain 
available to women who work for medium and larger employers.
    H.R. 1232 would certainly result in a tax increase for 
women and families when they are facing an extremely private 
and personal decision. The majority hides behind the fact that 
the Joint Committee on Taxation estimates the revenue impact of 
H.R. 1232 to be negligible. The fact behind this revenue 
estimate is that the Joint Committee on Taxation believes that 
increased tax liabilities on the part of women and families 
will be offset by the increased tax benefits when more 
pregnancies are carried to term. However, for any one 
particular woman or family, the fact is that H.R. 1232 would 
deny the itemized deduction for medical expenses in excess of 
7.5 percent of adjusted gross income (10 percent in 2013) for 
expenses that relate to an abortion. For any one particular 
woman or family, the fact is that H.R. 1232 would treat as 
taxable any distribution from a health savings account (HSA), 
Archer medical savings account (MSA), or health flexible 
spending account (FSA) that is used to pay for abortion 
expenses. These clearly are tax increases.
    Mr. Crowley of New York offered an amendment during the 
Committee's markup of H.R. 1232 that would have prevented the 
tax provisions of the bill from taking effect if the tax 
liability of any one woman, family, or small business would be 
increased. As the majority noted during the markup, the effect 
of the amendment would have been to eliminate the tax 
provisions of the bill. The amendment was defeated along a 
party-line vote.
    The majority suggests that if H.R. 1232 is enacted, 
enforcement of the law by the Internal Revenue Service would 
result in minimal intrusion on women and families. This 
assertion is highly suspect. While existing tax forms and 
instructions could be tailored so that a woman or family does 
not have to report whether there has been an abortion and the 
amount of the associated expense, there is nothing in H.R. 1232 
that mandates such an approach. Further, the Internal Revenue 
Service would be required to use the tools currently available 
as part of its tax enforcement duties, including the Internal 
Revenue Service's ability to audit taxpayers, to determine 
whether tax benefits had properly or improperly been claimed 
with respect to expenses related to abortion services.
    We are extremely concerned with the direction that the 
majority is taking with H.R. 1232. What further restrictions on 
medical procedures lie ahead? For example, will tomorrow's 
legislation seek to restrict tax benefits with respect to 
procedures that involve stem cells? Will restrictions be placed 
on an employer's deduction for employee health coverage if 
abortion services are covered? Will similar restrictions be 
placed on the employee's exclusion of the value of such 
coverage from income? Will medical providers and insurers be 
denied deductions with respect to their business expenses that 
involve abortions?
    We are also extremely concerned that H.R. 1232 does not 
make an exception for a woman where continuing her pregnancy 
would result in severe and long-lasting damage to her health. 
The abortion exceptions that are allowed for in H.R. 1232 are 
extremely limited and do not apply to situations in which a 
woman's health is endangered. For example, a woman who is 
diagnosed with cancer and in need of chemotherapy or other 
treatments that are incompatible with a pregnancy would not 
qualify for an exception under H.R. 1232.
    For the reasons listed above, we strongly oppose H.R. 1232. 
This bill not only represents an unprecedented move down a path 
that takes the Committee's jurisdiction squarely into an 
extremely private and personal decision that a woman and her 
family may have to make--it would also increase taxes on women 
and families during that difficult time.
                                   Sander M. Levin.
                                   Charles B. Rangel.
                                   Fortney Pete Stark.
                                   Jim McDermott.
                                   John Lewis.
                                   Richard E. Neal.
                                   Xavier Becerra.
                                   Lloyd Doggett.
                                   Mike Thompson.
                                   John B. Larson.
                                   Earl Blumenauer.
                                   Ron Kind.
                                   Bill Pascrell, Jr.
                                   Shelley Berkley.
                                   Joseph Crowley.

           ADDITIONAL VIEWS OF CONGRESSMAN BILL PASCRELL, JR.

    Since I was first elected to Congress, I have opposed the 
federal funding of abortion, and I support the Hyde amendment's 
prohibitions. During last year's debate over the Affordable 
Care Act, I worked closely with Members on both sides of the 
aisle to craft a careful compromise that would ensure 
affordable access to health insurance while maintaining this 
federal prohibition.
    The restrictions on abortion in H.R. 1232 go far beyond 
this compromise. Abortion is an intensely personal decision, 
and women should be able to make this decision in consultation 
with their families, their faith, and with their health 
professionals. I believe that H.R. 1232 will unnecessarily pull 
the Internal Revenue Service into the role of determining 
women's healthcare choices. I am not comfortable with such an 
increased reach of government into the constitutionally 
protected choices of our citizens.
    Additionally, should H.R. 1232 become law, not only would 
it increase taxes on the middle class, but participants in 
state-based exchanges, who would be disproportionately lower 
income, will likely lose access completely to health plans that 
provide abortion coverage. Women have the right to choose a 
plan that covers this legal procedure.
    Using the tax code in the way proposed by this bill will 
set a dangerous precedent. As Members of the Ways and Means 
Committee, we should be acutely aware of the unintended 
consequence that can occur when we use the code as a tool to 
enact a political agenda.
    During the Committee's Markup of H.R. 1232, I missed the 
two roll call votes of the day. Had I been present I would have 
voted YEA on Mr. Crowley's amendment to protect the middle 
class from a tax increase. Additionally, had I been present I 
would have voted NAY on reporting H.R. 1232 favorably.

                                                 Bill Pascrell, Jr.

                                  
