[House Report 114-627]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-627
======================================================================
HEALTH CARE SECURITY ACT OF 2016
_______
June 17, 2016.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 5445]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5445) to amend the Internal Revenue Code of 1986 to
improve the rules with respect to health savings accounts,
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. Allow Both Spouses to Make Catch-Up Contributions to
the Same Health Savings Account (sec. 2 of the bill
and sec. 223 of the Code).......................... 4
B. Special Rule for Certain Medical Expenses Incurred
Before Establishment of Health Savings Account
(sec. 3 of the bill and sec. 223 of the Code)...... 5
C. Maximum Contribution Limit to HSA Increased to
Amount of Deductible and Out-of-Pocket Limitation
(sec. 4 of the bill and sec. 223 of the Code)...... 6
III. VOTES OF THE COMMITTEE...........................................8
IV. BUDGET EFFECTS OF THE BILL.......................................8
A. Committee Estimate of Budgetary Effects............. 8
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 10
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 10
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......13
A. Committee Oversight Findings and Recommendations.... 13
B. Statement of General Performance Goals and
Objectives......................................... 13
C. Information Relating to Unfunded Mandates........... 13
D. Applicability of House Rule XXI 5(b)................ 13
E. Tax Complexity Analysis............................. 13
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 14
G. Duplication of Federal Programs..................... 14
H. Disclosure of Directed Rule Makings................. 14
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........14
A. Text of Existing Law Amended or Repealed by the
Bill, as Reported.................................. 14
B. Changes in Existing Law Proposed by the Bill, as
Reported........................................... 23
VII. DISSENTING VIEWS................................................34
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Health Care Security Act of 2016''.
SEC. 2. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS TO THE SAME
HEALTH SAVINGS ACCOUNT.
(a) In General.--Section 223(b)(5) of the Internal Revenue Code of
1986 is amended to read as follows:
``(5) Special rule for married individuals with family
coverage.--
``(A) In general.--In the case of individuals who are
married to each other, if both spouses are eligible
individuals and either spouse has family coverage under
a high deductible health plan as of the first day of
any month--
``(i) the limitation under paragraph (1)
shall be applied by not taking into account any
other high deductible health plan coverage of
either spouse (and if such spouses both have
family coverage under separate high deductible
health plans, only one such coverage shall be
taken into account),
``(ii) such limitation (after application of
clause (i)) shall be reduced by the aggregate
amount paid to Archer MSAs of such spouses for
the taxable year, and
``(iii) such limitation (after application of
clauses (i) and (ii)) shall be divided equally
between such spouses unless they agree on a
different division.
``(B) Treatment of additional contribution amounts.--
If both spouses referred to in subparagraph (A) have
attained age 55 before the close of the taxable year,
the limitation referred to in subparagraph (A)(iii)
which is subject to division between the spouses shall
include the additional contribution amounts determined
under paragraph (3) for both spouses. In any other
case, any additional contribution amount determined
under paragraph (3) shall not be taken into account
under subparagraph (A)(iii) and shall not be subject to
division between the spouses.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2016.
SEC. 3. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE
ESTABLISHMENT OF HEALTH SAVINGS ACCOUNT.
(a) In General.--Section 223(d)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(D) Treatment of certain medical expenses incurred
before establishment of account.--If a health savings
account is established during the 60-day period
beginning on the date that coverage of the account
beneficiary under a high deductible health plan begins,
then, solely for purposes of determining whether an
amount paid is used for a qualified medical expense,
such account shall be treated as having been
established on the date that such coverage begins.''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to coverage beginning after December 31, 2016.
SEC. 4. MAXIMUM CONTRIBUTION LIMIT TO HEALTH SAVINGS ACCOUNT INCREASED
TO AMOUNT OF DEDUCTIBLE AND OUT-OF-POCKET
LIMITATION.
(a) Self-Only Coverage.--Section 223(b)(2)(A) of the Internal Revenue
Code of 1986 is amended by striking ``$2,250'' and inserting ``the
amount in effect under subsection (c)(2)(A)(ii)(I)''.
(b) Family Coverage.--Section 223(b)(2)(B) of such Code is amended by
striking ``$4,500'' and inserting ``the amount in effect under
subsection (c)(2)(A)(ii)(II)''.
(c) Conforming Amendments.--Section 223(g)(1) of such Code is
amended--
(1) by striking ``subsections (b)(2) and'' both places it
appears and inserting ``subsection'', and
(2) by striking ``determined by'' in subparagraph (B) thereof
and all that follows through ```calendar year 2003'.'' and
inserting ``determined by substituting `calendar year 2003' for
`calendar year 1992' in subparagraph (B) thereof.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2016.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill H.R. 5445, as reported by the Committee on Ways
and Means, provides for various improvements to Health Savings
Accounts (``HSAs'') in order to make them more attractive to
various populations of consumers.
B. Background and Need for Legislation
According to a 2015 census conducted by America's Health
Insurance Plans (AHIP), as of January 2015, 19.7 million people
were covered by a high deductible health plan (HDHP) with an
HSA, a 2.3 million-person increase from 2014 levels. These
pairings are an increasingly popular option for workers--only 4
percent of worker were enrolled in such coverage in 2005
compared to 24 percent in 2015--and show no signs of slowing.
According to a survey conducted by PricewaterhouseCoopers,
``the percentage of employers offering only high-deductible
plans for employees has nearly doubled since 2012.''
HSAs and other consumer-directed health products encourage
good health and health care policy. By encouraging individuals
to plan, shop, and save for their own health care needs,
patients have more control over their own health care.
C. Legislative History
Background
H.R. 5445 was introduced on June 10, 2016, and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 5445, the
Health Care Security Act of 2016, on June 15, 2016, and ordered
the bill, as amended, favorably reported (with a quorum being
present).
Committee hearings
Both the policy issues surrounding HSAs and their impact on
health care have been discussed at two Ways and Means hearings
during the 114th Congress:
Full Committee Hearing on the Tax Treatment
of Health Care (April 14, 2016);
Subcommittee on Health Member Day Hearing on
Tax-Related Proposals to Improve Health Care (May 17,
2016).
II. EXPLANATION OF THE BILL
A. Allow Both Spouses to Make Catch-Up Contributions to the Same Health
Savings Account (sec. 2 of the bill and sec. 223 of the Code)
PRESENT LAW
An individual with a high deductible health plan and no
other health plan (other than a plan that provides certain
permitted insurance or permitted coverage) may establish a
health savings account (``HSA''). Subject to limits,
contributions to an HSA made by or on behalf of an eligible
individual are deductible in determining adjusted gross income
of the individual (that is, an ``above-the-line'' deduction).
Contributions to an HSA by an employer for an employee
(including salary reduction contributions made through a
cafeteria plan) are excludible from income and from wages for
employment tax purposes. Distributions from an HSA for
qualified medical expenses are not includible in gross income.
HSA contributions for a year are subject to basic dollar
limits that are also adjusted annually as needed to reflect
annual cost-of-living increases. For 2016, the basic limit on
contributions that can be made to an HSA for a year is $3,350
in the case of self-only coverage and $6,750 in the case of
family coverage.\1\ For 2017, the amount is $3,400 in the case
of self-only coverage and $6,750 (the same as 2016) in the case
of family coverage. The basic contribution limits are increased
by $1,000 for an eligible individual who has attained age 55 by
the end of the taxable year (referred to as ``catch-up
contributions'').\2\ All HSA contributions are aggregated for
purposes of the contribution limits.\3\ The annual HSA
contribution limit for an individual is generally the sum of
the limits determined separately for each month (that is, 1/12
of the limit for the year, including the catch-up limit, if
applicable), based on the individual's status and health plan
coverage as of the first day of the month.\4\
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\1\Under section 4973, an excise tax applies to contributions in
excess of the maximum contribution amount for the HSA. The excise tax
generally is equal to six percent of the cumulative amount of excess
contributions that are not distributed from the HSA.
\2\Contributions, including catch-up contributions, cannot be made
once an individual is enrolled in Medicare.
\3\In addition, contributions to Archer MSAs under section 220
reduce the annual HSA contribution limit.
\4\Under a special rule, an individual who is an eligible
individual during the last month of a taxable year is treated as having
been an eligible individual for every month in the taxable year for
purposes of computing the annual limit. Thus, the individual may
contribute the maximum annual amount. However, if the individual ceases
to be an eligible individual within a certain period, contributions
that could not otherwise have been made are generally includible in
income and are subject to a 10-percent additional tax.
---------------------------------------------------------------------------
If eligible individuals are married to each other and
either spouse has family coverage, both spouses are treated as
having only family coverage, so that the contribution limit for
family coverage applies. The contribution limit (without regard
to any catch-up contribution amounts) is divided equally
between the spouses unless they agree on a different division.
If both spouses of a married couple are eligible
individuals, each may contribute to an HSA, but they cannot
have a joint HSA.\5\ Under the rule described above, however,
the spouses may divide their basic contribution limit for the
year by allocating the entire amount to one spouse to be
contributed to that spouse's HSA.\6\ This rule does not apply
to catch-up contribution amounts. Thus, if both spouses are at
least age 55 and eligible to make catch-up contributions, each
must make the catch-up contribution to his or her own HSA.\7\
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\5\Notice 2004-50, 2004-2 C.B. 196, Q&A-63.
\6\Notice 2004-50, Q&A-32. Funds from that HSA can be used to pay
qualified medical expenses for either spouse on a tax-free basis.
Notice 2004-50, Q&A-36.
\7\Notice 2008-59, 2008-2 C.B. 123, Q&A-22.
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REASONS FOR CHANGE
The Committee continues to believe that high deductible
health plans and the related HSAs will help reduce health care
costs. The Committee has identified certain cases where it
believes that the operation of HSAs can be improved. One such
case involves the present-law obstacle that prevents both
otherwise eligible spouses from making catch-up contributions
if they have only one HSA account. The Committee believes the
efficiency of HSAs could be improved by allowing both eligible
spouses to make catch up contributions to a single HSA, rather
than the present law requirement that they each must have their
own HSA in order to make catch-up contributions.
EXPLANATION OF PROVISION
Under the provision, if both spouses of a married couple
are eligible for catch-up contributions and either has family
coverage, the annual contribution limit that can be divided
between them includes catch-up contribution amounts of both
spouses. Thus, for example, the spouses can agree that their
combined basic and catch-up contribution amounts are allocated
to one spouse to be contributed to that spouse's HSA. In other
cases, as under present law, a spouse's catch-up contribution
amount is not eligible for division between the spouses; the
catch-up contribution must be made to the HSA of that spouse.
EFFECTIVE DATE
The provision applies for taxable years beginning after
December 31, 2016.
B. Special Rule for Certain Medical Expenses Incurred Before
Establishment of Health Savings Account (sec. 3 of the bill and sec.
223 of the Code)
PRESENT LAW
Distributions from an HSA for qualified medical expenses
are not includible in gross income. Distributions from an HSA
that are not used for qualified medical expenses are includible
in gross income and are subject to an additional tax of 20
percent. The 20-percent additional tax does not apply if the
distribution is made after death, disability, or the individual
attains the age of Medicare eligibility (that is, age 65).
In order for a distribution from an HSA to be excludible as
a payment for a qualified medical expense, the medical expense
must be incurred on or after the date that the HSA is
established.\8\ Thus, a distribution from an HSA is not
excludible as a payment for a qualified medical expense if the
medical expense is incurred after a taxpayer enrolls in a high
deductible health plan but before the taxpayer establishes an
HSA.
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\8\Q&A-26 of Notice 2004-2, 2004-1 C.B. 269.
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REASONS FOR CHANGE
The Committee has identified certain cases where it
believes that the operation of HSAs can be improved. One such
case involves the typical lag between obtaining coverage under
a high deductible health plan and the establishment of an HSA.
Recognizing this lag, the Committee believes it is appropriate
to allow medical expenses incurred after coverage is obtained
under a high deductible health plan but prior to the
establishment of the HSA to be paid for from the HSA and to be
excludible from income, provided the HSA is established within
60 days of obtaining coverage under a high deductible health
plan.
EXPLANATION OF PROVISION
Under the provision, if an HSA is established during the
60-day period beginning on the date that an individual's
coverage under a high deductible health plan begins, then the
HSA is treated as having been established on the date coverage
under the high deductible health plan begins for purposes of
determining if an expense incurred is a qualified medical
expense. Thus, if a taxpayer establishes an HSA within 60 days
of the date that the taxpayer's coverage under a high
deductible health plan begins, any distribution from an HSA
used as a payment for a medical expense incurred during that
60-day period after the high deductible health plan coverage
began is excludible from gross income as a payment for a
qualified medical expense even though the expense was incurred
before the date that the HSA was established.
EFFECTIVE DATE
The provision applies with respect to coverage beginning
after December 31, 2016.
C. Maximum Contribution Limit to HSA Increased to Amount of Deductible
and Out-of-Pocket Limitation (sec. 4 of the bill and sec. 223 of the
Code)
PRESENT LAW
HSA contributions for a year are subject to basic dollar
limits that are adjusted annually as needed to reflect annual
cost-of-living increases. For 2016, the basic limit on
contributions that can be made to an HSA for a year is $3,350
in the case of self-only coverage and $6,750 in the case of
family coverage.\9\ For 2017, the amount is $3,400 in the case
of self-only coverage and $6,750 (the same as 2016) in the case
of family coverage. The basic contribution limits are increased
by $1,000 for an eligible individual who has attained age 55 by
the end of the taxable year (referred to as ``catch-up
contributions'').\10\ All HSA contributions are aggregated for
purposes of the contribution limits.\11\ The annual HSA
contribution limit for an individual is generally the sum of
the limits determined separately for each month (that is, 1/12
of the limit for the year, including the catch-up limit, if
applicable), based on the individual's status and health plan
coverage as of the first day of the month.\12\
---------------------------------------------------------------------------
\9\Under section 4973, an excise tax applies to contributions in
excess of the maximum contribution amount for the HSA. The excise tax
generally is equal to six percent of the cumulative amount of excess
contributions that are not distributed from the HSA.
\10\Contributions, including catch-up contributions, cannot be made
once an individual is enrolled in Medicare.
\11\In addition, contributions to Archer MSAs under section 220
reduce the annual HSA contribution limit.
\12\Under a special rule, an individual who is an eligible
individual during the last month of a taxable year is treated as having
been an eligible individual for every month in the taxable year for
purposes of computing the annual limit. Thus, the individual may
contribute the maximum annual amount. However, if the individual ceases
to be an eligible individual within a certain period, contributions
that could not otherwise have been made are generally includible in
income and are subject to a 10-percent additional tax.
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A minimum annual deductible amount and a maximum on the sum
of the annual deductible and out-of-pocket expenses (such as
co-pays) apply to high deductible health plans, which are
adjusted annually as needed to reflect cost-of-living
increases. For 2016, the minimum deductible is $1,300 in the
case of self-only coverage and $2,600 in the case of family
coverage. In addition, for 2016, the sum of the deductible and
out-of-pocket expenses must be no more than $6,550 in the case
of self-only coverage and no more than $13,100 in the case of
family coverage. The same amounts apply for 2017.
REASONS FOR CHANGE
The Committee continues to believe that high deductible
health plans and the related HSAs will help reduce health care
costs. In furtherance of that goal, increasing the limits on
HSA contributions will encourage more people to enroll in high
deductible health plans and contribute to HSAs.
EXPLANATION OF PROVISION
The provision increases the basic limit on aggregate HSA
contributions for a year to equal the maximum on the sum of the
annual deductible and out-of-pocket expenses permitted under a
high deductible health plan. Thus, for 2017, the basic limit is
$6,550 in the case of self-only coverage and $13,100 in the
case of family coverage. As under present law, basic
contribution limits are increased by $1,000 for an eligible
individual who has attained age 55 by the end of the taxable
year. In addition, as under present law, the annual HSA
contribution limit for an individual is generally the sum of
the limits determined separately for each month (that is, 1/12
of the limit for the year, including the catch-up limit, if
applicable), based on the individual's status and health plan
coverage as of the first day of the month.
EFFECTIVE DATE
The provision applies for taxable years beginning after
December 31, 2016.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means during
the markup consideration of H.R. 5445, ``To amend the Internal
Revenue Code of 1986 to improve the rules with respect to
health savings accounts,'' on June 15, 2016.
The bill, H.R. 5445, was ordered favorably reported to the
House of Representatives as amended by a roll call vote of 23
yeas to 15 nays (with a quorum being present). The vote was as
follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady...................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Rangel....... ........ X .........
Mr. Nunes...................... ........ ........ ......... Mr. McDermott.... ........ X .........
Mr. Tiberi..................... X ........ ......... Mr. Lewis........ ........ X .........
Mr. Reichert................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Boustany................... X ........ ......... Mr. Becerra...... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Price...................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Smith (NE)................. X ........ ......... Mr. Blumenauer... ........ X .........
Ms. Jenkins.................... X ........ ......... Mr. Kind......... ........ X .........
Mr. Paulsen.................... X ........ ......... Mr. Pascrell..... ........ X .........
Mr. Marchant................... X ........ ......... Mr. Crowley...... ........ X .........
Ms. Black...................... X ........ ......... Mr. Davis........ ........ X .........
Mr. Reed....................... X ........ ......... Ms. Sanchez...... ........ X .........
Mr. Young...................... X ........ .........
Mr. Kelly...................... X ........ .........
Mr. Renacci.................... X ........ .........
Mr. Meehan..................... X ........ .........
Ms. Noem....................... X ........ .........
Mr. Holding.................... X ........ .........
Mr. Smith (MO)................. X ........ .........
Mr. Dold....................... X ........ .........
Mr. Rice....................... 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 bill, H.R. 5445, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal fiscal year budget receipts for the period
2017-2026:
ESTIMATED REVENUE EFFECTS OF H.R. 5445, THE ``HEALTH CARE SECURITY ACT OF 2016,'' AS REPORTED BY THE COMMITTEE ON WAYS AND MEANS-- FISCAL YEARS 2017-2016
[Millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Provison Effective 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Allow both spouse to make catch- tyba 12/31/16......... -15 -32 -35 -38 -41 -44 -47 -50 -53 -56 -162 -410
up contributions to the same health
savings account (``HSA'')\1\.
2. Special rule for certain medical cba 12/31/16.......... -6 -16 -18 -20 -21 -23 -24 -26 -27 -28 -81 -210
expenses incurred before
establishment of HSA\1\.
3. Maximum contribution limit to HSA tyba 12/31/16......... -900 -1373 -1550 -1734 -1923 -2112 -2298 -2477 -2663 -2863 -7,480 -19,894
increased to amount of deductible
and out-of-pocket limitation\1\.
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Net Total....................... ...................... -922 -1,421 -1,603 -1,792 -1,985 -2,179 -2,369 -2,552 -2,743 -2,948 -7,724 -20,514
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Joint Committee on taxation:
Note: Details may not add to totals due to rounding.
Legend for ``Effective'' column: cba = coverage beginning after; tyba = taxable years beginning after.
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Estimate includes the following off-budget budget
effects:
Allow both spouses to make catch-up contributions to the -5 -11 -12 -13 -14 -14 -15 -16 -17 -18 -53 -135
same HSA...............................................
Special rule for certain medical expenses incurred -2 -6 -6 -7 -7 -8 -8 -9 -9 -10 -28 -72
before establishment of HSA............................
Maximum contribution limit to HSA increased to amount of -206 -315 -355 -397 -441 -484 -527 -568 -610 -656 -1,714 -4,559
deductible and out-of-pocket limitation................
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Pursuant to clause 8 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 gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing provisions
of the bill involve increased tax expenditures. See amounts
shown in the table in Part IV.A above.
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, June 17, 2016.
Hon. Kevin Brady,
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. 5445, the Health
Care Security Act of 2016.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 5445--Health Care Security Act of 2016
H.R. 5445 would amend the Internal Revenue code to modify
the rules regarding contributions to and treatment of
distributions from Health Savings Accounts (HSAs), which are
tax-favored accounts that individuals with high-deductible
health plans can use to fund certain health expenses. The bill
would raise the maximum basic contribution limit to an HSA to
equal the sum of the annual deductible and out-of-pocket
expenses permitted under a high deductible health plan-almost
doubling the limit allowed under current law. Also, under
current law, spouses must allocate the entire amount of their
catch-up contributions to their own HSA, but the bill would
allow spouses to divide up their combined catch-up
contributions between both of their HSAs. Lastly, under current
law, distributions from HSAs for qualified medical expenses are
only excluded from gross income if the expense was incurred
after the establishment of the HSA. The bill would allow
distributions to be excluded from gross income if the
associated medical expenses were incurred within a 60-day
period between the individual gaining coverage under a high
deductible plan and establishing the HSA.
The staff of the Joint Committee on Taxation (JCT)
estimates that enacting H.R. 5445 would reduce revenues by
about $20.5 billion over the 2017-2026 period. Of that
reduction, about $4.8 billion would result from changes in off-
budget revenues (from Social Security payroll taxes).
The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
revenues or direct spending. The net changes in revenues that
are subject to those pay-as-you-go procedures are shown in the
following table. Only on-budget changes to revenues and direct
spending are subject to pay-as-you-go procedures.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 5445, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 15, 2016
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By fiscal year, in millions of dollars--
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2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-2021 2017-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE ON-BUDGET DEFICIT
Statutory Pay-As-You-Go Effects......... 709 1,089 1,230 1,375 1,523 1,673 1,819 1,959 2,107 2,264 5,929 15,748
Memorandum:
Change in Off-Budget Revenuesa...... -213 -332 -373 -417 -462 -506 -550 -593 -636 -684 -1,795 -4,766
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Source: Staff of the Joint Committee on Taxation.
Note: Components may not sum to total because of rounding.
aNegative numbers indicate a reduction in revenues.
CBO and JCT estimate that enacting the bill would increase
on-budget deficits by more than $5 billion in at least one of
the four 10-year periods beginning in 2027.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Peter Huether.
The estimate was approved by David Weiner, Assistant Director
for Tax Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 5445 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 bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) 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 bill and states that the bill does 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
Restructuring and Reform Act of 1998 (``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 of 1986 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 Internal Revenue
Code of 1986 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.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is \1/12\ of--
(A) in the case of an eligible individual who
has self- only coverage under a high deductible
health plan as of the first day of such month,
$2,250.
(B) in the case of an eligible individual who
has family coverage under a high deductible
health plan as of the first day of such month,
$4,500.
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(4) Coordination with other contributions.--The
limitation which would (but for this paragraph) apply
under this subsection to an individual for any taxable
year shall be reduced (but not below zero) by the sum
of--
(A) the aggregate amount paid for such
taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to
health savings accounts of such individual
which is excludable from the taxpayer's gross
income for such taxable year under section
106(d) (and such amount shall not be allowed as
a deduction under subsection (a)), and
(C) the aggregate amount contributed to
health savings accounts of such individual for
such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) and without
regard to any additional contribution amount
under paragraph (3))--
(i) shall be reduced by the aggregate
amount paid to Archer MSAs of such
spouses for the taxable year, and
(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming
eligible individuals after the beginning of the year.--
(A) In general.--For purposes of computing
the limitation under paragraph (1) for any
taxable year, an individual who is an eligible
individual during the last month of such
taxable year shall be treated--
(i) as having been an eligible
individual during each of the months in
such taxable year, and
(ii) as having been enrolled, during
each of the months such individual is
treated as an eligible individual
solely by reason of clause (i), in the
same high deductible health plan in
which the individual was enrolled for
the last month of such taxable year.
(B) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then--
(I) gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual is
increased by the aggregate
amount of all contributions to
the health savings account of
the individual which could not
have been made but for
subparagraph (A), and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount of such increase.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the last month of the
taxable year referred to in
subparagraph (A) and ending on the last
day of the 12th month following such
month.
(c) Definitions and Special Rules.--For purposes of this
section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(ii) coverage (whether through
insurance or otherwise) for accidents,
disability, dental care, vision care,
or long-term care, and
(iii) for taxable years beginning
after December 31, 2006, coverage under
a health flexible spending arrangement
during any period immediately following
the end of a plan year of such
arrangement during which unused
benefits or contributions remaining at
the end of such plan year may be paid
or reimbursed to plan participants for
qualified benefit expenses incurred
during such period if--
(I) the balance in such
arrangement at the end of such
plan year is zero, or
(II) the individual is making
a qualified HSA distribution
(as defined in section 106(e))
in an amount equal to the
remaining balance in such
arrangement as of the end of
such plan year, in accordance
with rules prescribed by the
Secretary.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(d) Health Savings Account.--For purposes of this section--
(1) In general.--The term ``health savings account''
means a trust created or organized in the United States
as a health savings account exclusively for the purpose
of paying the qualified medical expenses of the account
beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover
contribution described in subsection (f)(5) or
section 220(f)(5), no contribution will be
accepted--
(i) unless it is in cash, or
(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year,
exceeds the sum of--
(I) the dollar amount in
effect under subsection
(b)(2)(B), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d)
for such individual, the spouse of such
individual, and any dependent (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of such individual, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term shall include
an amount paid for medicine or a drug only if
such medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as
distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(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.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of a health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (to
the extent such distributions do not exceed the
aggregate excess contributions to all such
accounts of such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) nor deductible under this
section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 percent of the amount which is so
includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account beneficiary
attains the age specified in section 1811 of
the Social Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings account if, at any time during the 1-
year period ending on the day of such receipt,
such individual received any other amount
described in subparagraph (A) from a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse acquires such beneficiary's interest in
a health savings account by reason of being the
designated beneficiary of such account at the
death of the account beneficiary, such health
savings account shall be treated as if the
spouse were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--
(1) In general.--Each dollar amount in subsections
(b)(2) and (c)(2)(A) shall be increased by an amount
equal to--
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such taxable year begins determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--
(i) except as provided in clause
(ii), ``calendar year 1997'', and
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.
In the case of adjustments made for any taxable year
beginning after 2007, section 1(f)(4) shall be applied
for purposes of this paragraph by substituting ``March
31'' for ``August 31'', and the Secretary shall publish
the adjusted amounts under subsections (b)(2) and
(c)(2)(A) for taxable years beginning in any calendar
year no later than June 1 of the preceding calendar
year.
(2) Rounding.--If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded
to the nearest multiple of $50.
(h) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed 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 italics, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows (new
matter is printed in italics and existing law in which no
change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month during the taxable year,
there shall be allowed as a deduction for the taxable year an
amount equal to the aggregate amount paid in cash during such
taxable year by or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is \1/12\ of--
(A) in the case of an eligible individual who
has self- only coverage under a high deductible
health plan as of the first day of such month,
[$2,250] the amount in effect under subsection
(c)(2)(A)(ii)(I).
(B) in the case of an eligible individual who
has family coverage under a high deductible
health plan as of the first day of such month,
[$4,500] the amount in effect under subsection
(c)(2)(A)(ii)(II).
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(4) Coordination with other contributions.--The
limitation which would (but for this paragraph) apply
under this subsection to an individual for any taxable
year shall be reduced (but not below zero) by the sum
of--
(A) the aggregate amount paid for such
taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to
health savings accounts of such individual
which is excludable from the taxpayer's gross
income for such taxable year under section
106(d) (and such amount shall not be allowed as
a deduction under subsection (a)), and
(C) the aggregate amount contributed to
health savings accounts of such individual for
such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
[(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
[(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
[(B) the limitation under paragraph (1)
(after the application of subparagraph (A) and
without regard to any additional contribution
amount under paragraph (3))--
[(i) shall be reduced by the
aggregate amount paid to Archer MSAs of
such spouses for the taxable year, and
[(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.]
(5) Special rule for married individuals with family
coverage.--
(A) In general.--In the case of individuals
who are married to each other, if both spouses
are eligible individuals and either spouse has
family coverage under a high deductible health
plan as of the first day of any month--
(i) the limitation under paragraph
(1) shall be applied by not taking into
account any other high deductible
health plan coverage of either spouse
(and if such spouses both have family
coverage under separate high deductible
health plans, only one such coverage
shall be taken into account),
(ii) such limitation (after
application of clause (i)) shall be
reduced by the aggregate amount paid to
Archer MSAs of such spouses for the
taxable year, and
(iii) such limitation (after
application of clauses (i) and (ii))
shall be divided equally between such
spouses unless they agree on a
different division.
(B) Treatment of additional contribution
amounts.--If both spouses referred to in
subparagraph (A) have attained age 55 before
the close of the taxable year, the limitation
referred to in subparagraph (A)(iii) which is
subject to division between the spouses shall
include the additional contribution amounts
determined under paragraph (3) for both
spouses. In any other case, any additional
contribution amount determined under paragraph
(3) shall not be taken into account under
subparagraph (A)(iii) and shall not be subject
to division between the spouses.
(6) Denial of deduction to dependents.--No deduction
shall be allowed under this section to any individual
with respect to whom a deduction under section 151 is
allowable to another taxpayer for a taxable year
beginning in the calendar year in which such
individual's taxable year begins.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming
eligible individuals after the beginning of the year.--
(A) In general.--For purposes of computing
the limitation under paragraph (1) for any
taxable year, an individual who is an eligible
individual during the last month of such
taxable year shall be treated--
(i) as having been an eligible
individual during each of the months in
such taxable year, and
(ii) as having been enrolled, during
each of the months such individual is
treated as an eligible individual
solely by reason of clause (i), in the
same high deductible health plan in
which the individual was enrolled for
the last month of such taxable year.
(B) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then--
(I) gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual is
increased by the aggregate
amount of all contributions to
the health savings account of
the individual which could not
have been made but for
subparagraph (A), and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount of such increase.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the last month of the
taxable year referred to in
subparagraph (A) and ending on the last
day of the 12th month following such
month.
(c) Definitions and Special Rules.--For purposes of this
section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(ii) coverage (whether through
insurance or otherwise) for accidents,
disability, dental care, vision care,
or long-term care, and
(iii) for taxable years beginning
after December 31, 2006, coverage under
a health flexible spending arrangement
during any period immediately following
the end of a plan year of such
arrangement during which unused
benefits or contributions remaining at
the end of such plan year may be paid
or reimbursed to plan participants for
qualified benefit expenses incurred
during such period if--
(I) the balance in such
arrangement at the end of such
plan year is zero, or
(II) the individual is making
a qualified HSA distribution
(as defined in section 106(e))
in an amount equal to the
remaining balance in such
arrangement as of the end of
such plan year, in accordance
with rules prescribed by the
Secretary.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(d) Health Savings Account.--For purposes of this section--
(1) In general.--The term ``health savings account''
means a trust created or organized in the United States
as a health savings account exclusively for the purpose
of paying the qualified medical expenses of the account
beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover
contribution described in subsection (f)(5) or
section 220(f)(5), no contribution will be
accepted--
(i) unless it is in cash, or
(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year,
exceeds the sum of--
(I) the dollar amount in
effect under subsection
(b)(2)(B), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary that the manner in which such person
will administer the trust will be consistent
with the requirements of this section.
(C) No part of the trust assets will be
invested in life insurance contracts.
(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
(E) The interest of an individual in the
balance in his account is nonforfeitable.
(2) Qualified medical expenses.--
(A) In general.--The term ``qualified medical
expenses'' means, with respect to an account
beneficiary, amounts paid by such beneficiary
for medical care (as defined in section 213(d)
for such individual, the spouse of such
individual, and any dependent (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of such individual, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term shall include
an amount paid for medicine or a drug only if
such medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(D) Treatment of certain medical expenses
incurred before establishment of account.--If a
health savings account is established during
the 60-day period beginning on the date that
coverage of the account beneficiary under a
high deductible health plan begins, then,
solely for purposes of determining whether an
amount paid is used for a qualified medical
expense, such account shall be treated as
having been established on the date that such
coverage begins.
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Account terminations.--Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply
to health savings accounts, and any amount treated as
distributed under such rules shall be treated as not
used to pay qualified medical expenses.
(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.
(2) Inclusion of amounts not used for qualified
medical expenses.--Any amount paid or distributed out
of a health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (to
the extent such distributions do not exceed the
aggregate excess contributions to all such
accounts of such individual for such year) if--
(i) such distribution is received by
the individual on or before the last
day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable
year, and
(ii) such distribution is accompanied
by the amount of net income
attributable to such excess
contribution.
Any net income described in clause (ii) shall
be included in the gross income of the
individual for the taxable year in which it is
received.
(B) Excess contribution.--For purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) nor deductible under this
section.
(4) Additional tax on distributions not used for
qualified medical expenses.--
(A) In general.--The tax imposed by this
chapter on the account beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 percent of the amount which is so
includible.
(B) Exception for disability or death.--
Subparagraph (A) shall not apply if the payment
or distribution is made after the account
beneficiary becomes disabled within the meaning
of section 72(m)(7) or dies.
(C) Exception for distributions after
medicare eligibility.--Subparagraph (A) shall
not apply to any payment or distribution after
the date on which the account beneficiary
attains the age specified in section 1811 of
the Social Security Act.
(5) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings account if, at any time during the 1-
year period ending on the day of such receipt,
such individual received any other amount
described in subparagraph (A) from a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse acquires such beneficiary's interest in
a health savings account by reason of being the
designated beneficiary of such account at the
death of the account beneficiary, such health
savings account shall be treated as if the
spouse were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--
(1) In general.--Each dollar amount in [subsections
(b)(2) and] subsection (c)(2)(A) shall be increased by
an amount equal to--
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such taxable year begins [determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--]
[(i) except as provided in clause
(ii), ``calendar year 1997'', and
[(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.] determined by
substituting ``calendar year 2003'' for
``calendar year 1992'' in subparagraph
(B) thereof.
In the case of adjustments made for any taxable year
beginning after 2007, section 1(f)(4) shall be applied
for purposes of this paragraph by substituting ``March
31'' for ``August 31'', and the Secretary shall publish
the adjusted amounts under [subsections (b)(2) and]
subsection (c)(2)(A) for taxable years beginning in any
calendar year no later than June 1 of the preceding
calendar year.
(2) Rounding.--If any increase under paragraph (1) is
not a multiple of $50, such increase shall be rounded
to the nearest multiple of $50.
(h) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
VII. DISSENTING VIEWS
We strongly object to H.R. 5445, which would double the
annual contribution limit for Health Savings Accounts (HSAs).
Taxpayers are generally eligible to make contributions to HSAs
if they are covered by a high deductible health plan (HDHP).
For 2016, the HSA contribution limits are $3,350 for self-only
coverage and $6,750 for family coverage, with taxpayers age 55
plus eligible to make $1,000 catch-up contributions. H.R. 5445
would increase the contribution limits to $6,550 for self-only
coverage and $13,100 for family coverage (with no change to the
catch-up contribution limit).
This bill is primarily a tax cut for higher income
taxpayers. Statistical data from the Internal Revenue Service
shows that in 2013, only 22% of households that claimed a
deduction for HSA contributions had adjusted gross incomes of
$50,000 or less, with an average HSA contribution of $2,076. In
contrast, 48% of taxpayers claiming the deduction had adjusted
gross incomes of $100,000 or more, with an average HSA
contribution of $3,971. Furthermore, 21% of taxpayers claiming
the deduction had adjusted gross income of $200,000 or more,
with an average HSA contribution of $4,743. The percentage of
taxpayers within an income bracket who claim the deduction also
increases significantly with income; for example, in 2013, only
0.3% of taxpayers with adjusted gross income of $50,000 or less
claimed the deduction, but 3.8% of returns with incomes of
$200,000 or more claimed the deduction--a rate that is over 10
times higher.
The statistical data on income and HSA contributions are
not a surprise. This is because higher income households can
afford to make contributions to HSAs because their
discretionary income is higher, while lower income households
cannot afford to do so. In 2013, an insurance trade association
(AHIP) estimated that there were 15.5 million covered lives
under HDHPs, but only 1.194 million tax returns made HSA
contributions in 2013. Similarly, a 2008 GAO report found that
between 2005 and 2007, 42 to 49% of enrollees in HDHPs did not
have access to an HSA.
We also object to H.R. 5445 because this legislation costs
over $20 billion and its cost is not offset. It is shameful
that in this Republican-controlled Congress, tax breaks that
often benefit higher income families and corporations do not
need to be paid for and add to our record high deficits, while
the Majority proposes cutting programs for low and middle class
Americans. As a result of the Majority's skewed priorities, we
are unable to combat public health crises such as the Zika
virus and removal of the lead in the public water system of
Flint, Michigan.
We are also concerned that expansion of HSAs is a
centerpiece of the Republican efforts to destroy the Affordable
Care Act (ACA). For example, enhancements to HSAs would be
provided under the ACA replacement plan drafted by Senators
Hatch (R-UT) and Burr (R-NC) and Chairman Upton (Energy and
Commerce Committee), as well as the plan drafted by the House's
Republican Study Committee.
For these reasons we strongly oppose H.R. 5445.
Sander M. Levin.
[all]