[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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \8\Q&A-26 of Notice 2004-2, 2004-1 C.B. 269.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    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\.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in millions of dollars--
                                         ---------------------------------------------------------------------------------------------------------------
                                            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
--------------------------------------------------------------------------------------------------------------------------------------------------------
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.

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                         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]