[House Report 115-844]
[From the U.S. Government Publishing Office]
115th Congress } { REPORT
HOUSE OF REPRESENTATIVES
2d Session } { 115-844
======================================================================
THE ``BIPARTISAN HSA IMPROVEMENT ACT OF 2018''
_______
July 19, 2018.--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
[To accompany H.R. 6305]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 6305) to amend the Internal Revenue Code of 1986 to
improve access to health care through modernized health savings
accounts, report favorably thereon with an amendment and
recommend that the bill as amended do pass.
115th Congress } { REPORT
HOUSE OF REPRESENTATIVES
2d Session } { 115-844
======================================================================
BIPARTISAN HSA IMPROVEMENT ACT OF 2018
_______
July 19, 2018.--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
[To accompany H.R. 6305]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 6305) to amend the Internal Revenue Code of 1986 to
improve access to health care through modernized 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............................................4
II. EXPLANATION OF THE BILL...........................................6
A. Certain Employment Related Services Not Treated as
Disqualifying Coverage for Purposes of Health Savings
Accounts............................................. 6
B. Contributions Permitted if Spouse Has a Health
Flexible Spending Account............................ 8
C. FSA and HRA Terminations or Conversions to Fund HSAs.. 11
III.VOTES OF THE COMMITTEE...........................................15
IV. BUDGET EFFECTS OF THE BILL.......................................16
A. Committee Estimate of Budgetary Effects............... 16
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority........................ 18
C. Cost Estimate Prepared by the Congressional Budget
Office............................................... 18
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......18
A. Committee Oversight Findings and Recommendations...... 18
B. Statement of General Performance Goals and Objectives. 18
C. Information Relating to Unfunded Mandates............. 18
D. Applicability of House Rule XXI 5(b).................. 19
E. Tax Complexity Analysis............................... 19
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits.............................. 19
G. Duplication of Federal Programs....................... 19
H. Disclosure of Directed Rule Makings................... 19
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............20
B. Changes in Existing Law Proposed by the Bill, as
Reported............................................. 20
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Bipartisan HSA Improvement Act of
2018''.
SEC. 2. CERTAIN EMPLOYMENT RELATED SERVICES NOT TREATED AS
DISQUALIFYING COVERAGE FOR PURPOSES OF HEALTH
SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(1) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(D) Special rule for qualified items and
services.--
``(i) In general.--An individual shall not be
treated as covered under a health plan for
purposes of subparagraph (A)(ii) merely because
the individual, in connection with the
employment of the individual or the
individual's spouse, receives (or is eligible
to receive) qualified items and services at--
``(I) a healthcare facility located
at a facility owned or leased by the
employer of the individual (or of the
individual's spouse), or operated
primarily for the benefit of such
employer's employees, or
``(II) a healthcare facility located
within a supermarket, pharmacy, or
similar retail establishment.
``(ii) Qualified items and services
defined.--For purposes of this subparagraph,
the term `qualified items and services' means
the following:
``(I) Physical examinations.
``(II) Immunizations, including
injections of antigens provided by
employees.
``(III) Drugs other than a prescribed
drug (as such term is defined in
section 213(d)(3)).
``(IV) Treatment for injuries
occurring in the course of employment.
``(V) Drug testing, if required as a
condition of employment.
``(VI) Hearing or vision screenings.
``(VII) Other similar items and
services that do not provide
significant benefits in the nature of
medical care.
``(iii) Aggregation.--For purposes of clause
(i)(I), all persons treated as a single
employer under subsection (b), (c), (m), or (o)
of section 414 shall be treated as a single
employer.''.
(b) Effective Date.--The amendments made by this section shall apply
to months beginning after December 31, 2018, in taxable years ending
after such date.
SEC. 3. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A HEALTH FLEXIBLE
SPENDING ACCOUNT.
(a) Contributions Permitted if Spouse Has a Health Flexible Spending
Account.--Section 223(c)(1)(B) of the Internal Revenue Code of 1986 is
amended by striking ``and'' at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting ``, and'', and by
inserting after clause (iii) the following new clause:
``(iv) coverage under a health flexible
spending arrangement of the spouse of the
individual for any plan year of such
arrangement if the aggregate reimbursements
under such arrangement for such year do not
exceed the aggregate expenses which would be
eligible for reimbursement under such
arrangement if such expenses were determined
without regard to any expenses paid or incurred
with respect to such individual.''.
(b) Effective Date.--The amendment made by this section shall apply
to plan years beginning after December 31, 2018.
SEC. 4. FSA AND HRA TERMINATIONS OR CONVERSIONS TO FUND HSAS.
(a) In General.--Section 106(e)(2) of the Internal Revenue Code of
1986 is amended to read as follows:
``(2) Qualified hsa distribution.--For purposes of this
subsection--
``(A) In general.--The term `qualified HSA
distribution' means, with respect to any employee, a
distribution from a health flexible spending
arrangement or health reimbursement arrangement of such
employee directly to a health savings account of such
employee if--
``(i) such distribution is made in connection
with such employee establishing coverage under
a high deductible health plan (as defined in
section 223(c)(2)) after a significant period
of not having such coverage, and
``(ii) such arrangement is described in
section 223(c)(1)(B)(iii) with respect to the
portion of the plan year after such
distribution is made.
``(B) Dollar limitation.--The aggregate amount of
distributions from health flexible spending
arrangements and health reimbursement arrangements of
any employee which may be treated as qualified HSA
distributions in connection with an establishment of
coverage described in subparagraph (A)(i) shall not
exceed the dollar amount in effect under section
125(i)(1) (twice such amount in the case of coverage
which is described in section 223(b)(2)(B)).''.
(b) Partial Reduction of Limitation on Deductible HSA
Contributions.--Section 223(b)(4) of such Code is amended by striking
``and'' at the end of subparagraph (B), by striking the period at the
end of subparagraph (C) and inserting ``, and'', and by inserting after
subparagraph (C) the following new subparagraph:
``(D) so much of any qualified HSA distribution (as
defined in section 106(e)(2)) made to a health savings
account of such individual during the taxable year as
does not exceed the aggregate increases in the balance
of the arrangement from which such distribution is made
which occur during the portion of the plan year which
precedes such distribution (other than any balance
carried over to such plan year and determined without
regard to any decrease in such balance during such
portion of the plan year).''.
(c) Conversion to HSA-compatible Arrangement for Remainder of Plan
Year.--Section 223(c)(1)(B)(iii) of such Code, as amended by the
preceding provisions of this Act, is amended to read as follows:
``(iii) coverage under a health flexible
spending arrangement or health reimbursement
arrangement for the portion of the plan year
after a qualified HSA distribution (as defined
in section 106(e)(2) determined without regard
to subparagraph (A)(ii) thereof) is made, if
the terms of such arrangement which apply for
such portion of the plan year are such that, if
such terms applied for the entire plan year,
then such arrangement would not be taken into
account under subparagraph (A)(ii) of this
paragraph for such plan year, and''.
(d) Inclusion of Qualified HSA Distributions on W-2.--
(1) In general.--Section 6051(a) of such Code is amended by
striking ``and'' at the end of paragraph (16), by striking the
period at the end of paragraph (17) and inserting ``, and'',
and by inserting after paragraph (17) the following new
paragraph:
``(18) the amount of any qualified HSA distribution (as
defined in section 106(e)(2)) with respect to such employee.''.
(2) Conforming amendment.--Section 6051(a)(12) of such Code
is amended by inserting ``(other than any qualified HSA
distribution, as defined in section 106(e)(2))'' before the
comma at the end.
(e) Effective Date.--The amendments made by this section shall apply
to distributions made after December 31, 2018, in taxable years ending
after such date.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill H.R. 6305, as reported by the Committee on Ways
and Means, expands access and enhances the utility of health
savings accounts (HSAs) through three common-sense improvements
to the rules governing HSAs: (1) clarifying that certain
employment related services (such as on-site clinics) are not
treated as disqualifying coverage for purposes of HSAs; (2)
allowing an eligible individual to make HSA contributions if a
spouse has a Flexible Spending Arrangement (FSA), provided that
FSA does not also reimburse for expenses of the spouse with the
HSA; and (3) allowing FSA and Health Reimbursement Account
(HRA) terminations or conversions to fund HSAs.
B. Background and Need for Legislation
According to a survey of 52 health insurers conducted by
America's Health Insurance Plans (AHIP), 21.8 million people
were covered by a High Deductible Health Plan (HDHP) with an
HSA as of January 2017. These plans and accounts are an
increasingly popular option for workers and enrollment growth
shows no sign of slowing. A survey of employer-sponsored health
benefits found that 17 percent of all employers offered a HDHP
with an HSA in 2017 compared to 2 percent in 2005.
HSA account holders are diverse. According to WageWorks,
Inc., the administrator of benefits for more than 7 million
people, the median household income for an HSA accountholder is
$57,060. In addition, a JCT analysis found that of the tax
returns that took an HSA deduction in 2015, 71 percent of the
returns reported an income of $200,000 or less, and 28 percent
reported an income of $75,000 or less. Account holders are also
distributed across age groups, with nearly a third between the
ages of 25-44 and another third of account holders between the
ages 45-64.
Most critically, research has consistently found that such
coverage, which empowers individuals and families to be more
engaged health care consumers, is capable of significantly
reducing health care costs.
In addition, FSAs are employer-established accounts to
reimburse employees for qualified medical expenses. Under
current law, FSAs can be used to reimburse expenses for the
enrollee, their spouse, and dependents. This prohibits an FSA
enrollee's spouse from contributing to an HSA, even when they
are covered under two separate health plans.
C. Legislative History
Background
H.R. 6305 was introduced on July 3, 2018 and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 6305, the
``Bipartisan HSA Improvement Act of 2018,'' on July 11, 2018,
and ordered the bill, as amended, favorably reported (with a
quorum being present).
Committee hearings
The policy issues associated with Health Savings Accounts
(HSAs), Flexible Spending Accounts (FSAs), and Health
Reimbursement Arrangements (HRAs) were discussed at the
following Ways and Means hearings during the 114th and 115th
Congress:
Full Committee Hearing on the Tax Treatment
of Health Care (April 14, 2016)
Subcommittee on Tax Policy Member Day
Hearing on Tax Legislation (May 12, 2016)
Subcommittee on Health Member Day Hearing on
Tax-Related Proposals to Improve Health Care (May 17,
2016)
Subcommittee on Health Hearing on Rising
Health Insurance Premiums Under the Affordable Care Act
(July 12, 2016)
Subcommittee on Health Hearing on Lowering
Costs and Expanding Access to Health Care through
Consumer-Directed Health Plans (June 6, 2018)
II. EXPLANATION OF THE BILL
A. Certain Employment Related Services Not Treated as Disqualifying
Coverage for Purposes of Health Savings Accounts
Health Savings Accounts
An individual with a high deductible health plan (``HDHP'')
and no other health plan (other than a plan that provides
certain permitted insurance or permitted coverage)\1\ may
establish a health savings account (``HSA'').\2\ 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.
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\1\An individual with other coverage in addition to a high
deductible health plan is still eligible for an HSA if such other
coverage is ``permitted insurance'' or ``permitted coverage.''
Permitted insurance is: (1) insurance if substantially all of the
coverage provided under such insurance relates to (a) liabilities
incurred under worker's compensation law, (b) tort liabilities, (c)
liabilities relating to ownership or use of property (e.g., auto
insurance), or (d) such other similar liabilities as the Secretary may
prescribe by regulations; (2) insurance for a specified disease or
illness; and (3) insurance that provides a fixed payment for
hospitalization. Also see Notice 2004-50, 2004-33 IRB 1, Q & A-7 and Q
& A-8 (``an eligible individual may be covered by an HDHP and also by
permitted insurance for one or more specific diseases, such as cancer,
diabetes, asthma or congestive heart failure, as long as the principal
health coverage is provided by the HDHP''), but such coverage must be
provided through insurance contracts and not on a self-insured basis.
Pursuant to Q & A-10 of Notice 2004-50, coverage under a disease
management program does not make an individual ineligible to contribute
to an HSA as long as the program does not provide significant benefits
in the nature of medical care or treatment so that it is not considered
a ``health plan'' for purposes of Code section 223(c)(1). Where a
disease management program provides evidence-based information, disease
specific support, case monitoring and coordination of the care and
treatment provided by a health plan including monitoring laboratory or
other test results, telephone contacts or web-based reminders of health
care schedules, and providing information to minimize health risks it
is not considered a ``health plan.''
Permitted coverage is coverage (whether provided through insurance
or otherwise) for accidents, disability, dental care, vision care, or
long-term care. With respect to coverage for years beginning after
December 31, 2006, certain coverage under a Health FSA is disregarded
in determining eligibility for an HSA.
\2\Sec. 223.
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Distributions from an HSA that are used for qualified
medical expenses are excludible from 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 (i.e., age 65).
A high deductible health plan (``HDHP'') is a health plan
that has an annual deductible that is at least $1,350 for self-
only coverage or $2,700 for family coverage for 2018 and that
limits the sum of the annual deductible and other payments that
the individual must make with respect to covered benefits to no
more than $6,650 in the case of self-only coverage and $13,300
in the case of family coverage for 2018.
Qualified medical expenses generally are defined as under
Code section 213(d) and include expenses for diagnosis, cure,
mitigation, treatment, or prevention of disease, including
prescription drugs, transportation primarily for and essential
to such care, and qualified long-term care expenses. Qualified
medical expenses do not include expenses for insurance other
than for (1) certain premiums paid for long-term care
insurance, (2) premiums for health coverage during any period
of continuation coverage required by Federal law, (3) premiums
for health care coverage while an individual is receiving
unemployment compensation under Federal or State law, and (4)
premiums for individuals who have attained the age of Medicare
eligibility, other than premiums for Medigap policies.
Eligible individuals
Eligible individuals for HSAs are individuals who are
covered by a high deductible health plan and no other health
plan that (1) is not a high deductible health plan and (2)
provides coverage for any benefit which is covered under the
high deductible health plan. After an individual has attained
age 65 and becomes enrolled in Medicare benefits, contributions
cannot be made to an HSA.\3\
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\3\See Sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, corrected by Announcement 2004-67, 2004-36 I.R.B. 459.
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On-Site Employee Clinics
On-site employer-sponsored health clinics may provide a
range of health services to employees for free or at a reduced
cost. Under IRS guidance, an otherwise eligible individual who
has access to free health care or health care at charges below
fair market value from a clinic on an employer's premises will
not fail to be an eligible individual merely because of this
free or reduced cost care as long as the clinic does not
provide significant benefits in the nature of medical care in
addition to disregarded coverage or preventive care.
For example, an employer who provides the following free
health care for employees does not provide significant benefits
in the nature of medical care in addition to disregarded
coverage or preventive care: (1) physicals and immunizations,
(2) injecting antigens provided by employees, such as
performing allergy injections, (3) a variety of aspirin and
other nonprescription pain relievers, and (4) treatment for
injuries caused by accidents at the plant. However, a hospital
that permits its employees to receive care at its facilities
for all their medical needs for free (when the employee does
not have insurance) or that waives copays and deductibles (when
the employee does have health insurance) provides significant
benefits in the nature of medical care, and the hospital's
employees fail to be eligible individuals for purposes of HSA
contributions.\4\
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\4\Notice 2008-59, Q&A-10.
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REASONS FOR CHANGE
The Committee believes that coverage which would otherwise
constitute a high deductible health plan should be treated as
such for determining eligibility to make HSA contributions, and
not disqualified merely by reason of offering certain
employment related services. The Committee believes that
employers must have the flexibility to offer quality health
care in the setting that is best for them, like on-site or
retail clinics and that individuals with HSAs should not be
prevented from utilizing these same services.
EXPLANATION OF PROVISION
Under the proposal, certain employment related services are
not treated as coverage under a health plan for purposes of
determining eligibility for health savings accounts. An
individual is therefore not treated as covered under a health
plan, merely because the individual receives, or is eligible to
receive qualified items and services in connection with
employment at an on-site or retail clinic. These qualified
items and services include: physical examinations,
immunizations, drugs other than a prescribed drug, and
treatment for injuries occurring in the course of employment,
drug testing as a condition of employment, hearing or vision
screenings, and other similar items and services that do not
provide significant benefits in the nature of medical care.
EFFECTIVE DATE
The provision applies for months beginning after December
31, 2018, in taxable years ending after such date.
B. Contributions Permitted if Spouse Has a Health Flexible Spending
Account
PRESENT LAW
Health Savings Accounts
An individual with a high deductible health plan (``HDHP'')
and no other health plan (other than a plan that provides
certain permitted insurance or permitted coverage)\5\ may
establish a health savings account (``HSA'').\6\ 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.
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\5\An individual with other coverage in addition to a high
deductible health plan is still eligible for an HSA if such other
coverage is ``permitted insurance'' or ``permitted coverage.''
Permitted insurance is: (1) insurance if substantially all of the
coverage provided under such insurance relates to (a) liabilities
incurred under worker's compensation law, (b) tort liabilities, (c)
liabilities relating to ownership or use of property (e.g., auto
insurance), or (d) such other similar liabilities as the Secretary may
prescribe by regulations; (2) insurance for a specified disease or
illness; and (3) insurance that provides a fixed payment for
hospitalization. Also see Notice 2004-50, 2004-33 IRB 1, Q & A-7 and Q
& A-8 (``an eligible individual may be covered by an HDHP and also by
permitted insurance for one or more specific diseases, such as cancer,
diabetes, asthma or congestive heart failure, as long as the principal
health coverage is provided by the HDHP''), but such coverage must be
provided through insurance contracts and not on a self-insured basis.
Pursuant to Q & A-10 of Notice 2004-50, coverage under a disease
management program does not make an individual ineligible to contribute
to an HSA as long as the program does not provide significant benefits
in the nature of medical care or treatment so that it is not considered
a ``health plan'' for purposes of Code section 223(c)(1). Where a
disease management program provides evidence-based information, disease
specific support, case monitoring and coordination of the care and
treatment provided by a health plan including monitoring laboratory or
other test results, telephone contacts or web-based reminders of health
care schedules, and providing information to minimize health risks it
is not considered a ``health plan.''
Permitted coverage is coverage (whether provided through insurance
or otherwise) for accidents, disability, dental care, vision care, or
long-term care. With respect to coverage for years beginning after
December 31, 2006, certain coverage under a Health FSA is disregarded
in determining eligibility for an HSA.
\6\Sec. 223.
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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 2018, the basic limit on
annual contributions that can be made to an HSA is $3,450 in
the case of self-only coverage and $6,900 in the case of family
coverage. The basic annual contributions limits are increased
by $1,000 for individuals who have attained age 55 by the end
of the taxable year (referred to as ``catch-up''
contributions). Contributions, including catch-up
contributions, cannot be made once an individual is enrolled in
Medicare.
Distributions from an HSA that are used for qualified
medical expenses are excludible from 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 (i.e., age 65).
An HDHP is a health plan that has an annual deductible that
is at least $1,350 for self-only coverage or $2,700 for family
coverage for 2018 and that limits the sum of the annual
deductible and other payments that the individual must make
with respect to covered benefits to no more than $6,650 in the
case of self-only coverage and $13,300 in the case of family
coverage for 2018.
Qualified medical expenses generally are defined as under
Code section 213(d) and include expenses for diagnosis, cure,
mitigation, treatment, or prevention of disease, including
prescription drugs, transportation primarily for and essential
to such care, and qualified long-term care expenses. Qualified
medical expenses do not include expenses for insurance other
than for (1) certain premiums paid for long-term care
insurance, (2) premiums for health coverage during any period
of continuation coverage required by Federal law, (3) premiums
for health care coverage while an individual is receiving
unemployment compensation under Federal or State law, and (4)
premiums for individuals who have attained the age of Medicare
eligibility, other than premiums for Medigap policies.
Eligible individuals
Eligible individuals for HSAs are individuals who are
covered by an HDHP and no other health plan that (1) is not an
HDHP and (2) provides coverage for any benefit which is covered
under the HDHP. After an individual has attained age 65 and
becomes enrolled in Medicare benefits, contributions cannot be
made to an HSA.\7\
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\7\See Sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, corrected by Announcement 2004-67, 2004-36 I.R.B. 459.
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If both spouses of a married couple are eligible
individuals and either spouse has family coverage, both spouses
are treated as having only family coverage, so that the annual
contribution limit for family coverage applies. This annual
contribution limit (without regard to any catch-up contribution
amounts) is reduced by any Archer MSA contributions and then
divided equally between the spouses unless they agree on a
different division.\8\
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\8\Sec. 223(b)(5).
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If both spouses of a married couple are eligible
individuals, each may contribute to an HSA, but are not
permitted a joint HSA.\9\ Under the rule described above,
however, the spouses may divide their annual contribution limit
by allocating the entire amount to one spouse to be contributed
to that spouse's HSA.\10\ This rule does not apply to catch-up
contribution amounts.
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\9\Notice 2004-50, 2004-2 C.B. 196, Q&A-63.
\10\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.
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Health flexible spending accounts
In addition to offering health insurance, employers often
agree to reimburse medical expenses of their employees (and
their spouses and dependents). These arrangements are commonly
used by employers to pay or reimburse employees for medical
expenses that are not covered by health insurance. These
arrangements include health flexible spending arrangements
(``health FSAs'').
Health FSAs typically are funded on a salary reduction
basis under a cafeteria plan, meaning that employees are given
the option to reduce their current cash compensation and
instead have the amount made available for use in reimbursing
the employee for his or her medical expenses. If the health FSA
meets certain requirements, the compensation that is forgone is
not includible in gross income or wages for payroll tax
purposes.
Under IRS guidance, an individual who is covered by an HDHP
and a health FSA that pays or reimburses certain medical
expenses that are not limited to the exceptions for permitted
insurance, permitted coverage, or preventive care is generally
not an eligible individual for the purpose of making deductible
contributions to an HSA. Similarly, if the individual is
covered by a health FSA sponsored by the employer of the
individual's spouse, the individual is not an eligible
individual.\11\
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\11\Rev. Rul. 2004-45.
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REASONS FOR CHANGE
The Committee believes that an individual should not be
prevented from making HSA contributions merely because his
spouse has a health FSA. Fixing this spousal penalty, while
preventing double-dipping in tax benefits will ultimately help
modernize health care delivery and give employers the freedom
to innovate and improve their employees' health insurance.
EXPLANATION OF PROVISION
Under the proposal, an individual's eligibility for HSAs is
determined without regard to whether or not the spouse of the
individual has coverage under a health FSA for any taxable year
as long as the aggregate reimbursements under the arrangement
for the year do not exceed the total expenses which would be
eligible for reimbursement if determined without regard to the
individual's expenses paid or incurred.
EFFECTIVE DATE
The provision applies to plan years beginning after
December 31, 2018.
C. FSA and HRA Terminations or Conversions To Fund HSAs
PRESENT LAW
Health savings accounts
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)\12\ may establish a
health savings account (``HSA'').\13\ 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.
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\12\An individual with other coverage in addition to a high
deductible health plan is still eligible for an HSA if such other
coverage is ``permitted insurance'' or ``permitted coverage.''
Permitted insurance is: (1) insurance if substantially all of the
coverage provided under such insurance relates to (a) liabilities
incurred under worker's compensation law, (b) tort liabilities, (c)
liabilities relating to ownership or use of property (e.g., auto
insurance), or (d) such other similar liabilities as the Secretary may
prescribe by regulations; (2) insurance for a specified disease or
illness; and (3) insurance that provides a fixed payment for
hospitalization. Also see Notice 2004-50, 2004-33 IRB 1, Q & A-7 and Q
& A-8 (``an eligible individual may be covered by an HDHP and also by
permitted insurance for one or more specific diseases, such as cancer,
diabetes, asthma or congestive heart failure, as long as the principal
health coverage is provided by the HDHP''), but such coverage must be
provided through insurance contracts and not on a self-insured basis.
Pursuant to Q & A-10 of Notice 2004-50, coverage under a disease
management program does not make an individual ineligible to contribute
to an HSA as long as the program does not provide significant benefits
in the nature of medical care or treatment so that it is not considered
a ``health plan'' for purposes of Code section 223(c)(1). Where a
disease management program provides evidence-based information, disease
specific support, case monitoring and coordination of the care and
treatment provided by a health plan including monitoring laboratory or
other test results, telephone contacts or web-based reminders of health
care schedules, and providing information to minimize health risks it
is not considered a ``health plan.''
Permitted coverage is coverage (whether provided through insurance
or otherwise) for accidents, disability, dental care, vision care, or
long-term care. With respect to coverage for years beginning after
December 31, 2006, certain coverage under a Health FSA is disregarded
in determining eligibility for an HSA.
\13\Sec. 223.
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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 2018, the basic limit on
annual contributions that can be made to an HSA is $3,450 in
the case of self-only coverage and $6,900 in the case of family
coverage. The basic annual contributions limits are increased
by $1,000 for individuals who have attained age 55 by the end
of the taxable year (referred to as ``catch-up''
contributions). Contributions, including catch-up
contributions, cannot be made once an individual is enrolled in
Medicare.
Distributions from an HSA that are used for qualified
medical expenses are excludible from 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 (i.e., age 65).
A high deductible health plan is a health plan that has an
annual deductible that is at least $1,350 for self-only
coverage or $2,700 for family coverage for 2018 and that limits
the sum of the annual deductible and other payments that the
individual must make with respect to covered benefits to no
more than $6,650 in the case of self-only coverage and $13,300
in the case of family coverage for 2018.
Qualified medical expenses generally are defined as under
Code section 213(d) and include expenses for diagnosis, cure,
mitigation, treatment, or prevention of disease, including
prescription drugs, transportation primarily for and essential
to such care, and qualified long-term care expenses. Qualified
medical expenses do not include expenses for insurance other
than for (1) certain premiums paid for long-term care
insurance, (2) premiums for health coverage during any period
of continuation coverage required by Federal law, (3) premiums
for health care coverage while an individual is receiving
unemployment compensation under Federal or State law, and (4)
premiums for individuals who have attained the age of Medicare
eligibility, other than premiums for Medigap policies.
Eligible individuals
Eligible individuals for HSAs are individuals who are
covered by a high deductible health plan and no other health
plan that (1) is not a high deductible health plan and (2)
provides coverage for any benefit which is covered under the
high deductible health plan. After an individual has attained
age 65 and becomes enrolled in Medicare benefits, contributions
cannot be made to an HSA.\14\
---------------------------------------------------------------------------
\14\See Sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, corrected by Announcement 2004-67, 2004-36 I.R.B. 459.
---------------------------------------------------------------------------
Health flexible spending accounts and health reimbursement
arrangements
In addition to offering health insurance, employers often
agree to reimburse medical expenses of their employees (and
their spouses and dependents). These arrangements are commonly
used by employers to pay or reimburse employees for medical
expenses that are not covered by health insurance. These
arrangements include health flexible spending arrangements
(``health FSAs'') and health reimbursement arrangements
(``HRAs'').
Health FSAs typically are funded on a salary reduction
basis under a cafeteria plan, meaning that employees are given
the option to reduce their current cash compensation and
instead have the amount made available for use in reimbursing
the employee for his or her medical expenses. If the health FSA
meets certain requirements, the compensation that is forgone is
not includible in gross income or wages for payroll tax
purposes.
Health FSAs that are funded on a salary reduction basis are
subject to the requirements for cafeteria plans, including a
requirement that amounts remaining in a health FSA at the end
of a plan year must be forfeited by the employee (referred to
as the ``use-it-or-lose-it rule'').\15\
---------------------------------------------------------------------------
\15\Sec. 125(d)(2).
---------------------------------------------------------------------------
Health reimbursement arrangements (``HRAs'') operate in a
manner similar to health FSAs, in that they are an employer-
maintained arrangement that reimburses employees and their
dependents\16\ for medical expenses. Some of the rules
applicable to HRAs and health FSAs are similar (e.g., the
amounts in the arrangements can only be used to reimburse
medical expenses and not for other purposes), but the rules are
not identical. In particular, HRAs cannot be funded on a salary
reduction basis and the use-it-or-lose-it rule does not apply.
Thus, amounts remaining at the end of the year may be carried
forward to be used to reimburse medical expenses in following
years.\17\ Unlike a health FSA, an HRA is permitted to
reimburse an employee for health insurance premiums.
---------------------------------------------------------------------------
\16\As defined in Sec. 152.
\17\ Guidance with respect to HRAs, including the interaction of
FSAs and HRAs in the case of an individual covered under both, is
provided in IRS Notice 2002-45, 2002-2 C.B. 93.
---------------------------------------------------------------------------
Interactions of health savings accounts with other health
arrangements
In general, an individual with an HDHP and no other health
plan (other than a plan that provides certain permitted
insurance, or permitted coverage) may establish an HSA.
Permitted insurance is coverage under which substantially all
of the coverage provided relates to liabilities incurred under
workers' compensation laws, tort liabilities, liabilities
relating to ownership or use of property, insurance for a
specified disease or illness, and insurance that pays a fixed
amount per day (or other period) of hospitalization. Permitted
coverage is coverage for accidents, disability, dental care,
vision care, or long-term care.\18\
---------------------------------------------------------------------------
\18\Notice 2004-23.
---------------------------------------------------------------------------
Under IRS guidance, a health FSA and an HRA are (with some
exceptions) considered health plans under this definition and
therefore, an individual who is covered by an HDHP and a
general purpose health FSA or general purpose HRA that pays or
reimburses qualified medical expenses,\19\ is not an eligible
individual for the purpose of making contributions to an
HSA.\20\ However, an individual does not fail to be an eligible
individual for the purpose of making contributions to an HSA if
the individual is covered under the following arrangements (or
some combination of the following arrangements): (1) a limited-
purpose health FSA that pays or reimburses only permitted
coverage or preventive care services, (2) a limited-purpose HRA
that pays or reimburses benefits for permitted insurance,
permitted coverage or preventive care services, (3) a suspended
HRA that does not pay or reimburse any medical expense incurred
during the suspension period except permitted insurance,
permitted coverage, or preventive care services, (4) a post-
deductible health FSA or HRA, which does not pay or reimburse
any medical expense incurred before the minimum annual
deductible for a plan to be an HDHP.\21\
---------------------------------------------------------------------------
\19\Defined in Sec. 213(d).
\20\Rev. Rul. 2004-45.
\21\As defined in Sec. 223(c)(2)(A)(i).
---------------------------------------------------------------------------
If a general purpose health FSA allows reimbursement for
expenses incurred during a grace period following the end of
the plan year, an otherwise eligible individual participating
in the health FSA is generally not eligible to make
contributions to an HSA until the first day of the first month
following the end of the grace period.\22\ However, if an
individual has a zero balance in a general purpose health FSA,
as determined on a cash basis,\23\ on the last day of the
health FSA plan year, the individual does not fail to be an
eligible individual as of the first day of the immediately
following health FSA plan year solely because of coverage
during a health FSA grace period. Similarly, an individual with
a zero balance in a general purpose HRA, determined on a cash
basis, on the last day of the HRA plan year, does not fail to
be an eligible individual on the first day of the immediately
following HRA plan year, as long as certain requirements are
satisfied.\24\
---------------------------------------------------------------------------
\22\Notice 2005-42, 2005-1, C.B. 1204.
\23\``Cash basis'' means the balance as of any date, without taking
into account expenses incurred that have not been reimbursed as of that
date. Thus, pending claims, claims submitted, claims received or claims
under review that have not been paid as of a date are not taken into
account for purposes of determining the account balance as of that
date.
\24\These requirements are: (1) effective on the first of the
immediately following HRA plan year, the employee elects to waive
participation in the HRA, or (2) effective on or before the first day
of the following HRA plan year, the employer terminates the general
purpose HRA with respect to all employees, or (3) effective on or
before the first day of the following HRA plan year, with respect to
all employees, the employer converts the general purpose HRA to an HSA-
compatible HRA. See Rev. Rul. 2004-45.
---------------------------------------------------------------------------
Coverage by an HSA-compatible health FSA or HRA (these
include, limited-purpose health FSA or HRA, post-deductible
health FSA or HRA, retirement HRA, or suspended HRA), does not
affect an employee's eligibility to contribute to an HSA,
including during a health FSA grace period.\25\ In addition,
IRS guidance holds that an individual covered by an HDHP that
does not provide prescription drug coverage, along with a
separate prescription drug plan or rider that provides benefits
before the minimum annual deductible of the HDHP has been
satisfied is not eligible to contribute to HSAs.\26\
---------------------------------------------------------------------------
\25\Rev. Rul. 2004-45.
\26\See Rev. Rul. 2004-38, 2004-15.
---------------------------------------------------------------------------
FSA and HRA terminations to fund HSAs
The Health Opportunity Empowerment Act of 2006\27\ amended
the Code to allow for certain amounts in a health FSA or HRA to
be rolled over into an HSA with favorable tax treatment. To
allow this, the plan must be amended in writing, the employee
must elect the rollover, and the year-end balance must be
frozen. In addition, funds must be transferred by the employer
within two and a half months after the end of the plan year and
result in a zero balance in the health FSA or HRA.\28\ The Act
provides for distributions of an amount from a health FSA or
HRA to an HSA (``qualified HSA distribution'') before January
1, 2012. The distribution must not exceed the lesser of the
balance in the health FSA or HRA on September 21, 2006, or as
of the date of distribution.
---------------------------------------------------------------------------
\27\The Health Opportunity Patient Empowerment Act of 2006,
included in the Tax Relief and Health Care Act of 2006, Pub. L. No.
109-432, sec. 302, December 20, 2006.
\28\The IRS provided guidance on special transition relief for
amounts remaining at the end of 2006. See Notice 2007-22.
---------------------------------------------------------------------------
Under these rules, a qualified HSA distribution must be
contributed directly to the HSA trustee by the employer. Only
one qualified health distribution is allowed with respect to
each health FSA or HRA of an individual. Qualified HSA
distributions are not taken into account in applying the annual
limit for HSA contributions. Qualified HSA distributions are
treated as rollovers, and thus are not deductible.
If an employee fails to remain HSA-eligible for 12 months
(``the testing period''\29\) following the distribution, the
employee is not eligible directly following the distribution,
and the amount of the rollover is included in gross income and
is subject to an additional 20 percent tax unless the
individual dies or becomes disabled. Failure to remain an
eligible individual does not require the withdrawal of the
qualified HSA distribution, and the amount is not an excess
contribution.
---------------------------------------------------------------------------
\29\The testing period is defined to be the period beginning with
the month in which the qualified HSA distribution is contributed to the
HSA and ending on the last day of the 12th month following that month.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that streamlining the conversion of
other tax-preferred health accounts to HSAs will make it easier
for individuals to establish HSAs to save for their health care
costs.
EXPLANATION OF PROVISION
The proposal defines ``qualified HSA distribution'' as a
distribution from an employee's health FSA or HRA directly to
an employee's HSA if such distribution is made in connection
with the employee establishing coverage under an HDHP after a
significant period of not having such coverage.
The aggregate amount of qualified HSA distributions may not
exceed the total annual limit on FSA contributions ($2,650 in
2018)\30\ or twice this amount in the case of an eligible
individual who has family coverage under an HDHP.
---------------------------------------------------------------------------
\30\Sec. 125(i).
---------------------------------------------------------------------------
The statutory annual contribution limits to an HSA are
$2,250 for an individual with single coverage or $4,500 for an
individual with family coverage and indexed for cost-of-living
adjustments. The contribution limits for 2018 are $3,450 for
self-only HDHP coverage, and $6,900 for an individual with
family coverage. The proposal allows deductible HSA
contributions up to these limits for a given year, reduced by
the amount of the qualified HSA distribution attributable to
that year.
The proposal also specifies that if a general-purpose
health FSA or HRA is converted to an HSA-compatible FSA or HRA,
coverage under this health FSA or HRA for the portion of the
plan year after a qualified HSA distribution is made is
disregarded in determining whether the individual is eligible
to make deductible contributions to an HSA.
Finally, the proposal provides that the amount of any
qualified HSA distribution is to be included on the information
to be reported on Form W-2.\31\
---------------------------------------------------------------------------
\31\Sec. 6051(a)
---------------------------------------------------------------------------
EFFECTIVE DATE
The proposal is effective for distributions made after
December 31, 2018, in taxable years ending after such date.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII 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. 6305, the `Bipartisan HSA Improvement Act
of 2018,' on July 11, 2018.
H.R. 6305 was ordered favorably reported to the House of
Representatives as amended by an amendment in the nature of a
substitute offered by Chairman Brady by a roll call vote of 26
yeas to 13 nays. The vote was as follows:
----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady........................... X ...... ........ Mr. Neal.............. ...... X ........
Mr. Johnson......................... X ...... ........ Mr. Levin............. ...... X ........
Mr. Nunes........................... X ...... ........ Mr. Lewis............. ...... X ........
Mr. Reichert........................ X ...... ........ Mr. Doggett........... ...... X ........
Mr. Roskam.......................... X ...... ........ Mr. Thompson.......... ...... X ........
Mr. Buchanan........................ X ...... ........ Mr. Larson............ ...... X ........
Mr. Smith (NE)...................... X ...... ........ Mr. Blumenauer........ X ...... ........
Ms. Jenkins......................... ...... ...... ........ 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. Kelly........................... X ...... ........ Mr. Higgins........... ...... X ........
Mr. Renacci......................... X ...... ........ Ms. Sewell............ X ...... ........
Ms. Noem............................ X ...... ........ Ms. DelBene........... ...... X ........
Mr. Holding......................... X ...... ........ Ms. Chu............... ...... X ........
Mr. Smith (MO)...................... X ...... ........
Mr. Rice............................ X ...... ........
Mr. Schweikert...................... X ...... ........
Ms. Walorski........................ X ...... ........
Mr. Curbelo......................... X ...... ........
Mr. Bishop.......................... X ...... ........
Mr. LaHood.......................... X ...... ........
Mr. Wenstrup........................ 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. 6305, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal fiscal year budget receipts for the period
2019-2028:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEARS [Millions of Dollars]
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Item 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019-23 2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Certain Employment Related Services Not treated as -165 -248 -274 -310 -350 -392 -440 -518 -588 -655 -1,347 -3,939
Disqualifying Coverage for Purposes of Health Savings
Accounts\1\................................................
Contributions Permitted if Spouse has a Health Flexible -1 -2 -2 -2 -2 -2 -2 -2 -2 -2 -8 -18
Spending Account\1\........................................
FSA and HRA Terminations or Conversions to Fund Health -11 -28 -28 -29 -30 -31 -32 -38 -38 -39 -127 -302
Savings Accounts\1\........................................
-----------------------------------------------------------------------------------------------------------------------------------
Total................................................... -177 -278 -304 -341 -382 -425 -474 -555 -628 -696 -1,482 -4,259
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details may not add to totals due to rounding.
\1\Estimate includes the following off-budget effects:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019-23 2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Certain Employment Related Services Not treated as -36 -49 -53 -61 -70 -80 -92 -107 -126 -149 -269 -823
Disqualifying Coverage for Purposes of Health Savings
Accounts\1\................................................
Contributions Permitted if Spouse has a Health Flexible \2\ \2\ \2\ \2\ \2\ -1 -1 -1 -1 -1 -2 -5
Spending Account\1\........................................
Flexible Spending Arrangement and Health Savings Account -3 -7 -8 -8 -8 -9 -9 -9 -9 -10 -34 -80
Terminations or Conversions to Fund Health Savings
Accounts\1\................................................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\2\Loss of less than $500,000.
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 tax
provision involves a new tax expenditure. See Part IV.A.,
above.
C. Cost Estimate Prepared by the Congressional Budget Office
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. 6138, as
reported. As of the filing of this report, the Committee had
not received an estimate prepared by the Congressional Budget
Office (CBO).
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated into
the description portions of this report.
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(c)(5) of rule XIII of the Rules
of the House of Representatives, 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 section 6104 of
title 31, United States Code.
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (115th Congress),
the following statement is made concerning directed rule
makings: The Committee advises 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
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 italic, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, 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 III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
* * * * * * *
SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH PLANS.
(a) General rule.--Except as otherwise provided in this
section, gross income of an employee does not include employer-
provided coverage under an accident or health plan.
(b) Contributions to Archer MSAs.--
(1) In general.--In the case of an employee who is an
eligible individual, amounts contributed by such
employee's employer to any Archer MSA of such employee
shall be treated as employer-provided coverage for
medical expenses under an accident or health plan to
the extent such amounts do not exceed the limitation
under section 220(b)(1) (determined without regard to
this subsection) which is applicable to such employee
for such taxable year.
(2) No constructive receipt.--No amount shall be
included in the gross income of any employee solely
because the employee may choose between the
contributions referred to in paragraph (1) and employer
contributions to another health plan of the employer.
(3) Special rule for deduction of employer
contributions.--Any employer contribution to an Archer
MSA, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in
which paid.
(4) Employer MSA contributions required to be shown
on return.--Every individual required to file a return
under section 6012 for the taxable year shall include
on such return the aggregate amount contributed by
employers to the Archer MSAs of such individual or such
individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage.--
Paragraph (1) shall not apply for purposes of section
4980B.
(6) Definitions.--For purposes of this subsection,
the terms ``eligible individual'' and ``Archer MSA''
have the respective meanings given to such terms by
section 220.
(7) Cross reference.--For penalty on failure by
employer to make comparable contributions to the Archer
MSAs of comparable employees, see section 4980E.
(c) Inclusion of long-term care benefits provided through
flexible spending arrangements.--
(1) In general.--Gross income of an employee shall
include employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c)) to
the extent that such coverage is provided through a
flexible spending or similar arrangement.
(2) Flexible spending arrangement.--For purposes of
this subsection, a flexible spending arrangement is a
benefit program which provides employees with coverage
under which--
(A) specified incurred expenses may be
reimbursed (subject to reimbursement maximums
and other reasonable conditions), and
(B) the maximum amount of reimbursement which
is reasonably available to a participant for
such coverage is less than 500 percent of the
value of such coverage.
In the case of an insured plan, the maximum amount
reasonably available shall be determined on the basis
of the underlying coverage.
(d) Contributions to health savings accounts.--
(1) In general.--In the case of an employee who is an
eligible individual (as defined in section 223(c)(1)),
amounts contributed by such employee's employer to any
health savings account (as defined in section 223(d))
of such employee shall be treated as employer-provided
coverage for medical expenses under an accident or
health plan to the extent such amounts do not exceed
the limitation under section 223(b) (determined without
regard to this subsection) which is applicable to such
employee for such taxable year.
(2) Special rules.--Rules similar to the rules of
paragraphs (2), (3), (4), and (5) of subsection (b)
shall apply for purposes of this subsection.
(3) Cross reference.--For penalty on failure by
employer to make comparable contributions to the health
savings accounts of comparable employees, see section
4980G.
(e) FSA and HRA Terminations to Fund HSAs.--
(1) In general.--A plan shall not fail to be treated
as a health flexible spending arrangement or health
reimbursement arrangement under this section or section
105 merely because such plan provides for a qualified
HSA distribution.
[(2) Qualified HSA distribution.--The term
``qualified HSA distribution'' means a distribution
from a health flexible spending arrangement or health
reimbursement arrangement to the extent that such
distribution--
[(A) does not exceed the lesser of the
balance in such arrangement on September 21,
2006, or as of the date of such distribution,
and
[(B) is contributed by the employer directly
to the health savings account of the employee
before January 1, 2012.
Such term shall not include more than 1 distribution
with respect to any arrangement.]
(2) Qualified hsa distribution.--For purposes of this
subsection--
(A) In general.--The term ``qualified HSA
distribution'' means, with respect to any
employee, a distribution from a health flexible
spending arrangement or health reimbursement
arrangement of such employee directly to a
health savings account of such employee if--
(i) such distribution is made in
connection with such employee
establishing coverage under a high
deductible health plan (as defined in
section 223(c)(2)) after a significant
period of not having such coverage, and
(ii) such arrangement is described in
section 223(c)(1)(B)(iii) with respect
to the portion of the plan year after
such distribution is made.
(B) Dollar limitation.--The aggregate amount
of distributions from health flexible spending
arrangements and health reimbursement
arrangements of any employee which may be
treated as qualified HSA distributions in
connection with an establishment of coverage
described in subparagraph (A)(i) shall not
exceed the dollar amount in effect under
section 125(i)(1) (twice such amount in the
case of coverage which is described in section
223(b)(2)(B)).
(3) Additional tax for failure to maintain high
deductible health plan coverage.--
(A) In general.--If, at any time during the
testing period, the employee is not an eligible
individual, then the amount of the qualified
HSA distribution--
(i) shall be includible in the gross
income of the employee for the taxable
year in which occurs the first month in
the testing period for which such
employee is not an eligible individual,
and
(ii) the tax imposed by this chapter
for such taxable year on the employee
shall be increased by 10 percent of the
amount which is so includible.
(B) Exception for disability or death.--
Clauses (i) and (ii) of subparagraph (A) shall
not apply if the employee ceases to be an
eligible individual by reason of the death of
the employee or the employee becoming disabled
(within the meaning of section 72(m)(7)).
(4) Definitions and special rules.--For purposes of
this subsection--
(A) Testing period.--The term ``testing
period'' means the period beginning with the
month in which the qualified HSA distribution
is contributed to the health savings account
and ending on the last day of the 12th month
following such month.
(B) Eligible individual.--The term ``eligible
individual'' has the meaning given such term by
section 223(c)(1).
(C) Treatment as rollover contribution.--A
qualified HSA distribution shall be treated as
a rollover contribution described in section
223(f)(5).
(5) Tax treatment relating to distributions.--For
purposes of this title--
(A) In general.--A qualified HSA distribution
shall be treated as a payment described in
subsection (d).
(B) Comparability excise tax.--
(i) In general.--Except as provided
in clause (ii), section 4980G shall not
apply to qualified HSA distributions.
(ii) Failure to offer to all
employees.--In the case of a qualified
HSA distribution to any employee, the
failure to offer such distribution to
any eligible individual covered under a
high deductible health plan of the
employer shall (notwithstanding section
4980G(d)) be treated for purposes of
section 4980G as a failure to meet the
requirements of section 4980G(b).
(f) Reimbursements for medicine restricted to prescribed
drugs and insulin.--For purposes of this section and section
105, reimbursement for expenses incurred for a medicine or a
drug shall be treated as a reimbursement for medical expenses
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.
(g) Qualified small employer health reimbursement
arrangement.--For purposes of this section and section 105,
payments or reimbursements from a qualified small employer
health reimbursement arrangement (as defined in section
9831(d)) of an individual for medical care (as defined in
section 213(d)) shall not be treated as paid or reimbursed
under employer-provided coverage for medical expenses under an
accident or health plan if for the month in which such medical
care is provided the individual does not have minimum essential
coverage (within the meaning of section 5000A(f)).
* * * * * * *
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))[.], and
(D) so much of any qualified HSA distribution
(as defined in section 106(e)(2)) made to a
health savings account of such individual
during the taxable year as does not exceed the
aggregate increases in the balance of the
arrangement from which such distribution is
made which occur during the portion of the plan
year which precedes such distribution (other
than any balance carried over to such plan year
and determined without regard to any decrease
in such balance during such portion of the plan
year).
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.]
(iii) coverage under a health
flexible spending arrangement or health
reimbursement arrangement for the
portion of the plan year after a
qualified HSA distribution (as defined
in section 106(e)(2) determined without
regard to subparagraph (A)(ii) thereof)
is made, if the terms of such
arrangement which apply for such
portion of the plan year are such that,
if such terms applied for the entire
plan year, then such arrangement would
not be taken into account under
subparagraph (A)(ii) of this paragraph
for such plan year, and
(iv) coverage under a health flexible
spending arrangement of the spouse of
the individual for any plan year of
such arrangement if the aggregate
reimbursements under such arrangement
for such year do not exceed the
aggregate expenses which would be
eligible for reimbursement under such
arrangement if such expenses were
determined without regard to any
expenses paid or incurred with respect
to such individual.
(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).
(D) Special rule for qualified items and
services.--
(i) In general.--An individual shall
not be treated as covered under a
health plan for purposes of
subparagraph (A)(ii) merely because the
individual, in connection with the
employment of the individual or the
individual's spouse, receives (or is
eligible to receive) qualified items
and services at--
(I) a healthcare facility
located at a facility owned or
leased by the employer of the
individual (or of the
individual's spouse), or
operated primarily for the
benefit of such employer's
employees, or
(II) a healthcare facility
located within a supermarket,
pharmacy, or similar retail
establishment.
(ii) Qualified items and services
defined.--For purposes of this
subparagraph, the term ``qualified
items and services'' means the
following:
(I) Physical examinations.
(II) Immunizations, including
injections of antigens provided
by employees.
(III) Drugs other than a
prescribed drug (as such term
is defined in section
213(d)(3)).
(IV) Treatment for injuries
occurring in the course of
employment.
(V) Drug testing, if required
as a condition of employment.
(VI) Hearing or vision
screenings.
(VII) Other similar items and
services that do not provide
significant benefits in the
nature of medical care.
(iii) Aggregation.--For purposes of
clause (i)(I), all persons treated as a
single employer under subsection (b),
(c), (m), or (o) of section 414 shall
be treated as a single employer.
(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
1861 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 clause (i) of section 121(d)(3)(C) 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 2016'' in
subparagraph (A)(ii) 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.
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--Returns and Records
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart C--Information Regarding Wages Paid Employees
* * * * * * *
SEC. 6051. RECEIPTS FOR EMPLOYEES.
(a) Requirement.--Every person required to deduct and
withhold from an employee a tax under section 3101 or 3402, or
who would have been required to deduct and withhold a tax under
section 3402 (determined without regard to subsection (n)) if
the employee had claimed no more than one withholding
exemption, or every employer engaged in a trade or business who
pays remuneration for services performed by an employee,
including the cash value of such remuneration paid in any
medium other than cash, shall furnish to each such employee in
respect of the remuneration paid by such person to such
employee during the calendar year, on or before January 31 of
the succeeding year, or, if his employment is terminated before
the close of such calendar year, within 30 days after the date
of receipt of a written request from the employee if such 30-
day period ends before January 31, a written statement showing
the following:
(1) the name of such person,
(2) the name of the employee (and an identifying
number for the employee if wages as defined in section
3121(a) have been paid),
(3) the total amount of wages as defined in section
3401(a),
(4) the total amount deducted and withheld as tax
under section 3402,
(5) the total amount of wages as defined in section
3121(a),
(6) the total amount deducted and withheld as tax
under section 3101,
(8) the total amount of elective deferrals (within
the meaning of section 402(g)(3)) and compensation
deferred under section 457, including the amount of
designated Roth contributions (as defined in section
402A),
(9) the total amount incurred for dependent care
assistance with respect to such employee under a
dependent care assistance program described in section
129(d),
(10) in the case of an employee who is a member of
the Armed Forces of the United States, such employee's
earned income as determined for purposes of section 32
(relating to earned income credit),
(11) the amount contributed to any Archer MSA (as
defined in section 220(d)) of such employee or such
employee's spouse,
(12) the amount contributed to any health savings
account (as defined in section 223(d)) of such employee
or such employee's spouse (other than any qualified HSA
distribution, as defined in section 106(e)(2)),
(13) the total amount of deferrals for the year under
a nonqualified deferred compensation plan (within the
meaning of section 409A(d)),
(14) the aggregate cost (determined under rules
similar to the rules of section 4980B(f)(4)) of
applicable employer-sponsored coverage (as defined in
section 4980I(d)(1)), except that this paragraph shall
not apply to--
(A) coverage to which paragraphs (11) and
(12) apply, or
(B) the amount of any salary reduction
contributions to a flexible spending
arrangement (within the meaning of section
125),
(15) the total amount of permitted benefit (as
defined in section 9831(d)(3)(C)) for the year under a
qualified small employer health reimbursement
arrangement (as defined in section 9831(d)(2)) with
respect to the employee,
(16) the amount includible in gross income under
subparagraph (A) of section 83(i)(1) with respect to an
event described in subparagraph (B) of such section
which occurs in such calendar year, [and]
(17) the aggregate amount of income which is being
deferred pursuant to elections under section 83(i),
determined as of the close of the calendar year[.], and
(18) the amount of any qualified HSA distribution (as
defined in section 106(e)(2)) with respect to such
employee.
In the case of compensation paid for service as a member of a
uniformed service, the statement shall show, in lieu of the
amount required to be shown by paragraph (5), the total amount
of wages as defined in section 3121(a), computed in accordance
with such section and section 3121(i)(2). In the case of
compensation paid for service as a volunteer or volunteer
leader within the meaning of the Peace Corps Act, the statement
shall show, in lieu of the amount required to be shown by
paragraph (5), the total amount of wages as defined in section
3121(a), computed in accordance with such section and section
3121(i)(3). In the case of tips received by an employee in the
course of his employment, the amounts required to be shown by
paragraphs (3) and (5) shall include only such tips as are
included in statements furnished to the employer pursuant to
section 6053(a). The amounts required to be shown by paragraph
(5) shall not include wages which are exempted pursuant to
sections 3101(c) and 3111(c) from the taxes imposed by sections
3101 and 3111. In the case of the amounts required to be shown
by paragraph (13), the Secretary may (by regulation) establish
a minimum amount of deferrals below which paragraph (13) does
not apply.
(b) Special Rule as to Compensation of Members of Armed
Forces.--In the case of compensation paid for service as a
member of the Armed Forces, the statement required by
subsection (a) shall be furnished if any tax was withheld
during the calendar year under section 3402, or if any of the
compensation paid during such year is includible in gross
income under chapter 1, or if during the calendar year any
amount was required to be withheld as tax under section 3101.
In lieu of the amount required to be shown by paragraph (3) of
subsection (a), such statement shall show as wages paid during
the calendar year the amount of such compensation paid during
the calendar year which is not excluded from gross income under
chapter 1 (whether or not such compensation constituted wages
as defined in section 3401(a)).
(c) Additional Requirements.--The statements required to be
furnished pursuant to this section in respect of any
remuneration shall be furnished at such other times, shall
contain such other information, and shall be in such form as
the Secretary may by regulations prescribe. The statements
required under this section shall also show the proportion of
the total amount withheld as tax under section 3101 which is
for financing the cost of hospital insurance benefits under
part A of title XVIII of the Social Security Act.
(d) Statements to Constitute Information Returns.--A
duplicate of any statement made pursuant to this section and in
accordance with regulations prescribed by the Secretary shall,
when required by such regulations, be filed with the Secretary.
(e) Railroad Employees.--
(1) Additional requirement.--Every person required to
deduct and withhold tax under section 3201 from an
employee shall include on or with the statement
required to be furnished such employee under subsection
(a) a notice concerning the provisions of this title
with respect to the allowance of a credit or refund of
the tax on wages imposed by section 3101(b) and the tax
on compensation imposed by section 3201 or 3211 which
is treated as a tax on wages imposed by section
3101(b).
(2) Information to be supplied to employees.--Each
person required to deduct and withhold tax under
section 3201 during any year from an employee who has
also received wages during such year subject to the tax
imposed by section 3101(b) shall, upon request of such
employee, furnish to him a written statement showing--
(A) the total amount of compensation with
respect to which the tax imposed by section
3201 was deducted,
(B) the total amount deducted as tax under
section 3201, and
(C) the portion of the total amount deducted
as tax under section 3201 which is for
financing the cost of hospital insurance under
part A of title XVIII of the Social Security
Act.
(f) Statements Required in Case of Sick Pay Paid by Third
Parties.--
(1) Statements required from payor.--
(A) In general.--If, during any calendar
year, any person makes a payment of third-party
sick pay to an employee, such person shall, on
or before January 15 of the succeeding year,
furnish a written statement to the employer in
respect of whom such payment was made showing--
(i) the name and, if there is
withholding under section 3402(o), the
social security number of such
employee,
(ii) the total amount of the third-
party sick pay paid to such employee
during the calendar year, and
(iii) the total amount (if any)
deducted and withheld from such sick
pay under section 3402.
For purposes of the preceding sentence, the
term ``third-party sick pay'' means any sick
pay (as defined in section 3402(o)(2)(C)) which
does not constitute wages for purposes of
chapter 24 (determined without regard to
section 3402(o)(1)).
(B) Special rules.--
(i) Statements are in lieu of other
reporting requirements.--The reporting
requirements of subparagraph (A) with
respect to any payments shall, with
respect to such payments, be in lieu of
the requirements of subsection (a) and
of section 6041.
(ii) Penalties made applicable.--For
purposes of sections 6674 and 7204, the
statements required to be furnished by
subparagraph (A) shall be treated as
statements required under this section
to be furnished to employees.
(2) Information required to be furnished by
employer.--Every employer who receives a statement
under paragraph (1)(A) with respect to sick pay paid to
any employee during any calendar year shall, on or
before January 31 of the succeeding year, furnish a
written statement to such employee showing--
(A) the information shown on the statement
furnished under paragraph (1)(A), and
(B) if any portion of the sick pay is
excludable from gross income under section
104(a)(3), the portion which is not so
excludable and the portion which is so
excludable.
To the extent practicable, the information required
under the preceding sentence shall be furnished on or
with the statement (if any) required under subsection
(a).
* * * * * * *
MINORITY VIEWS
H.R. 6305 Bipartisan Improvements to HSAs
H.R. 6305 (Kelly, R-PA and Blumenauer, D-OR) allows: (1) an
individual to roll over Flexible Spending Account (FSA) and
limited Health Reimbursement Accounts (HRAs; up to the annual
Health Savings Account (HSA) contribution amount) at time of
transition to an HSA-eligible High-Deductible Health Plan
(HDEIP); (2) an individual to maintain an HSA even if his/her
spouse has an FSA, provided each spouse is under separate
health insurance plans; and (3) employees to participate in an
HSA even if his/her employer offers an on-site health clinic.
H.R. 6305 does not undo sabotage, premium hikes, and
benefit cuts Republicans have caused over the past 18 months.
This bill was one in a series of 11 bills the Committee marked
up that Republicans claim will help lower health care costs for
consumers. This legislation does not undo the disruption and
sabotage the Republicans have continued to inflict on the
American health care system. Instead of focusing on expansion
of HSAs and HDHPs, Democrats encourage the Committee to
redirect its attention to legislation that could actually
ensure that uninsured, low-income, and vulnerable people have
real access to care. For example H.R. 5155, sponsored by Reps.
Pallone, Neal, and Scott would protect people with preexisting
conditions, lower premiums for Americans, and improve
affordability of health coverage.
Legislation busts the deficit to benefit the wealthy,
again. Altogether the 11 bills the Committee marked up would
add another $92 billion in unoffset tax cuts to the deficit.
Attempts to expand HSAs (and encourage more enrollment in plans
with high deductibles, covering very few up-front health costs)
represent a continuation of Republicans' platform of shifting
families into health plans that provide fewer health benefits
and higher out-of-pocket costs--while providing greater tax
benefits for higher-income individuals and corporate special
interests. According to 2014 Treasury data, only five percent
of families with adjusted gross income of under $100,000 held
money in an HSA, and those users' average account balances were
$1,700.
HDHPs and HSAs do not promote healthy behavior. It is
widely acknowledged that HSAs and HDHPs lead consumers to delay
care. They do not encourage individuals to make better health
care decisions, as Republicans' ``skin in the game'' talking
points assert. Decades of research shows that exposure to high
out-of-pocket costs leads consumers to delay or forgo both
necessary and unnecessary care. Delaying care and increasing
costs run counter to Democratic policy goals of better
coordinated, high-value affordable care for American families.
This legislation demonstrates why HDHPs in their current format
do not allow consumers to see value in their health insurance.
According to the American Hospital Association, ``Hospitals
and health systems report that increased enrollment in HDHPs
over the past several years has reduced access to care and
subjected patients to costs they cannot afford. In addition,
patients enrolled in HDHPs appear to delay care until they have
reached their deductible or are in an emergency situation,
which could lead to poorer health outcomes.''
HSAs mostly benefit high-income taxpayers while doing
little to help moderate-income families or the uninsured. High-
income people can best afford to save for health care expenses
and are, therefore, the most likely to contribute to HSAs.
Higher income filers are much more likely to establish HSAs
than lower income filers--70 percent of HSA contributions come
from households with incomes over $100,000, according to the
Joint Commission on Taxation (JCT)--and they are also likelier
to max out their contributions. Additionally, high-income
individuals receive the biggest tax benefit for each dollar
contributed to an HSA because the value of a tax deduction
rises with an individual's tax bracket. More than 44 percent of
Americans cannot afford a $400 emergency visit. For these
families, it is unlikely they have excess income to devote to a
tax-preferred account.
JCT estimates the cost of this bill to be $4.3 billion over
10 years. With this bill, Republicans are adding more tax cuts
and increasing the deficit. Republicans are using the deficit,
which they keep making larger with cuts for the wealthy, to
justify their deep cuts to Medicare and Medicaid. Republicans
are already proposing to cut Medicare and Medicaid by nearly a
trillion dollars to try to pay for the tax cuts they have
already enacted. This bill will only add fuel to the fire.
Richard E. Neal,
Ranking Member
[all]