House Report 118-401 - BIPARTISAN HSA IMPROVEMENT ACT OF 2023

[House Report 118-401]
[From the U.S. Government Publishing Office]

118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 118-401

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

BIPARTISAN HSA IMPROVEMENT ACT OF 2023

_______

February 26, 2024.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

_______

Mr. Smith of Missouri, from the Committee on Ways and Means, submitted
the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 5688]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 5688) to amend the Internal Revenue Code of 1986 to
improve health savings accounts, having considered the same,
reports favorably thereon with an amendment and recommends that
the bill as amended do pass.

CONTENTS

Page
I. SUMMARY AND BACKGROUND...........................................5
A. Purpose and Summary................................. 5
B. Background and Need for Legislation................. 5
C. Legislative History................................. 5
D. Designated Hearing.................................. 5
II. EXPLANATION OF THE BILL..........................................6
A. Treatment of Direct Primary Care Service
Arrangements (sec. 2 of the bill and sec. 223 of
the Code).......................................... 6
B. On-site Employee Clinics (sec. 3 of the bill and
sec. 223 of the Code).............................. 8
C. Contributions Permitted if Spouse Has Health
Flexible Spending Arrangement (sec. 4 of the bill
and sec. 223 of the Code).......................... 10
D. FSA and HRA Terminations or Conversions to Fund HSAs
(sec. 5 of the bill and secs. 106 and 223 of the
Code).............................................. 12
III. VOTES OF THE COMMITTEE..........................................15
IV. BUDGET EFFECTS OF THE BILL......................................19
A. Committee Estimate of Budgetary Effects............. 19
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 19
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 20
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE......23
A. Committee Oversight Findings and Recommendations.... 23
B. Statement of General Performance Goals and
Objectives......................................... 23
C. Tax Complexity Analysis............................. 23
1. Contributions permitted if spouse has health
flexible spending arrangement...................... 23
2. FSA and HRA terminations or conversions to fund
HSAs............................................... 24
D. Information Relating to Unfunded Mandates........... 25
E. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 25
F. Duplication of Federal Programs..................... 25
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........25
A. Text of Existing Law Amended or Repealed by the
Bill, as Reported.................................. 25
VII. DISSENTING VIEWS................................................46

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
2023''.

SEC. 2. TREATMENT OF DIRECT PRIMARY CARE SERVICE ARRANGEMENTS.

(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:
``(E) Treatment of direct primary care service
arrangements.--
``(i) In general.--A direct primary care
service arrangement shall not be treated as a
health plan for purposes of subparagraph
(A)(ii).
``(ii) Direct primary care service
arrangement.--For purposes of this paragraph--
``(I) In general.--The term `direct
primary care service arrangement'
means, with respect to any individual,
an arrangement under which such
individual is provided medical care (as
defined in section 213(d)) consisting
solely of primary care services
provided by primary care practitioners
(as defined in section 1833(x)(2)(A) of
the Social Security Act, determined
without regard to clause (ii) thereof),
if the sole compensation for such care
is a fixed periodic fee.
``(II) Limitation.--With respect to
any individual for any month, such term
shall not include any arrangement if
the aggregate fees for all direct
primary care service arrangements
(determined without regard to this
subclause) with respect to such
individual for such month exceed $150
(twice such dollar amount in the case
of an individual with any direct
primary care service arrangement (as so
determined) that covers more than one
individual).
``(iii) Certain services specifically
excluded from treatment as primary care
services.--For purposes of this paragraph, the
term `primary care services' shall not
include--
``(I) procedures that require the use
of general anesthesia,
``(II) prescription drugs (other than
vaccines), and
``(III) laboratory services not
typically administered in an ambulatory
primary care setting.
The Secretary, after consultation with the
Secretary of Health and Human Services, shall
issue regulations or other guidance regarding
the application of this clause.''.
(b) Direct Primary Care Service Arrangement Fees Treated as Medical
Expenses.--Section 223(d)(2)(C) of such Code is amended by striking
``or'' at the end of clause (iii), by striking the period at the end of
clause (iv) and inserting ``, or'', and by adding at the end the
following new clause:
``(v) any direct primary care service
arrangement.''.
(c) Inflation Adjustment.--Section 223(g)(1) of such Code is
amended--
(1) by inserting ``, (c)(1)(E)(ii)(II),'' after ``(b)(2)''
each place it appears, and
(2) in subparagraph (B), by inserting ``and (iii)'' after
``clause (ii)'' in clause (i), by striking ``and'' at the end
of clause (i), by striking the period at the end of clause (ii)
and inserting ``, and'', and by inserting after clause (ii) the
following new clause:
``(iii) in the case of the dollar amount in
subsection (c)(1)(E)(ii)(II) for taxable years
beginning in calendar years after 2026,
`calendar year 2025'.''.
(d) Reporting of Direct Primary Care Service Arrangement Fees on W-
2.--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) in the case of a direct primary care service
arrangement (as defined in section 223(c)(1)(E)(ii)) which is
provided in connection with employment, the aggregate fees for
such arrangement for such employee.''.
(e) Effective Date.--The amendments made by this section shall apply
to months beginning after December 31, 2025, in taxable years ending
after such date.

SEC. 3. ON-SITE EMPLOYEE CLINICS.

(a) In General.--Section 223(c)(1) of the Internal Revenue Code of
1986, as amended by the preceding provisions of this Act, is amended by
adding at the end the following new subparagraph:
``(F) Special rule for qualified items and
services.--
``(i) In general.--For purposes of
subparagraph (A)(ii), an individual shall not
be treated as covered under a health plan
described in subclauses (I) and (II) of such
subparagraph merely because the individual is
eligible to receive, or receives, qualified
items and services--
``(I) at a healthcare facility
located at a facility owned or leased
by the employer of the individual (or
of the individual's spouse), or
``(II) at a healthcare facility
operated primarily for the benefit of
employees of the employer of the
individual (or of the individual's
spouse).
``(ii) Qualified items and services
defined.--For purposes of this subparagraph,
the term `qualified items and services' means
the following:
``(I) Physical examination.
``(II) Immunizations, including
injections of antigens provided by
employees.
``(III) Drugs or biologicals 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) Preventive care for chronic
conditions (as defined in clause (iv)).
``(VI) Drug testing.
``(VII) Hearing or vision screenings
and related services.
``(iii) Aggregation.--For purposes of clause
(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.
``(iv) Preventive care for chronic
conditions.--For purposes of this subparagraph,
the term `preventive care for chronic
conditions' means any item or service specified
in the Appendix of Internal Revenue Service
Notice 2019-45 which is prescribed to treat an
individual diagnosed with the associated
chronic condition specified in such Appendix
for the purpose of preventing the exacerbation
of such chronic condition or the development of
a secondary condition, including any amendment,
addition, removal, or other modification made
by the Secretary (pursuant to the authority
granted to the Secretary under paragraph
(2)(C)) to the items or services specified in
such Appendix subsequent to the date of
enactment of this subparagraph.''.
(b) Effective Date.--The amendments made by this section shall apply
to months in taxable years beginning after December 31, 2025.

SEC. 4. CONTRIBUTIONS PERMITTED IF SPOUSE HAS HEALTH FLEXIBLE SPENDING
ARRANGEMENT.

(a) Contributions Permitted if Spouse Has a Health Flexible Spending
Arrangement.--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
adding at the end 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, 2025.

SEC. 5. 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 contributed 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)) if during the 4-year period
preceding the date the employee so establishes
coverage the employee was not covered under
such a high deductible health plan, and
``(ii) such arrangement is described in
section 223(c)(1)(B)(vi) with respect to any
portion of the plan year remaining after such
distribution is made, if such employee remains
enrolled in such arrangement.
``(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) of such Code, as amended by this preceding
provisions of this Act, is amended by striking ``and'' at the end of
clause (iii), by striking the period at the end of clause (iv) and
inserting ``, and'', and by adding at the end the following new clause:
``(v) 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.''.
(d) Inclusion of Qualified HSA Distributions on W-2.--
(1) In general.--Section 6051(a) of such Code, as amended by
this preceding provisions of this Act, is amended by striking
``and'' at the end of paragraph (17), by striking the period at
the end of paragraph (18) and inserting ``, and'', and by
inserting after paragraph (18) the following new paragraph:
``(19) 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, 2025, in taxable years ending
after such date.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill, H.R. 5688, the ``Bipartisan HSA Improvement Act
of 2023,'' as ordered reported by the Committee on Ways and
Means on September 28, 2023, would expand high deductible
health plan health savings account eligibility to more
populations and make technical changes to improve these
accounts.

B. Background and Need for Legislation

In order for an individual to be eligible to make
contributions or to receive contributions from an employer to a
health savings account (HSA), the individual must have a high
deductible health plan (HDHP) and have no disqualifying health
coverage.
Currently, the Internal Revenue Service (``IRS'') may view
direct primary care arrangements as a separate form of
disqualifying health coverage that is incompatible with
contributing to an HSA. The IRS also may view some services
performed at a worksite health clinic as significant benefits
in the nature of medical care, disqualifying individuals who
receive these services from contributing to their HSA.
Generally, individuals are not eligible for HSAs if their
spouse is enrolled in a health Flexible Spending Arrangement
(FSA).
Currently, individuals cannot convert their health
reimbursement arrangements (HRAs) or FSAs into HSAs.

C. Legislative History

Background

H.R. 5688 was introduced on September 26, 2023, and was
referred to the Committee on Ways and Means.

Committee hearings

On May 16, 2023, the Committee held a Full Committee
Hearing on ``Health Care Price Transparency: A Patient's Right
to Know''.

Committee action

The Committee on Ways and Means marked up H.R. 5688, the
``Bipartisan HSA Improvement Act of 2023,'' on September 28,
2023, and ordered the bill, as amended, favorably reported
(with a quorum being present).

D. Designated Hearing

Pursuant to clause 3(c)(6) of rule XIII, the Committee on
Ways and Means held a hearing on May 16, 2023, Ways and Means
Hearing ``Health Care Price Transparency: A Patient's Right to
Know'' which was used to develop and consider H.R. 5687.

II. EXPLANATION OF THE BILL

A. Treatment of Direct Primary Care Service Arrangements (sec. 2 of the
bill and sec. 223 of the Code)

PRESENT LAW

Health savings accounts

An individual may contribute to an HSA only if the
individual is covered under a plan that meets the requirements
for a high deductible health plan, as described below. In
general, HSAs provide tax-favored treatment for current medical
expenses, as well as the ability to save on a tax-favored basis
for future medical expenses. In general, an HSA is a tax-exempt
trust or custodial account created exclusively to pay for the
qualified medical expenses of the account holder and his or her
spouse and dependents.
Within limits,\1\ contributions to an HSA made by or on
behalf of an eligible individual (with the exception of
contributions by the individual's employer) are deductible by
the individual. HSA contributions made on behalf of an eligible
individual by an employer are excludible from income and wages
for employment tax purposes. Earnings on amounts in HSAs are
not taxable. Distributions from an HSA for qualified medical
expenses are not includible in gross income. Distributions from
an HSA that are not used for qualified medical expenses are
includible in gross income and are subject to an additional tax
of 20 percent. The 20-percent additional tax does not apply if
the distribution is made after death, disability, or the
individual attains the age of Medicare eligibility (age 65).
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\1\For 2023, the basic limit on annual contributions that can be
made to an HSA is $3,850 in the case of self-only coverage and $7,750
in the case of family coverage. Rev. Proc. 2022-24, 2022-20 I.R.B.
1075, May 16, 2022. The basic annual contribution 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). Sec.
223(b)(3).
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High deductible health plans

An HDHP is a health plan that has an annual deductible
which is not less than $1,500 (for 2023) for self-only coverage
(twice this amount for family coverage), and for which the sum
of the annual deductible and other annual out-of-pocket
expenses (other than premiums) for covered benefits does not
exceed $7,500 (for 2023) for self-only coverage (twice this
amount for family coverage).\2\ These dollar thresholds are
adjusted for inflation.\3\
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\2\Ibid. Sec. 223(c)(2).
\3\Sec. 223(g).
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An individual who is covered under an HDHP is eligible to
contribute to an HSA, provided that while such individual is
covered under the HDHP, the individual is not covered under any
health plan that (1) is not an HDHP and (2) provides coverage
for any benefit (subject to certain exceptions) covered under
the HDHP.\4\
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\4\Sec. 223(c)(1).
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Various types of coverage are disregarded for this purpose,
including coverage of any benefit provided by permitted
insurance, coverage (whether through insurance or otherwise)
for accidents, disability, dental care, vision care, or long-
term care, as well as certain limited coverage through health
flexible spending arrangements.\5\ Permitted insurance means
insurance 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, or such other similar liabilities
as specified by the Secretary of the Treasury (the
``Secretary'') under regulations. Permitted insurance also
means insurance for a specified disease or illness and
insurance paying a fixed amount per day (or other period) of
hospitalization.\6\
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\5\Sec. 223(c)(1)(B).
\6\Sec. 223(c)(3).
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Under a safe harbor, an HDHP is permitted to provide
coverage for preventive care (within the meaning of section
1861 of the Social Security Act, except as otherwise provided
by the Secretary) before satisfaction of the minimum
deductible.\7\ IRS guidance provides a safe harbor for the
types of coverage that constitute preventive care for this
purpose.\8\
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\7\Sec. 223(c)(2)(C).
\8\Notice 2004-23, 2004-1 C.B. 725. See also Notice 2004-50, 2004-
33 I.R.B. 196, August 16, 2004, Q&A's-26 and 27; Notice 2008-59, 2008-
29 I.R.B. 123, July 21, 2008; Notice 2013-57, 2013-40 I.R.B. 293,
September 30, 2013; and Notice 2019-45, 2019-32 I.R.B. 593, August 5,
2019.
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After an individual has attained age 65 and becomes
enrolled in Medicare benefits, contributions cannot be made to
the individual's HSA.\9\
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\9\See sec. 223(b)(7), as interpreted by Notice 2004-2, 2004-2
I.R.B. 269, January 12, 2004, corrected by Announcement 2004-67, 2004-
36 I.R.B. 459, September 7, 2004.
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Direct primary care service arrangements

Under present law, a direct primary care service
arrangement may constitute other health coverage, depending on
the specific attributes of the arrangement, and therefore an
individual covered by a direct primary care service arrangement
may not be eligible to contribute to an HSA.\10\
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\10\See IRS, Certain Medical Care Arrangements, proposed rule, 85
Fed. Reg. 35398, June 10, 2020. In the proposed rule, the IRS proposed
defining a direct primary care arrangement as a contract between an
individual and one or more primary care physicians under which the
physician or physicians agree to provide medical care for a fixed
annual or periodic fee without billing a third party.
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REASONS FOR CHANGE

The Committee believes that direct primary care service
arrangements are an important tool for families seeking access
to low-cost, high-quality primary care, and that current law
may impede the use of direct primary care service arrangements
for patients and families who choose to enroll in and
contribute to HSA eligible health plans. The Committee
therefore believes it is vital to make clear that individuals
enrolled in direct primary care service arrangements may
continue to contribute to HSAs and may use HSA funds to pay for
these types of arrangements.

EXPLANATION OF PROVISION

Under the provision, a direct primary care service
arrangement is not treated as a health plan that makes an
individual ineligible to contribute to an HSA. For this
purpose, a direct primary care service arrangement means, with
respect to any individual, an arrangement under which such
individual is provided medical care consisting solely of such
primary care services provided by primary care
practitioners\11\ if the sole compensation for such care is a
fixed periodic fee. With respect to any individual for any
month, the aggregate fees for all direct primary care service
arrangements for such individual for such month cannot exceed
$150 per month (in the case of an individual with any such
arrangement that covers more than one individual, twice such
dollar amount, or $300). The aggregate limits are adjusted
annually for inflation.
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\11\As defined in sec. 1833(x)(2)(A) of the Social Security Act, 42
U.S.C. 13951, without regard to clause (ii) thereof.
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For this purpose, the term ``primary care services''' does
not include (1) procedures that require the use of general
anesthesia, (2) prescription drugs other than vaccines
(therefore, vaccines are permitted primary care services), and
(3) laboratory services not typically administered in an
ambulatory primary care setting. The Secretary, after
consultation with the Secretary of Health and Human Services,
is required to issue regulations or other guidance related to
application of this rule.
In addition, fees paid for any direct primary care service
arrangement are treated as qualified medical expenses (and not
the payment of insurance). The aggregate fees paid by the
employer for direct primary care service arrangements provided
to an employee in connection with employment are required to be
reported on Form W-2.

EFFECTIVE DATE

The provision applies to months beginning after December
31, 2025, in taxable years ending after such date.

B. On-site Employee Clinics (sec. 3 of the bill and sec. 223 of the
Code)

PRESENT LAW

For a general description of HSAs and HDHPs, see Part A of
this document.

On-site employee clinics

On-site employer-sponsored health clinics generally 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 services or
health care services at charges below fair market value from a
clinic on an employer's premises does 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 that provides the following free
health care services (in addition to disregarded coverage or
preventive care) for employees does not provide significant
benefits in the nature of medical 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 a 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 has 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.\12\
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\12\Notice 2008-59, 2008-29 I.R.B. 123, July 21, 2008, Q&A-10.
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Preventive care

The IRS has issued guidance providing a safe harbor for
preventive care benefits allowed under an HDHP.\13\ In that
guidance, the IRS defines preventive care as including, but not
limited to (1) periodic health evaluations, including tests and
diagnostic procedures ordered in connection with routine
examinations, such as annual physicals; (2) routine prenatal
and well- child care; (3) immunizations; (4) tobacco cessation
programs; (5) obesity weight-loss programs; and (6) screening
services (such as screening for cancer, heart and vascular
diseases, infectious diseases, mental health conditions and
substance abuse, metabolic, nutritional, and endocrine
conditions, musculoskeletal disorders, obstetric and
gynecologic conditions, pediatric conditions, and vision and
hearing disorders).
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\13\Notice 2004-23, 2004-1 C.B. 725. See also Notice 2004-50, 2004-
33 I.R.B. 196, August 16, 2004; Notice 2008-59, 2008-29 I.R.B. 123,
July 21, 2008; Notice 2013-57, 2013-40 I.R.B. 293, September 30, 2013;
Notice 2018-12, 2018-12 I.R.B. 441, March 19, 2018; and Notice 2019-45,
2019-32 I.R.B. 593, August 5, 2019.
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Although the guidance provides that preventive care does
not generally include any service or benefit intended to treat
an existing illness, injury or condition (with the exception of
chronic conditions, as described below), any treatment that is
incidental or ancillary to a safe harbor preventive care
service or screening (in situations where it would be
unreasonable or impracticable to perform another procedure to
treat the condition), such as the removal of polyps during a
diagnostic colonoscopy, also falls within the safe harbor. In
addition, drugs or medications are considered to be preventive
care when taken by a person who has developed risk factors for
a disease that has not yet manifested itself or not yet become
clinically apparent, or to prevent the reoccurrence of a
disease from which a person has recovered.
A 2019 executive order included a requirement that Treasury
issue guidance to expand the ability of patients to select an
HDHP that could be used with an HSA to cover, before the
deductible, low-cost preventive care for individuals with
chronic conditions.\14\ The IRS then issued guidance expanding
the list of preventive care benefits permitted to be provided
by an HDHP, without a deductible, to include limited preventive
care for specified chronic conditions (including congestive
heart failure, diabetes, coronary artery disease, osteoporosis
and/or osteopenia, hypertension, asthma, diabetes, liver
disease and/or bleeding disorders, heart disease, and
depression).\15\
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\14\Executive Order 13877, ``Improving Price and Quality
Transparency in American Healthcare to Put Patients First,'' 84 Fed.
Reg. 30849, June 27, 2019.
\15\Notice 2019-45, 2019-32 I.R.B. 593, August 5, 2019.
---------------------------------------------------------------------------
Preventive care also encompasses such services that are
required to be included by a group health plan or health
insurance issuer offering group or individual health insurance
coverage under section 2713 of the Public Health Service
Act.\16\
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\16\Notice 2013-57, 2013-40 I.R.B. 293, September 30, 2013.
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REASONS FOR CHANGE

The Committee believes that on-site employee clinics can be
an important way for employees and their spouses to access low-
cost health care. Employers may be hesitant to offer on-site
clinics, however, because of uncertainty as to whether access
to on-site clinics may prevent employees and their families
from contributing to HSAs. Therefore, the Committee believes it
is important to specify that on-site clinics may offer a
variety of standard items and services without disqualifying
employees and their spouses from contributing to HSAs.

EXPLANATION OF PROVISION

Under the provision, qualified items and services received
by an eligible individual at (1) a health care facility located
at a facility owned or leased by the eligible individual's
employer (or the employer of the individual's spouse) or (2) at
a health care facility operated primarily for the benefit of
employees of the individual's employer (or the employees of the
individual's spouse's employer) are not treated as coverage
under a health plan for purposes of determining the
individual's eligibility to contribute to an HSA. Qualified
items and services include: (1) physical examinations, (2)
immunizations, including injections of antigens provided by
employees, (3) drugs or biologicals other than a prescribed
drug, (4) treatment for injuries occurring in the course of the
individual's employment, (5) preventive care for chronic
conditions,\17\ (6) drug testing, and (7) hearing or vision
screenings and related services.
---------------------------------------------------------------------------
\17\Defined as any item or service specified in the Appendix of
Notice 2019-45 (including any amendment, addition, removal or other
modification made by the Secretary to that Appendix subsequent to the
date of enactment of the provision) which is prescribed to treat an
individual diagnosed with an associated chronic condition for the
purpose of preventing (1) the exacerbation of such condition or (2) the
development of a secondary condition.
---------------------------------------------------------------------------
All entities treated as a single employer\18\ under the
Code are treated as a single employer under this provision.
---------------------------------------------------------------------------
\18\Under sec. 414(b), (c), (m) or (o).
---------------------------------------------------------------------------

EFFECTIVE DATE

The provision applies to months in taxable years beginning
after December 31, 2025.

C. Contributions Permitted if Spouse Has Health Flexible Spending
Arrangement (sec. 4 of the bill and sec. 223 of the Code)

PRESENT LAW

Flexible spending arrangements

An FSA generally is defined as a benefit program which
provides employees with coverage under which specific incurred
expenses may be reimbursed (subject to reimbursement maximums
and other conditions) and the maximum amount of reimbursement
reasonably available is less than 500 percent of the value of
such coverage.\19\ An FSA under a cafeteria plan\20\ allows an
employee to make salary reduction contributions for use in
receiving reimbursements for certain incurred expenses.\21\ The
arrangement can also include non-elective employer
contributions (known as employer flex-credits) that the
employer makes available for every employee eligible to
participate in the employer's cafeteria plan, to be used only
for certain tax-excludable benefits (but not as cash or a
taxable benefit).\22\ Types of expenses that may be reimbursed
under a flexible spending arrangement in a cafeteria plan
include medical expenses (a ``health FSA'') and dependent care
expenses.
---------------------------------------------------------------------------
\19\See sec. 106(c)(2) and Prop. Treas. Reg. sec. 1.125-5(a).
\20\A cafeteria plan is a separate written plan of an employer
under which all participants are employees, and participants are
permitted to choose among at least one permitted taxable benefit (for
example, current cash compensation) and at least one qualified benefit.
Sec. 125(d). Qualified benefits are generally employer-provided
benefits that are not includible in gross income by reason of an
express provision of the Code. Sec. 125(f). Examples of qualified
benefits include employer-provided health coverage (including a health
FSA), group term life insurance coverage not in excess of $50,000, and
benefits under a dependent care assistance program.
\21\Sec. 125 and Prop. Treas. Reg. sec. 1.125-5.
\22\Prop. Treas. Reg. sec. 1.125-5(b).
---------------------------------------------------------------------------
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 generally must be forfeited by the employee
(referred to as the ``use-it-or-lose-it rule'').\23\ However, a
cafeteria plan may allow a grace period not to exceed two and
one-half months immediately following the end of the plan year
during which unused amounts may be paid or reimbursed to
participants for qualified expenses incurred during the grace
period.\24\ Alternatively, a cafeteria plan may permit up to
$610 (for 2023) of unused amounts remaining in a health FSA at
the end of a plan year to be paid or reimbursed to plan
participants for qualifying medical expenses during the
following plan year.\25\ Such a carryover is not permitted in a
dependent care FSA. A cafeteria plan may only permit a
carryover of amounts in a health FSA if the plan does not also
allow a grace period with respect to the health FSA.
---------------------------------------------------------------------------
\23\Sec. 125(d)(2).
\24\Notice 2005-42, 2005-1 C.B. 1204, and Prop. Treas. Reg. sec.
1.125-1(e).
\25\Rev. Proc. 2022-38, 2022-45 I.R.B. 445, November 7, 2022;
Notice 2020-33, 2020-22 I.R.B. 868, May 26, 2020; Notice 2013-71, 2013-
47 I.R.B. 532, November 18, 2013.
---------------------------------------------------------------------------
Health FSAs
In order for coverage and reimbursements under a health FSA
to qualify for tax-favored treatment, the health FSA must
qualify as an accident and health plan.\26\ Under the Code, the
value of employer-provided health coverage under an accident or
health plan is generally excludable from gross income,\27\ as
are reimbursements under the plan for medical care expenses for
employees, their spouses, and their dependents.\28\ A health
FSA may only reimburse medical expenses as defined in section
213(d).
---------------------------------------------------------------------------
\26\Secs. 105 and 106; Prop. Treas. Reg. sec. 1.125-5(k)(1).
\27\Sec. 106. Health coverage provided to active members of the
uniformed services, military retirees, and their dependents are
excludable from gross income under section 134. That section provides
an exclusion for ``qualified military benefits,'' defined as benefits
received by reason of status or service as a member of the uniformed
services and which were excludable from gross income on September 9,
1986, under any provision of law, regulation, or administrative
practice then in effect.
\28\Sec. 105(b).
---------------------------------------------------------------------------
A benefit provided under a cafeteria plan through employer
contributions to a health FSA is not treated as a qualified
benefit unless the cafeteria plan provides that an employee may
not elect salary reduction contributions in excess of $2,500,
adjusted for inflation, for any taxable year.\29\ For taxable
year 2023, the limit is $3,050.
---------------------------------------------------------------------------
\29\Sec. 125(i).
---------------------------------------------------------------------------

Health savings accounts and high deductible health plans

For a general description of HSAs and HDHPs, see Part A of
this document.

REASONS FOR CHANGE

The Committee wishes to help working families by improving
access to tax-advantaged health care accounts such as HSAs. The
Committee believes that an individual should not be ineligible
for an HSA merely because the individual's spouse is covered
under a health FSA. Thus, the Committee believes that a
spouse's coverage under a health FSA should not prevent an
individual from being eligible for an HSA, provided that the
spouse's FSA is not used to cover the individual's medical
expenses.

EXPLANATION OF PROVISION

The provision provides that for purposes of determining
whether an individual is eligible to contribute to an HSA,
coverage under the employee's spouse's health FSA for any plan
year of such FSA is disregarded, provided that certain
requirements are met. To qualify for this exception, the
aggregate reimbursements under the health FSA for the plan year
must not exceed the aggregate expenses that would be eligible
for reimbursement under the FSA if the expenses were determined
without regard to any expenses paid or incurred with respect to
the otherwise HSA-eligible individual.

EFFECTIVE DATE

The provision is effective for plan years beginning after
December 31, 2025.

D. FSA and HRA Terminations or Conversions to Fund HSAs (sec. 5 of the
bill and secs. 106 and 223 of the Code)

PRESENT LAW

Flexible spending arrangements

For a general description of FSAs, see Part C of this
document.

Health reimbursement arrangements

HRAs operate in a manner similar to health FSAs, in that
they are employer-maintained arrangements that reimburse
employees and their dependents\30\ 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 in an HRA at the end of
the year may be carried forward to be used to reimburse medical
expenses in following years.\31\ Unlike a health FSA, an HRA is
permitted to reimburse an employee for health insurance
premiums.
---------------------------------------------------------------------------
\30\As defined in sec. 152.
\31\Guidance with respect to HRAs, including the interaction of
FSAs and HRAs in the case of an individual covered under both, is
provided in Notice 2002-45, 2002-2 C.B. 93.
---------------------------------------------------------------------------

Health savings accounts and high deductible health plans

For a general description of HSAs and HDHPs, see Part A of
this document.
Interactions of health savings accounts with FSAs and HRAs
Individuals who are covered by a health plan that is not an
HDHP generally are not eligible to contribute to an HSA. Under
IRS guidance, a health FSA and an HRA are generally considered
health plans under this definition.\32\ However, FSA and HRA
terminations could be used to fund HSAs within a certain period
(as described further below). In addition, 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 HSA-compatible 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, or (4) a post-deductible
health FSA or HRA, which does not pay or reimburse medical
expenses incurred below the minimum annual deductible for a
plan to be an HDHP.\33\
---------------------------------------------------------------------------
\32\Rev. Rul. 2004-45, 2004-1 C.B. 971.
\33\As defined in sec. 223(c)(2)(A)(i). Rev. Rul. 2004-45, 2004-1
C.B. 971.
---------------------------------------------------------------------------
If a general purpose health FSA allows reimbursement for
expenses incurred during a grace period following the end of
the plan year, a participant 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.\34\
However, this rule does not apply if the participant has a zero
balance in the general purpose health FSA on the last day of
the health FSA plan year (as determined on a cash
basis\35\).\36\ Thus, in that case the individual's FSA
coverage during the grace period does not cause the individual
to fail to be eligible to contribute to an HSA, and the
individual (if otherwise eligible) would be eligible to
contribute to the HSA as of the first day after the end of the
health FSA plan year. 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.\37\ Coverage by an HSA-compatible health FSA or HRA
does not affect an employee's eligibility to contribute to an
HSA, including during a health FSA grace period.\38\
---------------------------------------------------------------------------
\34\Notice 2005-42, 2005-1 C.B. 1204.
\35\``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.
\36\Sec. 223(c)(1)(B)(iii)(I).
\37\One of the following requirements must be satisfied: (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, 2004-1
C.B. 971.
\38\Rev. Rul. 2004-45, 2004-1 C.B. 971.
---------------------------------------------------------------------------
FSA and HRA terminations to fund HSAs
The Health Opportunity Empowerment Act of 2006\39\ 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
(``qualified HSA distributions''). However, such distributions
were permitted only for contributions made to an HSA before
January 1, 2012.\40\
---------------------------------------------------------------------------
\39\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.
\40\Sec. 106(e)(2)(B).
---------------------------------------------------------------------------
As implemented by the IRS, a plan implementing the
provision must be amended in writing, the employee must elect
the rollover, and the year-end balance must be frozen.\41\ The
amount of the qualified HSA distribution may not exceed the
lesser of the balance in the health FSA or HRA on September 21,
2006 or the date of distribution.\42\ 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.\43\
---------------------------------------------------------------------------
\41\Notice 2007-22, 2007-1 C.B. 670.
\42\Sec. 106(e)(2)(A).
\43\The IRS provided guidance on special transition relief for
amounts remaining at the end of 2006. See Notice 2007-22, 2007-1 C.B.
670.
---------------------------------------------------------------------------
In addition, a qualified HSA distribution must be
contributed directly to the HSA trustee by the employer.\44\
Only one qualified HSA 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.
---------------------------------------------------------------------------
\44\Sec. 106(e).
---------------------------------------------------------------------------
If an employee fails to remain HSA-eligible for 12 months
(the ``testing period'')\45\ 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.\46\ Failure to remain an
eligible individual does not require the withdrawal of the
qualified HSA distribution, and the amount is not an excess
contribution.
---------------------------------------------------------------------------
\45\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.
\46\Sec. 106(e)(3).
---------------------------------------------------------------------------
An individual making a qualified HSA distribution from a
health FSA does not fail to be eligible to participate in an
HSA at the beginning of the next plan year merely because the
health FSA includes a grace period, provided that the qualified
HSA distribution equals the remaining balance in the FSA at the
end of the FSA plan year and is made at the end of such plan
year.\47\
---------------------------------------------------------------------------
\47\Sec. 223(c)(1)(B)(iii)(II); Notice 2007-22, 2007-1 C.B. 670.
---------------------------------------------------------------------------

REASONS FOR CHANGE

To improve access to health care savings through HSAs, the
Committee believes it is important to increase flexibility for
individuals with health FSAs of HRAs seeking to enroll in HSAs.
Therefore, the Committee believes that individuals who wish to
convert their health FSA or HRA to an HSA should be permitted
to do so.

EXPLANATION OF PROVISION

The provision amends the rules permitting certain amounts
in a health FSA or HRA to be rolled over into an HSA by no
longer requiring such rollovers to be completed by January 1,
2012. Rather, under the provision, a ``qualified HSA
distribution'' is a distribution from an employee's health FSA
or HRA contributed directly to an employee's HSA if (1) such
distribution is made in connection with the employee
establishing coverage under an HDHP, and (2) during the four-
year period preceding the establishment of such coverage, the
employee was not covered under an HDHP. In addition, if the
qualified HSA distribution is made before the end of the plan
year, the health FSA or HRA from which the distribution is made
must be converted to an HSA-compatible FSA or HRA, as
applicable, for the portion of the plan year after the
distribution is made, if the individual remains enrolled in the
health FSA or HRA.
Under the provision, the aggregate amount of qualified HSA
distributions may not exceed the total annual limit on FSA
contributions ($3,050 in 2023)\48\ or twice this amount in the
case of an eligible individual who has family coverage under an
HDHP. The provision does not limit individuals to one qualified
HSA distribution, as under the prior rule. Qualified HSA
distributions also reduce the amount of deductible
contributions that an individual is permitted to make to an HSA
during the taxable year.\49\
---------------------------------------------------------------------------
\48\Sec. 125(i).
\49\The deductible contribution limit with respect to an HSA is
reduced by so much of any qualified HSA distribution made by an
individual during the taxable year that does not exceed the aggregate
increases in the balance of the arrangement from which the distribution
is made that occur during the portion of the plan year preceding the
distribution (other than any balance carried over to such plan year and
determined without regard to any decrease in the balance during such
portion of the plan year).
---------------------------------------------------------------------------
The provision 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 provision provides that the amount of any
qualified HSA distribution is to be included on the information
to be reported on Form W-2.\50\
---------------------------------------------------------------------------
\50\Sec. 6051(a).
---------------------------------------------------------------------------

EFFECTIVE DATE

The provision is effective for distributions made after
December 31, 2025, in taxable years ending after such date.

III. VOTES OF THE COMMITTEE

Pursuant to clause 3(b) of rule XIII of the Rules of the
House of the Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 5688, the ``Bipartisan HSA Improvement
Act of 2023,'' on September 28, 2023.
The vote on the amendment offered by Mr. Doggett to the
amendment in the nature of a substitute to H.R. 5688, which
would eliminate the exception from the additional tax on Health
Savings Account distributions used for non-qualifying medical
expenses after Medicare eligibility was not agreed to by a roll
call vote of 18 yeas to 23 nays (with a quorum being present).
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... ...... X ......... Mr. Neal............. X ...... .........
Mr. Buchanan....................... ...... X ......... Mr. Doggett.......... X ...... .........
Mr. Smith (NE)..................... ...... X ......... Mr. Thompson......... X ...... .........
Mr. Kelly.......................... ...... X ......... Mr. Larson........... X ...... .........
Mr. Schweikert..................... ...... X ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... ...... X ......... Mr. Pascrell......... X ...... .........
Dr. Wenstrup....................... ...... X ......... Mr. Davis............ X ...... .........
Mr. Arrington...................... ...... ...... ......... Ms. Sanchez.......... X ...... .........
Dr. Ferguson....................... ...... X ......... Mr. Higgins.......... X ...... .........
Mr. Estes.......................... ...... X ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ ...... X ......... Ms. DelBene.......... X ...... .........
Mr. Hern........................... ...... ...... ......... Ms. Chu.............. X ...... .........
Ms. Miller......................... ...... X ......... Ms. Moore............ X ...... .........
Dr. Murphy......................... ...... X ......... Mr. Kildee........... X ...... .........
Mr. Kustoff........................ ...... X ......... Mr. Beyer............ X ...... .........
Mr. Fitzpatrick.................... ...... X ......... Mr. Evans............ X ...... .........
Mr. Steube......................... ...... X ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... X ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... ...... X
Mr. Moore.......................... ...... X
Mrs. Steel......................... ...... X
Ms. Van Duyne...................... ...... X
Mr. Feenstra....................... ...... X
Ms. Malliotakis.................... ...... X
Mr. Carey.......................... ...... X
----------------------------------------------------------------------------------------------------------------

In compliance with the Rules of the House of
Representatives, the following statement is made concerning the
vote of the Committee on Ways and Means during the markup
consideration of H.R. 5688, the ``Bipartisan HSA Improvement
Act of 2023,'' on September 28, 2023.
The vote on the amendment offered by Mr. Larson to the
amendment in the nature of a substitute to H.R. 5688, which
would ensure the protection of the Social Security Trust Fund
was not agreed to by a roll call vote of 17 yeas to 24 nays
(with a quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... ...... X ......... Mr. Neal............. X ...... .........
Mr. Buchanan....................... ...... X ......... Mr. Doggett.......... X ...... .........
Mr. Smith (NE)..................... ...... X ......... Mr. Thompson......... X ...... .........
Mr. Kelly.......................... ...... X ......... Mr. Larson........... X ...... .........
Mr. Schweikert..................... ...... X ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... ...... X ......... Mr. Pascrell......... X ...... .........
Dr. Wenstrup....................... ...... X ......... Mr. Davis............ X ...... .........
Mr. Arrington...................... ...... X ......... Ms. Sanchez.......... X ...... .........
Dr. Ferguson....................... ...... X ......... Mr. Higgins.......... X ...... .........
Mr. Estes.......................... ...... X ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ ...... X ......... Ms. DelBene.......... X ...... .........
Mr. Hern........................... ...... X ......... Ms. Chu.............. X ...... .........
Ms. Miller......................... ...... X ......... Ms. Moore............ ...... ...... .........
Dr. Murphy......................... ...... X ......... Mr. Kildee........... X ...... .........
Mr. Kustoff........................ ...... X ......... Mr. Beyer............ X ...... .........
Mr. Fitzpatrick.................... ...... ...... ......... Mr. Evans............ X ...... .........
Mr. Steube......................... ...... X ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... X ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... ...... X
Mr. Moore.......................... ...... X
Mrs. Steel......................... ...... X
Ms. Van Duyne...................... ...... X
Mr. Feenstra....................... ...... X
Ms. Malliotakis.................... ...... X
Mr. Carey.......................... ...... X
----------------------------------------------------------------------------------------------------------------

In compliance with the Rules of the House of
Representatives, this following statement is made concerning
the vote of the Committee on Ways and Means during the markup
consideration of H.R. 5688, the ``Bipartisan HSA Improvement
Act of 2023,'' on September 28, 2023.
The vote on the amendment offered by Ms. Chu to the
amendment in the nature of a substitute to H.R. 5688, which
would require that nothing in H.R. 5688 shall be construed to
prevent Health Savings Accounts from Covering all needed
reproductive and sexual health care was not agreed to by a roll
call vote of 16 yeas to 24 nays (with a quorum being present).
The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... ...... X ......... Mr. Neal............. X ...... .........
Mr. Buchanan....................... ...... X ......... Mr. Doggett.......... X ...... .........
Mr. Smith (NE)..................... ...... X ......... Mr. Thompson......... X ...... .........
Mr. Kelly.......................... ...... X ......... Mr. Larson........... X ...... .........
Mr. Schweikert..................... ...... X ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... ...... X ......... Mr. Pascrell......... ...... ...... .........
Dr. Wenstrup....................... ...... X ......... Mr. Davis............ ...... ...... .........
Mr. Arrington...................... ...... X ......... Ms. Sanchez.......... X ...... .........
Dr. Ferguson....................... ...... X ......... Mr. Higgins.......... X ...... .........
Mr. Estes.......................... ...... X ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ ...... X ......... Ms. DelBene.......... X ...... .........
Mr. Hern........................... ...... X ......... Ms. Chu.............. X ...... .........
Ms. Miller......................... ...... X ......... Ms. Moore............ X ...... .........
Dr. Murphy......................... ...... X ......... Mr. Kildee........... X ...... .........
Mr. Kustoff........................ ...... X ......... Mr. Beyer............ X ...... .........
Mr. Fitzpatrick.................... ...... X ......... Mr. Evans............ X ...... .........
Mr. Steube......................... ...... X ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... ...... ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... ...... X
Mr. Moore.......................... ...... X
Mrs. Steel......................... ...... X
Ms. Van Duyne...................... ...... X
Mr. Feenstra....................... ...... X
Ms. Malliotakis.................... ...... X
Mr. Carey.......................... ...... X
----------------------------------------------------------------------------------------------------------------

In compliance with the Rules of the House of
Representatives, this following statement is made concerning
the vote of the Committee on Ways and Means during the markup
consideration of H.R. 5688, the ``Bipartisan HSA Improvement
Act of 2023,'' on September 28, 2023.
The vote on the amendment offered by Mr. Kildee to the
amendment in the nature of a substitute to H.R. 5688, which
would place an income cap onbeing able to use the tax advantage
of HSAs was not agreed to by a roll call vote of 17 yeas to 24
nays with 1 voting present (with a quorum being present). The
vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... ...... X ......... Mr. Neal............. X ...... .........
Mr. Buchanan....................... ...... X ......... Mr. Doggett.......... ...... ...... X
Mr. Smith (NE)..................... ...... X ......... Mr. Thompson......... X ...... .........
Mr. Kelly.......................... ...... X ......... Mr. Larson........... X ...... .........
Mr. Schweikert..................... ...... X ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... ...... X ......... Mr. Pascrell......... X ...... .........
Dr. Wenstrup....................... ...... X ......... Mr. Davis............ X ...... .........
Mr. Arrington...................... ...... X ......... Ms. Sanchez.......... X ...... .........
Dr. Ferguson....................... ...... X ......... Mr. Higgins.......... X ...... .........
Mr. Estes.......................... ...... X ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ ...... X ......... Ms. DelBene.......... X ...... .........
Mr. Hern........................... ...... X ......... Ms. Chu.............. X ...... .........
Ms. Miller......................... ...... X ......... Ms. Moore............ X ...... .........
Dr. Murphy......................... ...... X ......... Mr. Kildee........... X ...... .........
Mr. Kustoff........................ ...... X ......... Mr. Beyer............ X ...... .........
Mr. Fitzpatrick.................... ...... X ......... Mr. Evans............ X ...... .........
Mr. Steube......................... ...... X ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... ...... ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... ...... X
Mr. Moore.......................... ...... X
Mrs. Steel......................... ...... X
Ms. Van Duyne...................... ...... X
Mr. Feenstra....................... ...... X
Ms. Malliotakis.................... ...... X
Mr. Carey.......................... ...... X
----------------------------------------------------------------------------------------------------------------

In compliance with the Rules of the House of
Representatives, this following statement is made concerning
the vote of the Committee on Ways and Means during the markup
consideration of H.R. 5688, the ``Bipartisan HSA Improvement
Act of 2023,'' on September 28, 2023.
The vote on the amendment offered by Mr. Pascrell to the
amendment in the nature of a substitute to H.R. 5688, which
would add to H.R. 5688 a new section that prevents the bill
from taking effect until the Secretary of the Treasury
certifies that the cap on the State and Local Tax (SALT)
deduction will not result in an increase in the tax liability
of any taxpayer with an adjusted gross income less than $50,000
in calendar year 2023, 2024, or 2025 was not agreed to by a
roll call vote of 16 yeas to 24 nays (with a quorum being
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... ...... X ......... Mr. Neal............. X ...... .........
Mr. Buchanan....................... ...... X ......... Mr. Doggett.......... ...... X .........
Mr. Smith (NE)..................... ...... X ......... Mr. Thompson......... X ...... .........
Mr. Kelly.......................... ...... X ......... Mr. Larson........... X ...... .........
Mr. Schweikert..................... ...... X ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... ...... X ......... Mr. Pascrell......... X ...... .........
Dr. Wenstrup....................... ...... X ......... Mr. Davis............ X ...... .........
Mr. Arrington...................... ...... X ......... Ms. Sanchez.......... X ...... .........
Dr. Ferguson....................... ...... X ......... Mr. Higgins.......... X ...... .........
Mr. Estes.......................... ...... X ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ ...... X ......... Ms. DelBene.......... X ...... .........
Mr. Hern........................... ...... X ......... Ms. Chu.............. X ...... .........
Ms. Miller......................... ...... X ......... Ms. Moore............ X ...... .........
Dr. Murphy......................... ...... X ......... Mr. Kildee........... X ...... .........
Mr. Kustoff........................ ...... X ......... Mr. Beyer............ X ...... .........
Mr. Fitzpatrick.................... ...... X ......... Mr. Evans............ X ...... .........
Mr. Steube......................... ...... X ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... ...... ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... ...... X
Mr. Moore.......................... ...... X
Mrs. Steel......................... ...... X
Ms. Van Duyne...................... ...... X
Mr. Feenstra....................... ...... X
Ms. Malliotakis.................... ...... X
Mr. Carey.......................... ...... X
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith (MO)..................... X ...... ......... Mr. Neal............. ...... X .........
Mr. Buchanan....................... X ...... ......... Mr. Doggett.......... ...... X .........
Mr. Smith (NE)..................... X ...... ......... Mr. Thompson......... ...... X .........
Mr. Kelly.......................... X ...... ......... Mr. Larson........... ...... X .........
Mr. Schweikert..................... X ...... ......... Mr. Blumenauer....... X ...... .........
Mr. LaHood......................... X ...... ......... Mr. Pascrell......... ...... X .........
Dr. Wenstrup....................... X ...... ......... Mr. Davis............ ...... X .........
Mr. Arrington...................... X ...... ......... Ms. Sanchez.......... ...... X .........
Dr. Ferguson....................... X ...... ......... Mr. Higgins.......... ...... X .........
Mr. Estes.......................... X ...... ......... Ms. Sewell........... X ...... .........
Mr. Smucker........................ X ...... ......... Ms. DelBene.......... ...... X .........
Mr. Hern........................... X ...... ......... Ms. Chu.............. ...... X .........
Ms. Miller......................... X ...... ......... Ms. Moore............ ...... X .........
Dr. Murphy......................... X ...... ......... Mr. Kildee........... ...... X .........
Mr. Kustoff........................ X ...... ......... Mr. Beyer............ ...... X .........
Mr. Fitzpatrick.................... X ...... ......... Mr. Evans............ ...... X .........
Mr. Steube......................... X ...... ......... Mr. Schneider........ X ...... .........
Ms. Tenney......................... ...... ...... ......... Mr. Panetta.......... X ...... .........
Mrs. Fischbach..................... X ......
Mr. Moore.......................... X ......
Mrs. Steel......................... X ......
Ms. Van Duyne...................... X ......
Mr. Feenstra....................... X ......
Ms. Malliotakis.................... X ......
Mr. Carey.......................... 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. 5688, as
reported. The estimate prepared by the Congressional Budget
Office (CBO) is included below.

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.

C. Cost Estimate Prepared by the Congressional Budget Office

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

The bill would:
Expand eligibility for health savings
accounts (HSAs)
Allow distributions in certain circumstances
from health flexible spending arrangements or health
reimbursement arrangements into HSAs
Estimated budgetary effects would mainly stem from:
Reduced collections of individual income
taxes because of contributions made by newly eligible
HSA participants
Reduced collections of income and employment
taxes because of exclusions for employer contributions
to employees' HSAs
Areas of significant uncertainty include:
Anticipating the number of people who would
contribute to HSAs and projecting the amounts
distributed from various arrangements into HSAs
The Congressional Budget Act of 1974, as amended,
stipulates that revenue estimates provided by the staff of the
Joint Committee on Taxation (JCT) will be the official
estimates for all tax legislation considered by the Congress.
As such, CBO incorporates those estimates into its cost
estimates of the effects of legislation. All of the estimates
for the revenue provisions of H.R. 5688 were provided by JCT.
Bill summary: H.R. 5688 would amend the Internal Revenue
Code to expand eligibility for health savings accounts (HSAs)
and, in certain circumstances, allow distributions from health
flexible spending arrangements (FSAs) and health reimbursement
arrangements (HRAs) into HSAs. The bill's provisions would
affect tax years beginning after December 31, 2025.
Estimated federal cost: The estimated budgetary effect of
H.R. 5688 is shown in Table 1. The costs of the legislation
fall within budget function 800 (general government).

TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 5688
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, billions of dollars--
-----------------------------------------------------------------------------------------------------
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2024-2028 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decreases in Revenues
Estimated Revenues:............................... 0 0 -0.6 -1.2 -1.5 -1.7 -1.8 -1.9 -2.0 -2.2 -3.3 -12.9
On-Budget..................................... 0 0 -0.5 -0.9 -1.1 -1.2 -1.3 -1.4 -1.5 -1.6 -2.4 -9.5
Off-Budget.................................... 0 0 -0.2 -0.3 -0.4 -0.4 -0.5 -0.5 -0.5 -0.6 -0.9 -3.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Staff of the Joint Committee on Taxation.
Enacting the bill would increase spending subject to appropriation by less than $500,000 in every year and over the 2024-2028 period. Any spending would
be subject to the availability of appropriated funds.
Components may not sum to totals because of rounding.

Basis of estimate: The Congressional Budget Act of 1974, as
amended, stipulates that revenue estimates provided by the
staff of the Joint Committee on Taxation (JCT) are the official
estimates for all tax legislation considered by the Congress.
CBO therefore incorporates such estimates into its cost
estimates of the effects of legislation. JCT provided the
revenue estimates presented here for H.R. 5688.\1\
---------------------------------------------------------------------------
\1\See Joint Committee on Taxation, Estimated Revenue Effects of
H.R. 5688, the ``Bipartisan HSA Improvement Act of 2023,'' JCX-40-23
(September 26, 2023), www.jct.gov/publications/2023/jcx-40-23. For more
about the provisions, see Joint Committee on Taxation, Description of
H.R. 5688, the ``Bipartisan HSA Improvement Act of 2023,'' JCX 39 23
(September 26, 2023), www.jct.gov/publications/2023/jcx-39-23.
---------------------------------------------------------------------------
For this estimate, CBO and JCT assume that the bill will be
enacted in fiscal year 2024 and that its provisions will affect
tax years beginning in 2026.
Revenues: H.R. 5688 would modify HSAs, tax-favored savings
accounts used to cover medical expenses for people enrolled in
a high-deductible health plan (HDHP), a type of health
insurance plan with large deductibles and low monthly premiums.
Contributions to HSAs are deductible from individual income
taxes, and contributions on behalf of employees are excludable
both from individual income taxes and from employment taxes.
H.R. 5688 would reduce revenues from income tax and payroll tax
receipts by increasing tax-exempt contributions to HSAs.
Sections 2, 3, and 4 would expand eligibility for HSAs.
Under current law, people who are in an HDHP and also have
additional coverage are not generally eligible to contribute to
an HSA. H.R. 5688 would expand eligibility to people with
certain types of additional coverage, such as an arrangement
with a practitioner to provide primary care services for a
fixed periodic fee (called a direct primary care service
arrangement), access through an employer to primary care
services at an on-site or retail clinic, or access to a
spouse's FSA. The bill also would treat fees for direct primary
care service arrangements as medical expenses, allowing
participants to pay for the service from an HSA.
Section 5 would allow rollovers from a health FSA or HRA
directly into an HSA if coverage is established under an HDHP
when an enrollee has been without such coverage for a four-year
period. The section sets the allowable amount of such qualified
HSA distributions up to the total annual limit on FSA
contributions ($3,050 in 2023, or twice that amount in the case
of an eligible person who has family coverage under an HDHP).
Such rollovers would reduce the amount allowable for tax-
deductible contributions to an HSA during a given year.
JCT estimates that enacting the bill would decrease
revenues by $12.9 billion over the 2024-2033 period. That
change includes a reduction of $3.4 billion in off-budget
revenues (from Social Security payroll taxes).
Spending subject to appropriation: CBO estimates that
implementing H.R. 5688 would increase the Internal Revenue
Service's administrative costs by less than $500,000 over the
2024-2028 period. That spending would be subject to the
availability of appropriated funds.
Uncertainty: JCT's estimates of the budgetary effects of
H.R. 5688 are uncertain because they are made on the basis of
underlying projections and other factors that could change
significantly. In particular, the estimates rely in part on
CBO's economic projections for the next decade under current
law and on expectations of the way taxpayers might respond to
changes in tax law. In this case, the uncertainty involves how
many people would contribute to an HSA and the amount of
distributions from various arrangements into HSAs.
Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. Only on-budget changes to outlays or revenues are
subject to pay-as-you-go procedures. The net changes in
revenues that are subject to those procedures are shown in
Table 2.

TABLE 2.--CBO's ESTIMATE OF THE STATUTORY PAY-AS-YOU-GO EFFECTS OF H.R. 5688, THE BIPARTISAN HSA IMPROVEMENT ACT OF 2023, AS ORDERED REPORTED BY THE
HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 28, 2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, billions of dollars--
-------------------------------------------------------------------------------------------
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2024-2028 2024-2033
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE ON-BUDGET DEFICIT

Pay-As-You-Go Effect........................................ 0 0 0.5 0.9 1.1 1.2 1.3 1.4 1.5 1.6 2.4 9.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

Increase in long-term net direct spending and deficits: JCT
estimates that enacting H.R. 5688 would not increase net direct
spending in any of the four consecutive 10-year periods
beginning in 2034.
JCT estimates that enacting H.R. 5688 would increase on-
budget deficits by more than $5 billion in at least one of the
four consecutive 10-year periods beginning in 2034.
Mandates: JCT has determined that H.R. 5688 would not
impose intergovernmental or private-sector mandates as defined
in the Unfunded Mandates Reform Act.
Estimate prepared by: Federal Revenues: Kathleen Burke,
Staff of the Joint Committee on Taxation; Federal Costs:
Matthew Pickford; Mandates: Andrew Laughlin, Staff of the Joint
Committee on Taxation.
Estimate reviewed by: Robert Reese, Chief, Natural and
Physical Resources Cost Estimates Unit; Joshua Shakin, Chief,
Revenue Estimating Unit; Kathleen FitzGerald, Chief, Public and
Private Mandates Unit; H. Samuel Papenfuss, Deputy Director of
Budget Analysis; John McClelland, Director of Tax Analysis.
Estimate approved by: Phillip L. Swagel, Director,
Congressional Budget Office.

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

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives, the Committee made findings and
recommendations that are reflected in 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 does not authorize funding, so no statement of general
performance goals and objectives is required.

C. Tax Complexity Analysis

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

LIST OF PROVISIONS IN THE COMPLEXITY ANALYSIS

1. Contributions permitted if spouse has health flexible spending
arrangement

Summary description of provision
Section 4 of the bill provides that for purposes of
determining whether an individual is eligible to contribute to
an HSA, coverage under the employee's health FSA for any plan
year of such FSA is disregarded, provided that certain
requirements are met. In order to qualify for this exception,
the aggregate reimbursements under the health FSA for the plan
year must not exceed the aggregate expenses that would be
eligible for reimbursement under the FSA if the expenses were
determined without regard to any expenses paid or incurred with
respect to the otherwise HSA-eligible individual. This
provision is effective for plan years beginning after December
31, 2025.
Number of affected taxpayers
It is estimated that the provision will affect over 10
percent of taxpayers during the budget window.
Discussion
The IRS will need to modify its forms and publications to
reflect the provision. It will need to update information on
its website and provide communications to external
stakeholders. It will also need to issue guidance under the
provision, and may need to make IT programming changes to
process form changes. Additionally, taxpayers enrolled in a
spousal FSA may need to keep additional records regarding
incurred medical expenses.

2. FSA and HRA terminations or conversions to fund HSAs

Summary description of provision
Section 5 of the bill permits amounts in a health FSA or
HRA to be rolled over into an HSA if (1) the distribution is
made in connection with the employee establishing coverage
under an HDHP, and (2) during the four-year period preceding
the establishment of such coverage, the employee was not
covered under an HDHP (``four-year rule''). Limits apply to the
amount that may be rolled over, and the distribution must be
reported on Form W-2. In addition, if the qualified HSA
distribution is made before the end of the plan year, and the
individual remains enrolled in the health FSA or HRA after the
distribution, the health FSA or HRA from which the distribution
is made must be converted to an HSA-compatible FSA or HRA, as
applicable, for the portion of the plan year after the
distribution is made. The provision is effective for
distributions made after December 31, 2025, in taxable years
ending after such date.
Number of affected taxpayers
It is estimated that the provision will affect over 10
percent of taxpayers during the budget window.
Discussion
Enforcement of the four-year rule may be challenging. In
order to determine whether an individual has been covered under
an HDHP for the four-year period, the IRS will need to rely on
the individual's reporting of this information on the Form
8889, and it will be difficult for the IRS to collect and
verify the necessary information for an individual over a
period of years.
The IRS will also need to modify its forms and publications
to reflect the provision. It will need to issue guidance under
the provision, and it may need to make IT programming changes
to process form changes. It will need to coordinate with the
Social Security Administration on changes to the Form W-2. In
addition, the IRS will need to develop a comprehensive
communication strategy to ensure that IRS employees and
taxpayers understand the change. Taxpayers may need to keep
additional records regarding rollovers and conversions of FSAs
and HRAs to HSA-compatible arrangements.
Comments from IRS and Treasury

D. 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.

E. 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.

F. Duplication of Federal Programs

In compliance with clause 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 the Federal Program
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No.
98-169).

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

A. Text of Existing Law Amended or Repealed by the Bill, as Reported

With respect to the requirement of clause 3(e) of rule XIII
of the Rules of the House of Representatives, changes in
existing law made by the bill, as reported, this section was
not made available to the Committee in time for the filing of
this report.

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 italics, and existing law in which no
change is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

* * * * * * *
Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter B--COMPUTATION OF TAXABLE INCOME

* * * * * * *

PART 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 contributed
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)) if during the 4-year
period preceding the date the employee
so establishes coverage the employee
was not covered under such a high
deductible health plan, and
(ii) such arrangement is described in
section 223(c)(1)(B)(vi) with respect
to any portion of the plan year
remaining after such distribution is
made, if such employee remains enrolled
in such arrangement.
(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 menstrual care products.--For purposes
of this section and section 105, expenses incurred for
menstrual care products (as defined in section 223(d)(2)(D))
shall be treated as incurred for medical care.
(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:
(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,
long-term care, or (in the case of
months or plan years to which paragraph
(2)(E) applies) telehealth and other
remote 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[.],
(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, and
(v) 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.
(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 individuals receiving
benefits subject to surprise billing
statutes.--An individual shall not fail to be
treated as an eligible individual for any
period merely because the individual receives
benefits for medical care subject to and in
accordance with section 9816 or 9817, section
2799A-1 or 2799A-2 of the Public Health Service
Act, or section 716 or 717 of the Employee
Retirement Income Security Act of 1974, or any
State law providing similar protections to such
individual.
(E) Treatment of direct primary care service
arrangements.--
(i) In general.--A direct primary
care service arrangement shall not be
treated as a health plan for purposes
of subparagraph (A)(ii).
(ii) Direct primary care service
arrangement.--For purposes of this
paragraph--
(I) In general.--The term
``direct primary care service
arrangement'' means, with
respect to any individual, an
arrangement under which such
individual is provided medical
care (as defined in section
213(d)) consisting solely of
primary care services provided
by primary care practitioners
(as defined in section
1833(x)(2)(A) of the Social
Security Act, determined
without regard to clause (ii)
thereof), if the sole
compensation for such care is a
fixed periodic fee.
(II) Limitation.--With
respect to any individual for
any month, such term shall not
include any arrangement if the
aggregate fees for all direct
primary care service
arrangements (determined
without regard to this
subclause) with respect to such
individual for such month
exceed $150 (twice such dollar
amount in the case of an
individual with any direct
primary care service
arrangement (as so determined)
that covers more than one
individual).
(iii) Certain services specifically
excluded from treatment as primary care
services.--For purposes of this
paragraph, the term ``primary care
services'' shall not include--
(I) procedures that require
the use of general anesthesia,
(II) prescription drugs
(other than vaccines), and
(III) laboratory services not
typically administered in an
ambulatory primary care
setting.
The Secretary, after consultation with
the Secretary of Health and Human
Services, shall issue regulations or
other guidance regarding the
application of this clause.
(F) Special rule for qualified items and
services.--
(i) In general.--For purposes of
subparagraph (A)(ii), an individual
shall not be treated as covered under a
health plan described in subclauses (I)
and (II) of such subparagraph merely
because the individual is eligible to
receive, or receives, qualified items
and services--
(I) at a healthcare facility
located at a facility owned or
leased by the employer of the
individual (or of the
individual's spouse), or
(II) at a healthcare facility
operated primarily for the
benefit of employees of the
employer of the individual (or
of the individual's spouse).
(ii) Qualified items and services
defined.--For purposes of this
subparagraph, the term ``qualified
items and services'' means the
following:
(I) Physical examination.
(II) Immunizations, including
injections of antigens provided
by employees.
(III) Drugs or biologicals
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) Preventive care for
chronic conditions (as defined
in clause (iv)).
(VI) Drug testing.
(VII) Hearing or vision
screenings and related
services.
(iii) Aggregation.--For purposes of
clause (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.
(iv) Preventive care for chronic
conditions.--For purposes of this
subparagraph, the term ``preventive
care for chronic conditions'' means any
item or service specified in the
Appendix of Internal Revenue Service
Notice 2019-45 which is prescribed to
treat an individual diagnosed with the
associated chronic condition specified
in such Appendix for the purpose of
preventing the exacerbation of such
chronic condition or the development of
a secondary condition, including any
amendment, addition, removal, or other
modification made by the Secretary
(pursuant to the authority granted to
the Secretary under paragraph (2)(C))
to the items or services specified in
such Appendix subsequent to the date of
enactment of this subparagraph.
(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).
(E) Safe harbor for absence of deductible for
telehealth.--In the case of--
(i) months beginning after March 31,
2022, and before January 1, 2023, and
(ii) plan years beginning on or
before December 31, 2021, or after
December 31, 2022, and before January
1, 2025,
a plan shall not fail to be treated as a high
deductible health plan by reason of failing to
have a deductible for telehealth and other
remote care services.
(F) Special rule for surprise billing.--A
plan shall not fail to be treated as a high
deductible health plan by reason of providing
benefits for medical care in accordance with
section 9816 or 9817, section 2799A-1 or 2799A-
2 of the Public Health Service Act, or section
716 or 717 of the Employee Retirement Income
Security Act of 1974, or any State law
providing similar protections to individuals,
prior to the satisfaction of the deductible
under paragraph (2)(A)(i).
(G) Safe harbor for absence of deductible for
certain insulin products.--
(i) In general.--A plan shall not
fail to be treated as a high deductible
health plan by reason of failing to
have a deductible for selected insulin
products.
(ii) Selected insulin products.--For
purposes of this subparagraph--
(I) In general.--The term
``selected insulin products''
means any dosage form (such as
vial, pump, or inhaler dosage
forms) of any different type
(such as rapid-acting, short-
acting, intermediate-acting,
long-acting, ultra long-acting,
and premixed) of insulin.
(II) Insulin.--The term
``insulin'' means insulin that
is licensed under subsection
(a) or (k) of section 351 of
the Public Health Service Act
(42 U.S.C. 262) and continues
to be marketed under such
section, including any insulin
product that has been deemed to
be licensed under section
351(a) of such Act pursuant to
section 7002(e)(4) of the
Biologics Price Competition and
Innovation Act of 2009 (Public
Law 111-148) and continues to
be marketed pursuant to such
licensure.
(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. For purposes of this
subparagraph, amounts paid for menstrual care
products shall be treated as paid for medical
care.
(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)[.], or
(v) any direct primary care service
arrangement.
(D) Menstrual care product.--For purposes of
this paragraph, the term ``menstrual care
product'' means a tampon, pad, liner, cup,
sponge, or similar product used by individuals
with respect to menstruation or other genital-
tract secretions.
(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), (c)(1)(E)(ii)(II), 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)
and (iii), ``calendar year 1997'',
[and]
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''[.], and
(iii) in the case of the dollar
amount in subsection (c)(1)(E)(ii)(II)
for taxable years beginning in calendar
years after 2026, ``calendar year
2025''.
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),
(c)(1)(E)(ii)(II), 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
subsection (g)), 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[.],
(18) in the case of a direct primary care service
arrangement (as defined in section 223(c)(1)(E)(ii))
which is provided in connection with employment, the
aggregate fees for such arrangement for such employee,
and
(19) 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).
(g) Applicable employer-sponsored coverage.--For purposes of
subsection (a)(14)--
(1) In general.--The term ``applicable employer-
sponsored coverage'' means, with respect to any
employee, coverage under any group health plan made
available to the employee by an employer which is
excludable from the employee's gross income under
section 106, or would be so excludable if it were
employer-provided coverage (within the meaning of such
section 106).
(2) Exceptions.--The term ``applicable employer-
sponsored coverage'' shall not include--
(A) any coverage (whether through insurance
or otherwise) described in section 9832(c)(1)
(other than subparagraph (G) thereof) or for
long-term care,
(B) any coverage under a separate policy,
certificate, or contract of insurance which
provides benefits substantially all of which
are for treatment of the mouth (including any
organ or structure within the mouth) or for
treatment of the eye, or
(C) any coverage described in section
9832(c)(3) the payment for which is not
excludable from gross income and for which a
deduction under section 162(l) is not
allowable.
(3) Coverage includes employee paid portion.--
Coverage shall be treated as applicable employer-
sponsored coverage without regard to whether the
employer or employee pays for the coverage.
(4) Governmental plans included.--Applicable
employer-sponsored coverage shall include coverage
under any group health plan established and maintained
primarily for its civilian employees by the Government
of the United States, by the government of any State or
political subdivision thereof, or by any agency or
instrumentality of any such government.

* * * * * * *

VII. DISSENTING VIEWS

H.R. 5688 (Smucker, R-PA-11 and Blumenauer, D-OR-3)
includes a series of provisions intended to incentivize use of
health savings accounts (HSAs), which are tax-preferred savings
accounts that are paired with high-deductible health plans
(HDHPs). HDHPs, as the name implies, are health plans that have
high deductibles, requiring Americans to pay thousands of
dollars out-of-pocket before insurance begins. More
specifically, this bill allows individuals participating in a
direct primary care arrangement or receiving qualified items
and services at a worksite health clinic to contribute to an
HSA. It also allows an individual to maintain an HSA even if
the individual's spouse has a Flexible Spending Account (FSA)
provided each spouse is under a separate health insurance plan.
Finally, H.R. 5688 allows distributions from an FSA or Health
Reimbursement Arrangement (HRA) directly to an HSA in
connection with establishing coverage under an HDHP. According
to the Joint Committee on Taxation, this bill would cost
American taxpayers $12.95 billion over 10 years--and the
provisions do not take effect until 2026.
This legislation neither lowers out-of-pocket health care
costs nor improves insurance coverage. These provisions do
nothing to lower the cost of care or provide coverage to the
millions of underinsured or uninsured Americans. HSAs are not
health insurance but tax- preferred savings accounts:
Contributions are pretax, assets grow tax-free, and
distributions are not taxed for qualified medical expenses.\1\
The fundamental premise behind HSAs is that individuals should
be responsible for saving for their own health care needs,
which is a flawed approach because even paying for non-
catastrophic events is beyond the reach of most American
families. The American Hospital Association points to the
prevalence of HDHPs as one of the paramount drivers of medical
debt. Twenty percent of employers that offer HDHPs do not
contribute to an HSA for their employees, and most firms offer
a modest $400 to $799 for individual coverage.\2\ This trend
leaves employees at risk for all or most of the cost of the
deductible. Thus, individuals with incomes below $75,000 who
have HDHPs are likely to forgo needed medical care,
specifically low-cost primary care services.\3\ Unlike the
Republican approach to health care, the Democrats' Inflation
Reduction Act made key investments to lower prescription drug
prices, reduce patients' out-of-pocket health costs, reduce
insurance premiums, and enhance the tax credits that make
insurance coverage affordable for more than 13 million
Americans.\4\
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\1\Joseph Slife & Matt Bell, A Health Savings Account: The Other
``Retirement Account,'' SOUND MIND INVESTING (Jan. 27, 2023), https://
soundmindinvesting.com/articles/a-health-savings-account-the-other-
retirement-account.
\2\2022 employer health benefits survey - section 8: High-
deductible health plans with savings option. KFF. (2022, October 27).
https://www.kff.org/report-section/ehbs-2022-section-8-high-
deductible-health-plans-with-savings-option/
#::text=ENROLLMENT%20IN%20HDHP%2
FHRAS%20AND%20HSA%2DQUALIFIED%20HDHPS&text=Enrollment%20in%20HDHP
%2FSOs%20has,HSA%2Dqualified%20HDHPs%20in%202022.
\3\Schnettler, T. (2022, July 19). Impact of high deductible health
plans on Health Care Utilization. Vital Record. https://
vitalrecord.tamhsc.edu/impact-of-high-deductible-health-plans-on-
health-care-utilization/.
\4\The Inflation Reduction Act Turns One: Millions of Americans Are
Saving On Health Care, With More To Come. PROTECT OUR CARE, (2023).
https://www.protectourcare.org/wp-content/uploads/2023/08/IRA-First-
Anniversary-Fact-Sheet.pdf.
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HSAs provide little benefit for the average American
family. While 75 percent of HSA account holders live in ZIP
codes with a median household income of less than $100,00, only
four percent of all HSA contributions come from households with
incomes $50,000 or below, demonstrating that most lower and
middle income Americans with an account do not actually
contribute to it.\5\\6\ In contrast, 77 percent of
contributions to HSAs come from households with incomes over
$100,000 and 44 percent from households with incomes over
$200,000.\7\ People with incomes over $100,000 represent 78
percent of participants maxing out HSA contributions.\8\
---------------------------------------------------------------------------
\5\2022 Devenir & HSA Council Demographic Survey. DEVENIR RESEARCH
(July, 13, 2023), https://www.devenir.com/wp-content/uploads/2022-
Devenir-and-HSA-Council-Demographic-Report.pdf.
\6\Gideon Lukens, House Bills Expanding HSAs Would Boost High-
Income Tax Breaks--Not Affordability of Care, CENTER ON BUDGET AND
POLICY PRIORITIES (Sep. 27, 2023), https://www.cbpp.org/blog/house-
bills-expanding-hsas-would-boost-high-income-tax-breaks-not-
affordability-of-
care#::text=Two%20bills%20due%20for%20House,costing%20over%20%2470%20
billion%20combined%2C.
\7\Gideon Lukens, House Bills Expanding HSAs Would Boost High-
Income Tax Breaks--Not Affordability of Care, CENTER ON BUDGET AND
POLICY PRIORITIES (Sep. 27, 2023), https://www.cbpp.org/blog/house-
bills-expanding-hsas-would-boost-high-income-tax-breaks-not-
affordability-of-
care#::text=Two%20bills%20due%20for%20House,costing%20over%20%2470%20
billion%20combined%2C.
\8\Gideon Lukens, Expanding Health Savings Accounts Would Boost Tax
Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY PRIORIITES
(June 22, 2023). https://www.cbpp.org/research/health/expanding-health-
savings-accounts-would-boost-tax-shelters-not-access-to-care.
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HSAs exacerbate health disparities. This legislation does
nothing to reduce health disparities or address the
generational wealth gaps and poorer health outcomes for people
of color. A typical White family in 2019 had eight times the
wealth of a typical Black family and five times the wealth of a
typical Latino family. The median wealth of White households
was $171,000, compared with $17,100 for Black households and
$20,600 for Latino households.\9\ Thus, people of color benefit
from the tax benefits of HSAs far less than White people, as
the preferential tax treatment accrues inequitably along income
lines and is disproportionately out of reach for many people of
color. Account balances, contributions, and distributions from
HSA accounts differ significantly by race, and HSA expansion
will only exacerbate the health equity and wealth gap.\10\
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\9\Dorothy Brown, The Whiteness of Wealth: How the Tax System
Impoverishes Black Americans--And How We Can Fix It 18 (2021).
\10\Spiegel, J. Examining HSAs through a DEI lens. EMPLOYEE BENEFIT
RESEARCH INSTITUTE, (2022, April 7).
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HSAs impact solvency of Medicare and Social Security Trust
Funds. HSAs have multiple tax advantages for accumulating
wealth. Contributions to HSAs are made with pretax dollars (in
most states), assets grow tax-free, and distributions are tax-
free if used to pay for qualified medical expenses or as
reimbursement for such expenses. These tax giveaways will cost
the federal government more than $180 billion over the next 10
years, disproportionately benefitting the wealthy--and H.R.
5688 would add another $12.95 billion to that total over the
next decade.\11\ Because employer contributions to HSAs are not
subject to the payroll tax imposed on either the employer or
the employee, expanding their use will inevitably reduce
contributions into the Medicare and Social Security Trust
Funds, harming America's seniors and people with disabilities.
Closing the Medicaid coverage gap or extending marketplace
premium tax credits for the next 10 years would cost about the
same as continuing to fund HSAs.\12\
---------------------------------------------------------------------------
\11\Gideon Lukens, Expanding Health Savings Accounts Would Boost
Tax Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY
PRIORIITES (June 22, 2023). https://www.cbpp.org/research/health/
expanding-health-savings-accounts-would-boost-tax-shelters-not-access-
to-care.
\12\House GOP Health Care Bills Benefit the Wealthy and Diminish
Affordable Care Act Protections, PROTECT OUR CARE (June 7, 22023).
https://www.protectourcare.org/house-gop-health-care-bills-benefit-the-
wealthy-and-diminish-affordable-care-act-protections/.
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HSAs are a tax shelter for the wealthy. HSAs
disproportionately benefit wealthy Americans--and this
legislation seeks to make HSAs more attractive. People with
higher incomes 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.\13\ People with income
in the lowest tax brackets save up to 12 cents on the dollar in
federal income taxes for their HSA contributions.\14\ By
comparison, those earning over half a million dollars save 37
cents for each dollar in federal income taxes put into an
HSA.\15\ At age 65, withdrawals can be used for any purpose
with no penalty. This loophole means HSA funds can be used for
any non-medical expenses after age 65 without paying a penalty
for non-medical use. HSA funds can be used to cover day-to-day
expenses, pay for home renovations, or even finance a new
boat.\16\\17\ Investment advisors see a lucrative opportunity
and are now marketing HSAs as retirement and wealth
accumulation products, not health care accounts.\18\ Democrats
offered an amendment to H.R. 5688 to close this tax loophole,
but the majority rejected the changes. Republicans would rather
exacerbate disparities by giving away billions to the wealthy.
---------------------------------------------------------------------------
\13\Ryan Ermey, This savings account offers a `triple tax
benefit'--but 88% of users are missing out, CNBC (Feb. 9, 2023),
https://www.cnbc.com/2023/02/09/health-savings-accounts-how-to-save-
for-retirement.html.
\14\Gideon Lukens, Expanding Health Savings Accounts Would Boost
Tax Shelters, Not Access to Care, CENTER ON BUDGET AND POLICY
PRIORIITES (June 22, 2023). https://www.cbpp.org/research/health/
expanding-health-savings-accounts-would-boost-tax-shelters-not-access-
to-care.
\15\Id.
\16\How to avoid penalties on an HSA withdrawal, BENEFIT RESOURCE
(Aug 4, 2022), https://www.benefitresource.com/blog/how-to-avoid-
penalties-on-an-hsa-withdrawal/.
\17\5 ways HSAs can help with your retirement, FIDELITY (Dec. 7,
2022), https://www.fidelity.com/viewpoints/wealth-management/hsas-and-
your-retirement.
\18\Id.
---------------------------------------------------------------------------
Low-and middle-income Americans often cannot take advantage
of the tax benefits of HSAs in the same way wealthy Americans
do. Those with higher incomes can afford to take on the risk of
a high deductible and are more likely to establish HSAs
compared to low-income consumers. For those who have little to
contribute, given fees and extremely low interest rates, these
accounts may offer little value. Some account holders could
actually be losing money. Six of seven major institutions
require a minimum balance to invest their HSA contributions,
some up to $2,000. Some accounts offer paltry returns of only
0.01 percent on money invested.\19\ Nearly half of American
families do not have enough money in the bank to pay a $1,000
medical bill in the next 30 days, let alone fund an account
that might earn less interest than a checking account.\20\
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\19\What is the standard interest rate for a Lively HSA? LIVELY
(Aug 21, 2023), https://support.livelyme.com/hc/en-us/articles/
4405466272667-What-is-the-standard-interest-rate-for-a-Lively-HSA-.
\20\Sara Collins, Lauren Haynes, & Relebohile Masitha, The State of
U.S. Health Insurance in 2022, THE COMMONWEALTH FUND (Sep. 29, 2022),
https://www.commonwealthfund.org/publications/issue-briefs/2022/sep/
state-us-health-insurance-2022-biennial-survey.
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Amendments
Mr. Doggett (D-TX) offered an amendment to close a loophole
whereby those over 65 years of age can spend HSA balances on
non-health luxury items without penalty. Under current law, HSA
funds can be used for anything--luxury items, like a yacht, a
vacation home, a swimming pool--once an HSA account holder
turns 65. In fact, investment advisors are even advertising the
fact when they sell these accounts. This amendment would have
ended that practice, eliminating the current law loophole that
exempts HSAs distributions used for non- qualifying medical
expenses. The amendment was defeated by Republicans on a party
line roll- call vote (18 yeas to 23 nays).
Mr. Larson (D-CT) offered an amendment to ensure the
provisions would not take effect unless the Secretary of the
Treasury, in consultation with the Social Security
Administration, ensured the Social Security Trust Funds would
not be affected by implementation of the policies. Because
employer contributions to HSAs are not subject to the payroll
tax imposed on either the employer or the employee, expanding
their use will inevitably reduce contributions into the
Medicare and Social Security Trust Funds, harming America's
seniors and people with disabilities. The amendment was
defeated by Republicans on a party line roll-call vote (18 yeas
to 24 nays).
Ms. Chu (D-CA) offered an amendment to require that nothing
in H.R. 5688 shall be construed to prevent individuals from
using their HSAs to cover vital reproductive and sexual health
care. Women's access to health care is under attack by
extremist Republicans. With the fall of Roe, needed health care
services are no longer available for millions of women. This
amendment simply would have ensured that women can use their
HSAs to pay for needed health items and services, such as
contraception or out-of-state travel costs to receive
miscarriage- or abortion-related services. The amendment was
defeated by Republicans on a party line roll-call vote (16 yeas
to 24 nays).
Mr. Kildee (D-MI) offered an amendment to prevent
individuals with adjusted gross incomes above $400,000 from
taking a tax deduction. Given that the benefits of HSAs
disproportionately accrue to the wealthy who are able to use
these accounts for tax shelters rather than to make health
services more affordable, this amendment would limit the tax
advantages of the accounts to those most in need. The amendment
was defeated by Republicans on a party line roll-call vote (16
yeas to 24 nays).
Mr. Pascrell (D-NJ) offered an amendment to increase the
cap on the State and Local Tax deduction to $60,000 for single
filers and $120,000 for married couples filing jointly, and
adjust the cap each year for the cost-of-living. The amendment
was ruled non-germane. The appeal of the ruling of the chair
was defeated. Restoring the State and Local Tax deduction is a
matter of fairness. It properly measures a taxpayer's income,
prevents double taxation, and it ends the Republican policy of
penalizing states that raise adequate funds to provide crucial
services such as police, fire protection, quality public
schools, and social services to their citizens.
Mr. Pascrell (D-NJ) offered an amendment to add to H.R.
5688 a new section that prevents the bill from taking effect
until the Secretary of the Treasury certifies that the cap on
the State and Local Tax (SALT) deduction will not result in an
increase in the tax liability of any taxpayer with an adjusted
gross income less than $50,000 in calendar years 2023, 2024, or
2025. The amendment was defeated by Republicans on a party line
roll-call vote (16 yeas to 24 nays).
Sincerely,
Richard E. Neal,
Ranking Member.

[all]