To amend the Internal Revenue Code of 1986 to allow individuals a refundable and advanceable credit against income tax for health insurance costs.

Summary: Cost Integrity and Fairness Act of 2005 - Amends the Internal Revenue Code to: (1) allow a refundable tax credit for the health insurance costs of a taxpayer, the taxpayer's spouse, and dependents; and (2) direct the Secretary of the Treasury to establish a program for making advance payments of credit amounts to health insurance providers.

SECTION 1. SHORT TITLE; CONSTITUTIONAL AUTHORITY.

    (a) Short Title.--This Act may be cited as the ``Cost Integrity and 
Fairness Act of 2005''.
    (b) Constitutional Authority to Enact This Legislation.--The 
constitutional authority upon which this Act rests is the power of 
Congress to lay and collect taxes, set forth in article I, section 8 of 
the United States Constitution.

SEC. 2. REFUNDABLE AND ADVANCEABLE CREDIT FOR HEALTH INSURANCE COSTS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 36 as section 37 and by inserting 
after section 35 the following new section:

``SEC. 36. HEALTH INSURANCE COSTS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this subtitle an amount 
equal to the amount paid during the taxable year for qualified health 
insurance for coverage of the taxpayer, his spouse, and dependents.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The amount allowed as a credit 
                under subsection (a) to the taxpayer for the taxable 
                year shall not exceed the sum of the monthly 
                limitations for months during such taxable year.
                    ``(B) Monthly limitation.--The monthly limitation 
                for any month is the amount equal to \1/12\ of the 
                lesser of--
                            ``(i) the product of $1,000 multiplied by 
                        the number of individuals taken into account 
                        under subsection (a) who are covered under 
                        qualified health insurance as of the first day 
                        of such month, or
                            ``(ii) $3,000.
            ``(2) Employer subsidized coverage.--Subsection (a) shall 
        not apply to amounts paid for coverage of any individual for 
        any month for which such individual participates in any 
        subsidized health plan maintained by any employer of the 
        taxpayer or of the spouse of the taxpayer. The rule of the last 
        sentence of section 162(l)(2)(B) shall apply for purposes of 
        the preceding sentence.
    ``(c) Qualified Health Insurance.--For purposes of this section--
            ``(1) In general.--The term `qualified health insurance' 
        means insurance which constitutes medical care if--
                    ``(A) such insurance meets the requirements of 
                section 223(c)(2)(A)(ii),
                    ``(B) there is no exclusion from, or limitation on, 
                coverage for any preexisting medical condition of any 
                applicant who, on the date the application is made, has 
                been continuously insured during the 1-year period 
                ending on the date of the application under--
                            ``(i) qualified health insurance 
                        (determined without regard to this 
                        subparagraph), or
                            ``(ii) a program described in--
                                    ``(I) title XVIII or XIX of the 
                                Social Security Act,
                                    ``(II) chapter 55 of title 10, 
                                United States Code,
                                    ``(III) chapter 17 of title 38, 
                                United States Code,
                                    ``(IV) chapter 89 of title 5, 
                                United States Code, or
                                    ``(V) the Indian Health Care 
                                Improvement Act, and
                    ``(C) in the case of each applicant who has not 
                been continuously so insured during the 1-year period 
                ending on the date the application is made, the 
                exclusion from, or limitation on, coverage for any 
                preexisting medical condition does not extend beyond 
                the period after such date equal to the lesser of--
                            ``(i) the number of months immediately 
                        prior to such date during which the individual 
                        was not so insured since the illness or 
                        condition in question was first diagnosed, or
                            ``(ii) 1 year.
            ``(2) Exclusion of certain plans.--Such term does not 
        include--
                    ``(A) insurance if substantially all of its 
                coverage is coverage described in section 223(c)(1)(B),
                    ``(B) insurance under a program described in 
                paragraph (1)(B)(ii).
            ``(3) Transition rule for 2005.--In the case of 
        applications made during 2005, the requirements of 
        subparagraphs (C) and (D) of paragraph (1) are met only if the 
        insurance does not exclude from coverage, or limit coverage 
        for, any preexisting medical condition of any applicant.
    ``(d) Special Rules.--
            ``(1) Coordination with medical deduction, etc.--Any amount 
        paid by a taxpayer for insurance to which subsection (a) 
        applies shall not be taken into account in computing the amount 
        allowable to the taxpayer as a credit under section 35 or as a 
        deduction under section 162(l) or 213(a).
            ``(2) Denial of credit to dependents.--No credit 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.
            ``(3) Married couples must file joint return.--
                    ``(A) In general.--If the taxpayer is married at 
                the close of the taxable year, the credit shall be 
                allowed under subsection (a) only if the taxpayer and 
                his spouse file a joint return for the taxable year.
                    ``(B) Marital status; certain married individuals 
                living apart.--Rules similar to the rules of paragraphs 
                (3) and (4) of section 21(e) shall apply for purposes 
                of this paragraph.
            ``(4) Verification of coverage, etc.--No credit shall be 
        allowed under this section to any individual unless such 
        individual's coverage under qualified health insurance, and the 
        amount paid for such coverage, are verified in such manner as 
        the Secretary may prescribe.
            ``(5) Coordination with advance payments of credit.--With 
        respect to any taxable year, the amount which would (but for 
        this subsection) be allowed as a credit to the taxpayer under 
        subsection (a) shall be reduced (but not below zero) by the 
        aggregate amount paid on behalf of such taxpayer under section 
        7527A for months beginning in such taxable year.
            ``(6) Cost-of-living adjustment.--In the case of any 
        taxable year beginning in a calendar year after 2005, each 
        dollar amount contained in subsection (b)(1)(B) 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 
                the taxable year begins by substituting `calendar year 
                2004' for `calendar year 1992' in subparagraph (B) 
                thereof.
        Any increase determined under the preceding sentence shall be 
        rounded to the nearest multiple of $10.''.
    (b) Advance Payment of Credit.--Chapter 77 of such Code (relating 
to miscellaneous provisions) is amended by inserting after section 7527 
the following new section:

``SEC. 7527A. ADVANCE PAYMENT OF CREDIT FOR HEALTH INSURANCE COSTS.

    ``(a) General Rule.--The Secretary shall establish a program for 
making payments on behalf of individuals to providers of qualified 
health insurance (as defined in section 36(c)) for such individuals.
    ``(b) Limitation on Advance Payments During Any Taxable Year.--The 
Secretary may make payments under subsection (a) only to the extent 
that the total amount of such payments made on behalf of any individual 
during the taxable year does not exceed the amount allowable as a 
credit to such individual for such year under section 36 (determined 
without regard to subsection (d)(5) thereof).''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting ``or 36'' after ``section 
        35''.
            (2) The table of sections for subpart C of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by striking the item relating to section 36 and 
        inserting the following new items:

``Sec. 36. Health insurance costs.
``Sec. 37. Overpayments of tax.''.
            (3) The table of sections for chapter 77 of such Code is 
        amended by inserting after the item relating to section 7527 
        the following new item:

``Sec. 7527A. Advance payment of credit for health insurance costs.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2004.