Health Savings Account Expansion Act of 2016

Summary: Health Savings Account Expansion Act of 2016  This bill amends the Internal Revenue Code to modify the requirements for health savings accounts (HSAs). The bill modifies the requirements to:    increase the maximum contribution amounts,   permit the use of HSAs to pay health insurance premiums and direct primary care expenses,   repeal the restriction on using HSAs for over-the-counter medications,   eliminate the requirement that a participant in an HSA be enrolled in a high deductible health care plan, and   decrease the additional tax for HSA distributions not used for qualified medical expenses.  

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Health Savings Account Expansion Act 
of 2016''.

SEC. 2. ADEQUATE FUNDS FOR HEALTH INSURANCE PLANS.

    (a) In General.--Section 223(b)(1) of the Internal Revenue Code of 
1986 is amended by striking ``the sum of the monthly'' and all that 
follows through ``eligible individual'' and inserting ``$9,000 ($18,000 
in the case of a joint return)''.
    (b) Conforming Amendments.--
            (1) Subsection (b) of such Code is amended by striking 
        paragraphs (2), (3), and (5) and by redesignating paragraphs 
        (4), (6), (7), and (8) as paragraphs (2), (3), (4), and (5), 
        respectively.
            (2) Section 223(b)(2) of such Code (as redesignated by 
        paragraph (1)) is amended by striking the last sentence.
            (3) Section 223(b)(4) of such Code (as redesignated by 
        paragraph (1)) is amended to read as follows:
            ``(4) Medicare eligible individuals.--The limitation under 
        this subsection for any taxable year with respect to an 
        individual shall--
                    ``(A) in the case of the first taxable year in 
                which such individual is entitled to benefits under 
                title XVIII of the Social Security Act, be the amount 
                which bears the same proportion to the amount in effect 
                under paragraph (1) with respect to such individual 
                as--
                            ``(i) the number of months in the taxable 
                        year during which such individual was not so 
                        entitled, bears to
                            ``(ii) 12, and
                    ``(B) be zero for any taxable year thereafter.''.
            (4) Section 223(g)(1) of such Code is amended--
                    (A) in the matter preceding subparagraph (A) by 
                striking ``Each dollar amount in subsection (b)(2)'' 
                and inserting ``In the case of taxable years beginning 
                after December 31, 2017, each dollar amount in 
                subsection (b)(1)'',
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(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 
                `calendar year 2016' for `calendar year 1992'.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2016.

SEC. 3. PARITY WITH EMPLOYER-PROVIDED HEALTH INSURANCE; DIRECT PRIMARY 
              CARE.

    (a) In General.--Section 223(d)(2) of the Internal Revenue Code of 
1986 is amended to read as follows:
            ``(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.
                    ``(B) Direct primary care.--
                            ``(i) In general.--Such term includes 
                        expenses for direct primary care service 
                        arrangements.
                            ``(ii) Direct primary care service 
                        arrangements.--For purposes of clause (i), the 
                        term `direct primary care service arrangements' 
                        means an arrangement under which an individual 
                        is provided coverage restricted to primary care 
                        services in exchange for a fixed periodic fee 
                        or payment for primary care services.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2016.

SEC. 4. FREEDOM FROM MANDATE.

    (a) In General.--Section 223 of the Internal Revenue Code of 1986, 
as amended by sections 2 and 3, is amended by striking subsection (c) 
and redesignating subsections (d) through (h) as subsections (c) 
through (g), respectively.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 223 of such Code is amended 
        to read as follows:
    ``(a) Deduction Allowed.--In the case of an individual, there shall 
be allowed as a deduction for a 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.''.
            (2) Subsection (b) of section 223 of such Code (as amended 
        by section 2) is amended by striking paragraph (5).
            (3) Section 223(c)(1)(A) of such Code (as redesignated by 
        subsection (a)) is amended--
                    (A) by striking ``subsection (f)(5)'' and inserting 
                ``subsection (e)(5)'', and
                    (B) in clause (ii) by striking ``the sum 
                of--'' and all that follows and inserting ``the dollar 
                amount in effect under subsection (b)(1).''.
            (4) Section 223(f)(1) of such Code (as redesignated by 
        subsection (a)) is amended by striking ``subsections (b)(1) and 
        (c)(2)(A)'' and inserting ``subsection (b)(1)''.
            (5) Section 26(b)(U) of such Code is amended by striking 
        ``section 223(f)(4)'' and inserting ``section 223(e)(4)''.
            (6) Sections 35(g)(3), 220(f)(5)(A), 848(e)(1)(v), 
        4973(a)(5), and 6051(a)(12) of such Code are each amended by 
        striking ``section 223(d)'' each place it appears and inserting 
        ``section 223(c)''.
            (7) Section 106(d)(1) of such Code is amended--
                    (A) by striking ``who is an eligible individual (as 
                defined in section 223(c)(1))'', and
                    (B) by striking ``section 223(d)'' and inserting 
                ``section 223(c)''.
            (8) Section 408(d)(9) of such Code is amended--
                    (A) in subparagraph (A) by striking ``who is an 
                eligible individual (as defined in section 223(c)) 
                and'', and
                    (B) in subparagraph (C) by striking ``computed on 
                the basis of the type of coverage under the high 
                deductible health plan covering the individual at the 
                time of the qualified HSA funding distribution''.
            (9) Section 877A(g)(6) of such Code is amended by striking 
        ``223(f)(4)'' and inserting ``223(e)(4)''.
            (10) Section 4973(g) of such Code is amended--
                    (A) by striking ``section 223(d)'' and inserting 
                ``section 223(c)'',
                    (B) in paragraph (2), by striking ``section 
                223(f)(2)'' and inserting ``section 223(e)(2)'', and
                    (C) by striking ``section 223(f)(3)'' and inserting 
                ``section 223(e)(3)''.
            (11) Section 4975 of such Code is amended--
                    (A) in subsection (c)(6)--
                            (i) by striking ``section 223(d)'' and 
                        inserting ``section 223(c)'', and
                            (ii) by striking ``section 223(e)(2)'' and 
                        inserting ``section 223(d)(2)'', and
                    (B) in subsection (e)(1)(E), by striking ``section 
                223(d)'' and inserting ``section 223(c)''.
            (12) Section 6693(a)(2)(C) of such Code is amended by 
        striking ``section 223(h)'' and inserting ``section 223(g)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2016.

SEC. 5. RESTORING LOWER PENALTY FOR NONQUALIFIED DISTRIBUTIONS.

    (a) HSAs.--Section 223(e)(4)(A) of the Internal Revenue Code of 
1986, as amended by section 4, is amended by striking ``20 percent'' 
and inserting ``10 percent''.
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions made in taxable years beginning after December 31, 
2016.