To amend the Internal Revenue Code of 1986 to expand medical savings accounts and to amend title XIX of the Social Security Act to provide for medical freedom accounts under the Medicaid and State children's health insurance programs.

Summary: Health Access and Flexibility Act of 2003 - Amends the Internal Revenue Code with respect to Archer medical savings accounts to: (1) eliminate such accounts' availability to only self-employed individuals and employees of small employers; (2) repeal the 750,000 limitation on the number of such accounts; (3) reduce the permitted minimum deductibles on qualifying high deductible plans to $1,000 (single coverage), and $2,000 (family coverage); (4) increase the monthly (and thus the annual) deduction limitation permitted for account contributions; (5) permit employer and employee contributions to be made to an account; (6) make cost-of-living adjustments applicable to only high deductible plan maximums; and (7) provide for 60-day rollovers from a health flexible spending arrangement to an account.Amends title XIX of the Social Security Act (Medicaid) to authorize a State to provide alternative medical benefits for eligible population groups which shall consist of at least: (1) coverage for medical expenses in a year after a catastrophic deductible has been met; and (2) contribution into a medical freedom account (as defined by this Act).

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Health Access and Flexibility Act of 
2003''.

SEC. 2. EXPANSION OF MEDICAL SAVINGS ACCOUNTS.

    (a) Availability Not Limited to Accounts for Employees of Small 
Employers and Self-Employed Individuals.--
            (1) In general.--Subparagraph (A) of section 220(c)(1) of 
        the Internal Revenue Code of 1986 (relating to eligible 
        individual) is amended to read as follows:
                    ``(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.''.
            (2) Repeal of Limitations on Number of Medical Savings 
        Accounts.--
                    (A) In general.--Subsections (i) and (j) of section 
                220 are hereby repealed.
                    (B) Conforming amendments.--
                            (i) Paragraph (1) of section 220(c) of such 
                        Code is amended by striking subparagraph (D).
                            (ii) Section 138 of such Code is amended by 
                        striking subsection (f).
            (3) Conforming amendments.--
                    (A) Section 220(c)(1) of such Code is amended by 
                striking subparagraph (C).
                    (B) Section 220(c) of such Code is amended by 
                striking paragraph (4) (defining small employer) and by 
                redesignating paragraph (5) as paragraph (4).
                    (C) Section 220(b) of such Code is amended by 
                striking paragraph (4) (relating to deduction limited 
                by compensation) and by redesignating paragraphs (5), 
                (6), and (7) as paragraphs (4), (5), and (6), 
                respectively.
    (b) Reduction of Permitted Deductibles Under High Deductible Health 
Plans.--
            (1) In general.--Subparagraph (A) of section 220(c)(2) of 
        such Code (defining high deductible health plan) is amended--
                    (A) in clause (i) by striking ``$1,500'' and 
                inserting ``$1,000'', and
                    (B) in clause (ii) by striking ``$3,000'' and 
                inserting ``$2,000''.
            (2) Cost of living adjustment.--Subsection (g) of section 
        220 of such Code is amended by striking ``each dollar amount in 
        subsection (c)(2) shall be increased'' and inserting ``the 
        $2,250, $4,500, $3,000, and $5,500 amounts in subsection 
        (c)(2)(A) shall each be increased''.
    (c) Increase in Amount of Deduction Allowed for Contributions to 
Medical Savings Accounts.--
            (1) In general.--Paragraph (2) of section 220(b) of such 
        Code is amended to read as follows:
            ``(2) Monthly limitation.--The monthly limitation for any 
        month is the amount equal to \1/12\ of the annual deductible 
        under the type of coverage such individual has for such 
        month.''
            (2) Conforming amendment.--Clause (ii) of section 
        220(d)(1)(A) of such Code is amended by striking ``75 percent 
        of''.
    (d) Both Employers and Employees May Contribute to Medical Savings 
Accounts.--Paragraph (4) of section 220(b) of such Code (as 
redesignated by subsection (b)(2)(C)) is amended to read as follows:
            ``(4) Coordination with exclusion for employer 
        contributions.--The limitation which would (but for this 
        paragraph) apply under this subsection to the taxpayer for any 
        taxable year shall be reduced (but not below zero) by the 
        amount which would (but for section 106(b)) be includible in 
        the taxpayer's gross income for such taxable year.''.
    (e) Rollovers to Archer MSAs From Health Flexible Spending 
Arrangements..--
            (1) In general.--Subsection (d) of section 220 of the 
        Internal Revenue Code of 1986 (defining Archer MSA) is amended 
        by redesignating paragraph (4) as paragraph (5) and by 
        inserting after paragraph (3) the following new paragraph:
            ``(4) Special rule for rollovers from health flexible 
        spending accounts.--A rollover contribution described in this 
        paragraph is a transfer from a flexible spending account (as 
        defined in section 125(h)) to the extent the amount received is 
        paid into an Archer MSA for the benefit of such holder not 
        later than the 60th day after the day on which the holder 
receives the payment or distribution.''.
            (2) Rollover of unused health benefits in cafeteria plans 
        and flexible spending arrangements.--
                    (A) In general.--Section 125 of such Code (relating 
                to cafeteria plans) is amended by redesignating 
                subsections (h) and (i) as subsections (i) and (j), 
                respectively, and by inserting after subsection (g) the 
                following:
    ``(h) Rollover to Archer Medical Savings Accounts of Certain Unused 
Health Benefits.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a cafeteria 
        plan solely because qualified benefits under such plan include 
        a health flexible spending arrangement under which, with 
        respect to any plan year, health benefits which are unused at 
        the end of such year may be transferred to an Archer MSA of the 
        employee.
            ``(2) Tax treatment of unused health benefits.--Amounts 
        transferred under paragraph (1) to an Archer MSA shall not be 
        includible in gross income for such taxable year and shall not 
        be treated as a contribution for purposes of section 220(a).
            ``(3) Health flexible spending arrangement.--For purposes 
        of this subsection, the term `health flexible spending 
        arrangement' means a flexible spending arrangement (as defined 
        in section 106(c)) that is a qualified benefit and only permits 
        reimbursement for expenses for medical care (as defined in 
        section 213(d)(1) (without regard to subparagraphs (C) and (D) 
        thereof).
            ``(4) Unused health benefits.--For purposes of this 
        subsection, the term `unused health benefits' means the excess 
        of--
                    ``(A) the maximum amount of reimbursement allowable 
                for a plan year under a health flexible spending 
                arrangement, over
                    ``(B) the actual amount of reimbursement for such 
                year under such arrangement.''.
                    (B) Conforming amendment.--Section 220(d)(1)(A) of 
                such Code is amended by inserting ``described in 
                paragraph (4) or'' after ``contribution''.
    (f) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 3. MEDICAL FREEDOM ACCOUNTS UNDER THE MEDICAID PROGRAM AND UNDER 
              THE STATE CHILDREN'S HEALTH INSURANCE PROGRAM (SCHIP).

    (a) In General.--Title XIX of the Social Security Act is amended--
            (1) by redesignating section 1935 as section 1936; and
            (2) by inserting after section 1934 the following new 
        section:

                       ``medical freedom accounts

    ``Sec. 1935. (a) Authority.--
            ``(1) In general.--Notwithstanding any other provision of 
        this title, a State may amend its State plan under this title 
        (including in a Statewide waiver under section 1115 relating to 
        this title) to provide in accordance with this section for the 
        provision of alternative benefits consistent with subsection 
        (c) for eligible population groups in one or more geographic 
        areas of the State specified by the State. An amendment under 
        the previous sentence is referred to in this section as a 
        `State plan amendment'.
            ``(2) Approval.--The Secretary shall not approve a State 
        plan amendment under paragraph (1) unless the amendment 
        incorporates the following:
                    ``(A) Creating patient awareness of the high cost 
                of medical care.
                    ``(B) Providing incentives to patients to seek 
                preventive care services.
                    ``(C) Reduction in inappropriate use of health care 
                services.
                    ``(D) Enabling patients to take responsibility for 
                health outcomes.
    ``(b) Eligible Populations Groups.--The State plan amendment under 
this section shall specify the eligible population groups.
    ``(c) Alternative Benefits.--
            ``(1) In general.--The alternative benefits provided under 
        this section shall consist of at least--
                    ``(A) coverage for medical expenses in a year after 
                a catastrophic deductible has been met; and
                    ``(B) contribution into a medical freedom account.
            ``(2) Overriding existing benefits.--The provisions of this 
        title relating to mandated benefits or cost-sharing or 
        comparability of benefits (including sections 1902(a)(10) and 
        1916) shall not apply to an individual or family being provided 
alternative benefits under this section.
            ``(3) Treatment as medical assistance.--Payments for 
        alternative benefits under this section (including 
        contributions into a medical freedom account) shall be treated 
        as medical assistance for purposes of section 1903(a).
    ``(d) Medical Freedom Account.--
            ``(1) In general.--For purposes of this section, the term 
        `medical freedom account' means an account that meets the 
        requirements of this subsection.
            ``(2) Contributions.--
                    ``(A) In general.--No contribution may be made into 
                a medical freedom account except--
                            ``(i) contributions by the State under this 
                        title; and
                            ``(ii) contributions by an employer, which 
                        may not exceed, in the case of an individual 
                        otherwise eligible for benefits under this 
                        title, $1,000 per account per year.
                    ``(B) Limitation.--In no case may a contribution be 
                made into a medical freedom account if the balance in 
                such account exceeds $3,500, in the case of an account 
                for an individual, or $5,500, in the case of an account 
                for a family.
            ``(3) Use.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this paragraph, amounts in a medical 
                freedom account may be used only for the payment of 
                medical care (as defined by section 213(d) of the 
                Internal Revenue Code of 1986), and may only be used 
                for expenses in the year in which the contribution was 
                made. The State plan amendment shall provide for a 
                method whereby withdrawals may be made from the account 
                for such purposes using an electronic benefits transfer 
                (EBT) system.
                    ``(B) Rollover permitted.--
                            ``(i) In general.--Subject to clause (ii), 
                        amounts in a medical freedom account at the end 
                        of a year may be rolled over and used in the 
                        following year.
                            ``(ii) Preventive care may be required for 
                        rollover for medicaid beneficiaries.--In the 
                        case of an account holder who is eligible for 
                        benefits under this title in December of a 
                        year, amounts in the medical freedom account at 
                        the end of the year may be rolled over and used 
                        in the following year only apply if the account 
                        holder meets such preventive care requirements 
                        as is provided under the State plan amendment.
                    ``(C) Maintenance of medical freedom account after 
                becoming ineligible for public benefit.--
                Notwithstanding any other provision of law, if an 
                account holder of a medical freedom account becomes 
                ineligible for benefits under this title because of an 
                increase in income or assets, no additional 
                contribution shall be made into the account under 
                paragraph (2)(A)(i) but the account shall remain 
                available to the account holder for withdrawals under 
                the same terms and conditions as if the account holder 
                remained eligible for such benefits, except that the 
                amounts in the account shall be available for the 
                purchase of health insurance coverage. An account 
                holder of a medical freedom account, after becoming so 
                ineligible, is not required to purchase high-deductible 
                or other insurance as a condition of maintaining or 
                using the account.
            ``(4) Administration.--A State shall coordinate 
        administration of medical freedom accounts through the use of a 
        third party administrator.
            ``(5) Treatment.--Amounts in a medical freedom account 
        shall not be counted as income or assets for purposes of 
        determining eligibility for benefits under this title.
            ``(6) Unauthorized withdrawals.--A State may establish 
        procedures--
                    ``(A) to penalize or remove an individual from the 
                medical freedom account program based on nonqualified 
                withdrawals by the individual from such an account; and
                    ``(B) to recoup costs that derive from such 
                nonqualified withdrawals.''.
    (b) Application Under the State Children's Health Insurance Program 
(SCHIP).--Section 2107(e)(1) of the Social Security Act (42 U.S.C. 
1397gg(e)(1)) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Section 1935 (relating to medical freedom 
                accounts).''.
    (c) Exclusion From Gross Income for Employer Contributions to 
Medical Freedom Accounts.--Section 106 of the Internal Revenue Code of 
1986 (relating to contributions by employer to accident and health 
plans) is amended by adding at the end the following new subsection:
    ``(d) Contributions to Medical Freedom Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, amounts contributed by such employee's 
        employer to any medical freedom account 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 1935(d)(2) of the 
        Social Security Act 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) Employer medical freedom account contribution 
        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 medical freedom accounts of such individual or 
        such individual's spouse for such taxable year.
            ``(4) Contributions not part of cobra coverage.--Paragraph 
        (1) shall not apply for purposes of section 4980B.
            ``(5) Definitions.--For purposes of this subsection--
                    ``(A) Eligible individual.--The term `eligible 
                individual' means an individual for whose benefit a 
                medical freedom account is established under section 
                1935 of the Social Security Act.
                    ``(B) Medical freedom account.--The term `medical 
                freedom account' has the meaning given to such term by 
                section 1935 of the Social Security Act.''.