Medical Cost Containment Act of 1993

Summary: Medical Cost Containment Act of 1993 - Amends the Internal Revenue Code to exclude from gross income medical care savings benefits. Describes such benefits as a health plan which provides that all or part of the premium differential realized by instituting a qualified higher deductible health plan is credited to participating employees to pay for medical care for a plan year. Requires amounts remaining at the end of such plan year to be deposited into a tax-exempt medical care savings account (subject to rules similar to those for retirement plans) for use by the participant for medical expenses.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Medical Cost 
Containment Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2.

    Section 125A is added to the Code to read as follows:

``SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.

    ``(a) In General.--A medical care savings benefit is a qualified 
benefit which consists of a Health Plan meeting the requirements of 
this section that includes, as part thereof, a Medical Care Savings 
Account, as set forth in section 408A.
    ``(b) Establishment of Medical Care Savings Benefit.--A medical 
care savings benefit shall be established as a Health Plan which 
provides that all or part of the premium differential realized by 
instituting a Qualified Higher Deductible Health Plan is credited to a 
participating employee during a plan year to pay for medical care 
described in section 213(d) subject to the limitations set forth in 
subsection (e) hereof. To the extent that any amount remains credited 
to that participant at the end of each plan year, such amount shall be 
deposited to a section 408(A) medical care savings account (which may 
also be referred to as a `Medical IRA') for that participant.
    ``(c) Payments from Account Balance.--If the plan provides for 
level installment payments, the plan may also provide that the maximum 
amount of reimbursement at a particular time during the period of 
coverage may be limited to the amount of actual contributions to the 
participant's benefit account. A participant may be advanced, interest 
free, such amounts necessary to cover incurred medical expenses which 
exceed the amount then credited to the participant's benefit account, 
upon the participant's agreement to repay such advancement from future 
installments or upon ceasing to be a participant.
    ``(d) Reporting.--Employers shall cause to be issued to 
participating employees, not less frequently than quarterly, a 
statement setting forth amounts remaining in their accounts.
    ``(e) Limitations on Medical Care Savings Benefits.--For purposes 
of this section--
            ``(1) In general.--In the case of an Employer who has a 
        Health Plan in existence immediately prior to the adoption of 
        the Medical Care Savings Benefit, the maximum amount that may 
        be contributed annually to a participant's benefit account 
        shall be equal to--
                    ``(A) the cost of that Health Plan for that 
                participant's type of coverage; plus
                    ``(B) a cost of living adjustment for the calendar 
                year in which the plan year begins, determined under 
                section 1(f)(3) of the Code as adjusted annually based 
                on the CPI-Medical cost of living component.
            ``(2) Other employers.--In the case of an Employer to whom 
        paragraph (1) does not apply, the contribution limit shall be 
        equal to the 67th percentile of the per employee health plan 
        expenditures (for the calendar year for which such plan begins) 
        for the type of coverage applicable to such employee based on a 
        broad representative survey using methodology the same as or 
        similar to that used by States to develop an average market 
        premium for small group guarantee access legislation. Such 
        study may be no broader than each State and may be broken down 
        into representative surveys for areas within a State. The 
        amount of such contribution shall be adjusted annually in 
        accordance with the cost of living adjustment provided for in 
        subsection (1)(b) of this section.
            ``(3) Overall limitation.--In no event may any contribution 
        described above exceed the deductible amount of the Qualified 
        Higher Deductible Plan.
    ``(f) Health Plan.--The term `Health Plan' means an employee 
welfare benefit plan providing medical care (as defined in section 
213(d) of the Internal Revenue Code of 1954) to participants or 
beneficiaries directly or through insurance, reimbursement, or 
otherwise.
    ``(g) Qualified Higher Deductible Plan.--The term `Qualified Higher 
Deductible Plan' is a Health Plan which provides for payment of covered 
benefits in excess of the higher deductible, which higher deductible 
shall not exceed $5,000 in 1993 and, adjusted annually thereafter for 
increases in the cost of living in accordance with regulations 
prescribed by the Secretary.
    ``(h) Coordination With Health Flexible Spending Accounts.--If, 
during a Plan Year, a participating employee has a Medical Care Savings 
Benefit in effect and a health flexible spending account established 
under section 125, coverage under the health flexible spending account, 
for the type of medical expenses that may be reimbursed under the 
Medical Care Savings Benefit, would be limited to 100 percent of the 
deductible under the Qualified Higher Deductible Plan, less the amount 
credited in the current year to the Employee's Medical Care Savings 
Benefit Account. For purposes of section 125, a Medical Care Savings 
Benefit is not considered to involve the deferral of compensation for 
purposes of the Code.
    ``(i) Separate Determinations for Categories of Employees and 
Separate Lines of Business.--Contributions to Health Plans established 
by an Employer may be separately determined on the basis of:
            ``(1) Types of coverage.
            ``(2) Reasonable classifications of employees based on such 
        classifications as hours of work per week, retirement status, 
        coverage by a collective bargaining agreement.
            ``(3) Employees within separate lines of business, within 
        the meaning of section 414(r).
    ``(j) Other Definitions for Purposes of this Section.--
            ``(1) Employee.--The term `employee' means any individual 
        employed by an Employer, including--
                    ``(A) an individual who is employee within the 
                meaning of section 401(c)(1); and
                    ``(B) former employees.
            ``(2) Types of coverage.--The types of coverage are--
                    ``(A) self-only coverage; and
                    ``(B) coverage other than self-only coverage.
    ``(k) Preventative Health Care.--By allowing medical expenses 
payable from a medical care savings benefit to be those permitted under 
section 213(d) of the Internal Revenue Code, participating employees 
are encouraged to use this benefit to promote good health, to use 
preventative medical and health procedures, and to seek appropriate 
consultative and second opinions.
    ``(l) Nonduplication of Benefits.--Policies issued as a part of a 
medical care savings benefit shall not be required to duplicate 
expenses that may be proper expenses covered by the medical care 
savings benefit. Additionally, the Qualified Higher Deductible Plan may 
provide that the deductible specified in the insurance policy may be 
increased by the amount of any benefits payable by any other health 
benefits program or plan.''.

SEC. 3. MEDICAL CARE SAVINGS ACCOUNT.

    (a) In General.--Chapter 1 (relating to normal taxes and surcharge) 
is amended by adding after section 408 the following new section:

``SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

    ``(a) Medical Care Savings Accounts.--For purposes of this section, 
the term `medical care savings account' (which may also be referred to 
as a `Medical IRA') means a trust created or organized in the United 
States for the exclusive benefit of an individual, the individual's 
dependents (as defined in section 152) or beneficiaries, but only if 
the written instrument creating the trust meets the following 
requirements:
            ``(1) No contribution will be accepted unless it is in 
        cash.
            ``(2) The trustee is a bank (as defined in subsection (d)), 
        insurance company (as defined in section 816), or such other 
        person who demonstrates to the satisfaction of the Secretary 
        that the manner in which such other person will administer the 
        trust will be consistent with the requirements of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance of the 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
    ``(b) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--Any medical care savings account 
        is exempt from taxation under this subtitle unless such account 
        has ceased to be a medical care savings account by reason of 
        paragraph (2) or (3): Provided, however, That earnings on such 
        account shall be taxable. 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) Loss of exemption of account where employee engages 
        in prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the individual for whose benefit any medical care 
                savings account is established, that individual, 
                dependent, or his beneficiary engages in any 
                transaction prohibited by section 4975 with respect to 
                such account, such account ceases to be a medical care 
                savings account as of the first day of such taxable 
                year. For purposes of this paragraph the individual for 
                whose benefit any account was established is treated as 
                the creator of such account.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a medical savings account by reason of subparagraph (A) 
                as of the first day of any taxable year, section 511 
                shall apply as if there were a distribution on such 
                first day in an amount equal to the fair market value 
                (on such first day) of all assets in the account (on 
                such first day).
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year of the individual for whose benefit a medical 
        care savings account is established, that individual uses the 
        account or any portion thereof as security for a loan, the 
        portion so used is treated as distributed to that individual.
            ``(4) Commingling medical care savings account amounts in 
        certain common trust funds and common investment funds.--Any 
        common trust fund or common investment fund of individual 
        medical care savings account assets which is exempt from 
        taxation under this subtitle does not cease to be exempt on 
        account of the participation or inclusion of assets of a trust 
        exempt from taxation under section 501(a) which is described in 
        section 401(a).
    ``(c) Treatment of Distributions.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, any amount paid or distributed out of a medical 
        savings account shall be included in gross income by the 
        distributee.
            ``(2) Distributions for medical expenses.--Distributions 
        from a medical care savings account shall not be taxable to the 
        distributee, for amounts paid directly or indirectly for 
        medical expenses as defined in section 213(d).
            ``(3) 10 percent additional tax for early withdrawals.--
        Distributions described in paragraph 1 and not described in 
        paragraph 2 shall be subject to an additional 10 percent tax 
        for distributions made prior to age 59\1/2\ of the distributee.
            ``(4) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution which shall not be 
        included in the gross income of the distributee if it meets the 
        requirements of subparagraphs (A) and (B).
                    ``(A) In general.--Paragraph (1) does not apply to 
                any amount paid or distributed out of a medical care 
                savings account to the individual for whose benefit the 
                account is maintained if the entire amount received is 
                paid into a medical care savings account for the 
                benefit of such individual not later than the sixtieth 
                day after the day on which he receives the payment or 
                distribution.
                    ``(B) Limitation.--This paragraph does not apply to 
                any amount described in paragraph (A) received by an 
                individual from a medical savings account if at any 
                time during the one-year period ending on the day of 
                such receipt such individual received any other amount 
                described in that subparagraph from a medical care 
                savings account which was not includible in his gross 
                income because of the application of this paragraph.
                    ``(C) Denial of rollover treatment for inherited 
                accounts, etc.--
                            ``(i) In general.--In the case of an 
                        inherited medical savings account--
                                    ``(I) this paragraph shall not 
                                apply to any amount received by an 
                                individual from such an account (and no 
                                amount transferred from such account to 
                                another medical care savings account 
                                shall be excluded from gross income by 
                                reason of such transfer), and
                                    ``(II) such inherited account shall 
                                not be treated as a medical care 
                                savings account for purposes of 
                                determining whether any other amount is 
                                a rollover contribution.
                            ``(ii) Inherited medical care savings 
                        account.--
                                    ``(I) the individual for whose 
                                benefit the account is maintained 
                                acquired such account by reason of the 
                                death of another individual, and
                                    ``(II) such individual was not the 
                                surviving spouse of such other 
                                individual.
    ``(d) Bank.--For purposes of subsection (a)(2), the term `bank' 
means--
            ``(1) a bank (as defined in section 581),
            ``(2) an insured credit union (within the meaning of 
        section 101(6) of the Federal Credit Union Act), and
            ``(3) a corporation which, under the laws of the State of 
        its incorporation, is subject to supervision and examination by 
        the Commissioner of Banking or other officer of such State in 
        charge of the administration of the banking laws of such 
        State.''.

SEC. 4. EFFECTIVE DATES.

    The amendments made by this Act shall apply to years beginning 
after December 31, 1993.

SEC. 5. OVERALL EFFECT ON TAX DEDUCTIBILITY.

    This Act is not intended to change the Code's current tax treatment 
of employer-provided coverage under accident and health plans.