I 

108TH CONGRESS 

1ST SESSION H. R. 2114

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. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 15, 2003

Mr. BURGESS (for himself and Mr. SCOTT of Georgia) introduced the following bill; which was referred to the Committee on Ways and Means, 

and in addition to the Committee on Energy and Commerce, for a period 

to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee 

concerned 

A BILL

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Health Access and 

5 Flexibility Act of 2003’’. 
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1 SEC. 2. EXPANSION OF MEDICAL SAVINGS ACCOUNTS. 

2 (a) AVAILABILITY NOT LIMITED TO ACCOUNTS FOR

3 EMPLOYEES OF SMALL EMPLOYERS AND SELF-EM4 PLOYED INDIVIDUALS.—

5 (1) IN GENERAL.—Subparagraph (A) of section 

6 220(c)(1) of the Internal Revenue Code of 1986 (re7 lating to eligible individual) is amended to read as 

8 follows: 

9 ‘‘(A) IN GENERAL.—The term ‘eligible in10 dividual’ means, with respect to any month, any 

11 individual if—

12 ‘‘(i) such individual is covered under a 

13 high deductible health plan as of the 1st 

14 day of such month, and 

15 ‘‘(ii) such individual is not, while cov16 ered under a high deductible health plan, 

17 covered under any health plan—

18 ‘‘(I) which is not a high deduct19 ible health plan, and 

20 ‘‘(II) which provides coverage for 

21 any benefit which is covered under the 

22 high deductible health plan.’’. 

23 (2) REPEAL OF LIMITATIONS ON NUMBER OF

24 MEDICAL SAVINGS ACCOUNTS.—

25 (A) IN GENERAL.—Subsections (i) and (j) 

26 of section 220 are hereby repealed. 
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1 (B) CONFORMING AMENDMENTS.—

2 (i) Paragraph (1) of section 220(c) of 

3 such Code is amended by striking subpara4 graph (D). 

5 (ii) Section 138 of such Code is 

6 amended by striking subsection (f). 

7 (3) CONFORMING AMENDMENTS.—

8 (A) Section 220(c)(1) of such Code is 

9 amended by striking subparagraph (C). 

10 (B) Section 220(c) of such Code is amend11 ed by striking paragraph (4) (defining small 

12 employer) and by redesignating paragraph (5) 

13 as paragraph (4). 

14 (C) Section 220(b) of such Code is amend15 ed by striking paragraph (4) (relating to deduc16 tion limited by compensation) and by redesig17 nating paragraphs (5), (6), and (7) as para18 graphs (4), (5), and (6), respectively. 

19 (b) REDUCTION OF PERMITTED DEDUCTIBLES

20 UNDER HIGH DEDUCTIBLE HEALTH PLANS.—

21 (1) IN GENERAL.—Subparagraph (A) of section 

22 220(c)(2) of such Code (defining high deductible 

23 health plan) is amended—

24 (A) in clause (i) by striking ‘‘$1,500’’ and 

25 inserting ‘‘$1,000’’, and 
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1 (B) in clause (ii) by striking ‘‘$3,000’’ and 

2 inserting ‘‘$2,000’’. 

3 (2) COST OF LIVING ADJUSTMENT.—Subsection 

4 (g) of section 220 of such Code is amended by strik5 ing ‘‘each dollar amount in subsection (c)(2) shall be 

6 increased’’ and inserting ‘‘the $2,250, $4,500, 

7 $3,000, and $5,500 amounts in subsection (c)(2)(A) 

8 shall each be increased’’. 

9 (c) INCREASE IN AMOUNT OF DEDUCTION ALLOWED

10 FOR CONTRIBUTIONS TO MEDICAL SAVINGS ACCOUNTS.—

11 (1) IN GENERAL.—Paragraph (2) of section 

12 220(b) of such Code is amended to read as follows: 

13 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is the amount equal to 1 14 ⁄12 of 

15 the annual deductible under the type of coverage 

16 such individual has for such month.’’

17 (2) CONFORMING AMENDMENT.—Clause (ii) of 

18 section 220(d)(1)(A) of such Code is amended by 

19 striking ‘‘75 percent of ’’. 

20 (d) BOTH EMPLOYERS AND EMPLOYEES MAY CON21 TRIBUTE TO MEDICAL SAVINGS ACCOUNTS.—Paragraph 

22 (4) of section 220(b) of such Code (as redesignated by 

23 subsection (b)(2)(C)) is amended to read as follows: 

24 ‘‘(4) COORDINATION WITH EXCLUSION FOR EM25 PLOYER CONTRIBUTIONS.—The limitation which 
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1 would (but for this paragraph) apply under this sub2 section to the taxpayer for any taxable year shall be 

3 reduced (but not below zero) by the amount which 

4 would (but for section 106(b)) be includible in the 

5 taxpayer’s gross income for such taxable year.’’. 

6 (e) ROLLOVERS TO ARCHER MSAS FROM HEALTH

7 FLEXIBLE SPENDING ARRANGEMENTS..—

8 (1) IN GENERAL.—Subsection (d) of section 

9 220 of the Internal Revenue Code of 1986 (defining 

10 Archer MSA) is amended by redesignating para11 graph (4) as paragraph (5) and by inserting after 

12 paragraph (3) the following new paragraph: 

13 ‘‘(4) SPECIAL RULE FOR ROLLOVERS FROM

14 HEALTH FLEXIBLE SPENDING ACCOUNTS.—A roll15 over contribution described in this paragraph is a 

16 transfer from a flexible spending account (as defined 

17 in section 125(h)) to the extent the amount received 

18 is paid into an Archer MSA for the benefit of such 

19 holder not later than the 60th day after the day on

20 which the holder receives the payment or distribu21 tion.’’. 

22 (2) ROLLOVER OF UNUSED HEALTH BENEFITS

23 IN CAFETERIA PLANS AND FLEXIBLE SPENDING AR24 RANGEMENTS.—
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1 (A) IN GENERAL.—Section 125 of such 

2 Code (relating to cafeteria plans) is amended by 

3 redesignating subsections (h) and (i) as sub4 sections (i) and (j), respectively, and by insert5 ing after subsection (g) the following: 

6 ‘‘(h) ROLLOVER TO ARCHER MEDICAL SAVINGS AC7 COUNTS OF CERTAIN UNUSED HEALTH BENEFITS.—

8 ‘‘(1) IN GENERAL.—For purposes of this title, 

9 a plan or other arrangement shall not fail to be 

10 treated as a cafeteria plan solely because qualified 

11 benefits under such plan include a health flexible 

12 spending arrangement under which, with respect to 

13 any plan year, health benefits which are unused at 

14 the end of such year may be transferred to an Ar15 cher MSA of the employee. 

16 ‘‘(2) TAX TREATMENT OF UNUSED HEALTH

17 BENEFITS.—Amounts transferred under paragraph 

18 (1) to an Archer MSA shall not be includible in 

19 gross income for such taxable year and shall not be 

20 treated as a contribution for purposes of section 

21 220(a). 

22 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE23 MENT.—For purposes of this subsection, the term 

24 ‘health flexible spending arrangement’ means a flexi25 ble spending arrangement (as defined in section 
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1 106(c)) that is a qualified benefit and only permits 

2 reimbursement for expenses for medical care (as de3 fined in section 213(d)(1) (without regard to sub4 paragraphs (C) and (D) thereof). 

5 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur6 poses of this subsection, the term ‘unused health 

7 benefits’ means the excess of—

8 ‘‘(A) the maximum amount of reimburse9 ment allowable for a plan year under a health 

10 flexible spending arrangement, over 

11 ‘‘(B) the actual amount of reimbursement 

12 for such year under such arrangement.’’. 

13 (B) CONFORMING AMENDMENT.—Section 

14 220(d)(1)(A) of such Code is amended by in15 serting ‘‘described in paragraph (4) or’’ after 

16 ‘‘contribution’’. 

17 (f) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 December 31, 2003. 

20 SEC. 3. MEDICAL FREEDOM ACCOUNTS UNDER THE MED21 ICAID PROGRAM AND UNDER THE STATE 

22 CHILDREN’S HEALTH INSURANCE PROGRAM 

23 (SCHIP). 

24 (a) IN GENERAL.—Title XIX of the Social Security 

25 Act is amended—
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1 (1) by redesignating section 1935 as section 

2 1936; and 

3 (2) by inserting after section 1934 the following 

4 new section: 

5 ‘‘MEDICAL FREEDOM ACCOUNTS

6 ‘‘SEC. 1935. (a) AUTHORITY.—

7 ‘‘(1) IN GENERAL.—Notwithstanding any other 

8 provision of this title, a State may amend its State 

9 plan under this title (including in a Statewide waiver 

10 under section 1115 relating to this title) to provide 

11 in accordance with this section for the provision of 

12 alternative benefits consistent with subsection (c) for 

13 eligible population groups in one or more geographic 

14 areas of the State specified by the State. An amend15 ment under the previous sentence is referred to in 

16 this section as a ‘State plan amendment’. 

17 ‘‘(2) APPROVAL.—The Secretary shall not ap18 prove a State plan amendment under paragraph (1) 

19 unless the amendment incorporates the following: 

20 ‘‘(A) Creating patient awareness of the 

21 high cost of medical care. 

22 ‘‘(B) Providing incentives to patients to 

23 seek preventive care services. 

24 ‘‘(C) Reduction in inappropriate use of 

25 health care services. 
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1 ‘‘(D) Enabling patients to take responsi2 bility for health outcomes. 

3 ‘‘(b) ELIGIBLE POPULATIONS GROUPS.—The State 

4 plan amendment under this section shall specify the eligi5 ble population groups. 

6 ‘‘(c) ALTERNATIVE BENEFITS.—

7 ‘‘(1) IN GENERAL.—The alternative benefits 

8 provided under this section shall consist of at 

9 least—

10 ‘‘(A) coverage for medical expenses in a 

11 year after a catastrophic deductible has been 

12 met; and 

13 ‘‘(B) contribution into a medical freedom 

14 account. 

15 ‘‘(2) OVERRIDING EXISTING BENEFITS.—The 

16 provisions of this title relating to mandated benefits 

17 or cost-sharing or comparability of benefits (includ18 ing sections 1902(a)(10) and 1916) shall not apply

19 to an individual or family being provided alternative 

20 benefits under this section. 

21 ‘‘(3) TREATMENT AS MEDICAL ASSISTANCE.—

22 Payments for alternative benefits under this section 

23 (including contributions into a medical freedom ac24 count) shall be treated as medical assistance for pur25 poses of section 1903(a). 
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1 ‘‘(d) MEDICAL FREEDOM ACCOUNT.—

2 ‘‘(1) IN GENERAL.—For purposes of this sec3 tion, the term ‘medical freedom account’ means an 

4 account that meets the requirements of this sub5 section. 

6 ‘‘(2) CONTRIBUTIONS.—

7 ‘‘(A) IN GENERAL.—No contribution may 

8 be made into a medical freedom account ex9 cept—

10 ‘‘(i) contributions by the State under 

11 this title; and 

12 ‘‘(ii) contributions by an employer, 

13 which may not exceed, in the case of an in14 dividual otherwise eligible for benefits 

15 under this title, $1,000 per account per 

16 year. 

17 ‘‘(B) LIMITATION.—In no case may a con18 tribution be made into a medical freedom ac19 count if the balance in such account exceeds 

20 $3,500, in the case of an account for an indi21 vidual, or $5,500, in the case of an account for 

22 a family. 

23 ‘‘(3) USE.—

24 ‘‘(A) IN GENERAL.—Subject to the suc25 ceeding provisions of this paragraph, amounts 
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1 in a medical freedom account may be used only 

2 for the payment of medical care (as defined by 

3 section 213(d) of the Internal Revenue Code of 

4 1986), and may only be used for expenses in 

5 the year in which the contribution was made. 

6 The State plan amendment shall provide for a 

7 method whereby withdrawals may be made from 

8 the account for such purposes using an elec9 tronic benefits transfer (EBT) system. 

10 ‘‘(B) ROLLOVER PERMITTED.—

11 ‘‘(i) IN GENERAL.—Subject to clause 

12 (ii), amounts in a medical freedom account 

13 at the end of a year may be rolled over and 

14 used in the following year. 

15 ‘‘(ii) PREVENTIVE CARE MAY BE RE16 QUIRED FOR ROLLOVER FOR MEDICAID

17 BENEFICIARIES.—In the case of an ac18 count holder who is eligible for benefits 

19 under this title in December of a year, 

20 amounts in the medical freedom account at 

21 the end of the year may be rolled over and 

22 used in the following year only apply if the 

23 account holder meets such preventive care 

24 requirements as is provided under the 

25 State plan amendment. 
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1 ‘‘(C) MAINTENANCE OF MEDICAL FREE2 DOM ACCOUNT AFTER BECOMING INELIGIBLE

3 FOR PUBLIC BENEFIT.—Notwithstanding any 

4 other provision of law, if an account holder of 

5 a medical freedom account becomes ineligible 

6 for benefits under this title because of an in7 crease in income or assets, no additional con8 tribution shall be made into the account under 

9 paragraph (2)(A)(i) but the account shall re10 main available to the account holder for with11 drawals under the same terms and conditions 

12 as if the account holder remained eligible for 

13 such benefits, except that the amounts in the 

14 account shall be available for the purchase of 

15 health insurance coverage. An account holder of 

16 a medical freedom account, after becoming so 

17 ineligible, is not required to purchase high-de18 ductible or other insurance as a condition of 

19 maintaining or using the account. 

20 ‘‘(4) ADMINISTRATION.—A State shall coordi21 nate administration of medical freedom accounts 

22 through the use of a third party administrator. 

23 ‘‘(5) TREATMENT.—Amounts in a medical free24 dom account shall not be counted as income or as-
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1 sets for purposes of determining eligibility for bene2 fits under this title. 

3 ‘‘(6) UNAUTHORIZED WITHDRAWALS.—A State 

4 may establish procedures—

5 ‘‘(A) to penalize or remove an individual 

6 from the medical freedom account program 

7 based on nonqualified withdrawals by the indi8 vidual from such an account; and 

9 ‘‘(B) to recoup costs that derive from such 

10 nonqualified withdrawals.’’. 

11 (b) APPLICATION UNDER THE STATE CHILDREN’S

12 HEALTH INSURANCE PROGRAM (SCHIP).—Section 

13 2107(e)(1) of the Social Security Act (42 U.S.C. 

14 1397gg(e)(1)) is amended by adding at the end the fol15 lowing new subparagraph: 

16 ‘‘(E) Section 1935 (relating to medical 

17 freedom accounts).’’. 

18 (c) EXCLUSION FROM GROSS INCOME FOR EM19 PLOYER CONTRIBUTIONS TO MEDICAL FREEDOM AC20 COUNTS.—Section 106 of the Internal Revenue Code of 

21 1986 (relating to contributions by employer to accident 

22 and health plans) is amended by adding at the end the 

23 following new subsection: 

24 ‘‘(d) CONTRIBUTIONS TO MEDICAL FREEDOM AC25 COUNTS.—
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1 ‘‘(1) IN GENERAL.—In the case of an employee 

2 who is an eligible individual, amounts contributed by 

3 such employee’s employer to any medical freedom 

4 account of such employee shall be treated as em5 ployer-provided coverage for medical expenses under 

6 an accident or health plan to the extent such 

7 amounts do not exceed the limitation under section 

8 1935(d)(2) of the Social Security Act which is appli9 cable to such employee for such taxable year. 

10 ‘‘(2) NO CONSTRUCTIVE RECEIPT.—No amount 

11 shall be included in the gross income of any em12 ployee solely because the employee may choose be13 tween the contributions referred to in paragraph (1) 

14 and employer contributions to another health plan of 

15 the employer. 

16 ‘‘(3) EMPLOYER MEDICAL FREEDOM ACCOUNT

17 CONTRIBUTION REQUIRED TO BE SHOWN ON RE18 TURN.—Every individual required to file a return 

19 under section 6012 for the taxable year shall include 

20 on such return the aggregate amount contributed by 

21 employers to the medical freedom accounts of such 

22 individual or such individual’s spouse for such tax23 able year. 
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1 ‘‘(4) CONTRIBUTIONS NOT PART OF COBRA

2 COVERAGE.—Paragraph (1) shall not apply for pur3 poses of section 4980B. 

4 ‘‘(5) DEFINITIONS.—For purposes of this sub5 section—

6 ‘‘(A) ELIGIBLE INDIVIDUAL.—The term 

7 ‘eligible individual’ means an individual for 

8 whose benefit a medical freedom account is es9 tablished under section 1935 of the Social Secu10 rity Act. 

11 ‘‘(B) MEDICAL FREEDOM ACCOUNT.—The 

12 term ‘medical freedom account’ has the mean13 ing given to such term by section 1935 of the 

14 Social Security Act.’’.

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