I 

108TH CONGRESS 

1ST SESSION H. R. 2351

To amend the Internal Revenue Code of 1986 to allow a deduction to 

individuals for amounts contributed to health savings accounts and to 

provide for the disposition of unused health benefits in cafeteria plans 

and flexible spending arrangements. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 5, 2003

Mr. THOMAS (for himself, Mr. LIPINSKI, Mrs. JOHNSON of Connecticut, Mr. 

SAM JOHNSON of Texas, Mr. HAYWORTH, Mr. LEWIS of Kentucky, Mr. 

BRADY of Texas, Mr. ENGLISH, Mr. SESSIONS, Mr. OSE, Mr. FOSSELLA, 

Mr. PAUL, Mr. SMITH of New Jersey, Mr. WELDON of Florida, Mr. 

RYUN of Kansas, Mr. DELAY, Mr. TOOMEY, Mr. BARTON of Texas, Mr. 

WALSH, Mr. BALLENGER, Mr. CAMP, Mr. COLLINS, Mr. RYAN of Wisconsin, Mr. KELLER, Mr. HERGER, Mr. DOOLITTLE, Mr. DEMINT, and 

Mr. NORWOOD) introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to allow a 

deduction to individuals for amounts contributed to 

health savings accounts and to provide for the disposition 

of unused health benefits in cafeteria plans and flexible 

spending arrangements.

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

2 This Act may be cited as the ‘‘Health Savings Ac3 count Availability Act’’. 

4 SEC. 2. HEALTH SAVINGS ACCOUNTS. 

5 (a) IN GENERAL.—Part VII of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to 

7 additional itemized deductions for individuals) is amended 

8 by redesignating section 223 as section 224 and by insert9 ing after section 222 the following new section: 

10 ‘‘SEC. 223. HEALTH SAVINGS ACCOUNTS. 

11 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi12 vidual who is an eligible individual for any month during 

13 the taxable year, there shall be allowed as a deduction for 

14 the taxable year an amount equal to the aggregate amount 

15 paid in cash during such taxable year by such individual 

16 to a health savings account of such individual. 

17 ‘‘(b) LIMITATIONS.—

18 ‘‘(1) IN GENERAL.—The amount allowable as a 

19 deduction under subsection (a) to an individual for 

20 the taxable year shall not exceed the sum of the 

21 monthly limitations for months during such taxable 

22 year that the individual is an eligible individual. 

23 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is the amount equal to 1 24 ⁄12 of 

25 the annual deductible (as of the first day of such 
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1 month) of the individual’s coverage under the high 

2 deductible health plan. 

3 ‘‘(3) COORDINATION WITH EMPLOYER AND MSA

4 CONTRIBUTIONS.—The limitation which would (but 

5 for this paragraph) apply under this subsection to 

6 the taxpayer for any taxable year shall be reduced 

7 (but not below zero) by the sum of—

8 ‘‘(A) the aggregate amount which would 

9 (but for subsections (b) and (d) of section 106) 

10 be includible in the taxpayer’s gross income for 

11 such taxable year, and 

12 ‘‘(B) the aggregate amount paid during 

13 such taxable by such individual to Archer MSAs 

14 of such individual. 

15 ‘‘(4) SPECIAL RULES FOR MARRIED INDIVID16 UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI17 VIDUALS.—Rules similar to the rules of paragraphs 

18 (3), (6), and (7) of section 220(b) shall apply for 

19 purposes of this section. 

20 ‘‘(c) DEFINITIONS.—For purposes of this section— 

21 ‘‘(1) ELIGIBLE INDIVIDUAL.— 

22 ‘‘(A) IN GENERAL.—The term ‘eligible in23 dividual’ means, with respect to any month, any 

24 individual if—
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1 ‘‘(i) such individual is covered under a 

2 high deductible health plan as of the 1st 

3 day of such month, and 

4 ‘‘(ii) such individual is not, while cov5 ered under a high deductible health plan, 

6 covered under any health plan—

7 ‘‘(I) which is not a high deduct8 ible health plan, and 

9 ‘‘(II) which provides coverage for 

10 any benefit which is covered under the 

11 high deductible health plan. 

12 ‘‘(B) CERTAIN COVERAGE DIS13 REGARDED.—Subparagraph (A)(ii) shall be ap14 plied without regard to— 

15 ‘‘(i) coverage for any benefit provided 

16 by permitted insurance, and 

17 ‘‘(ii) coverage (whether through insur18 ance or otherwise) for accidents, disability, 

19 dental care, vision care, or long-term care. 

20 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—

21 ‘‘(A) IN GENERAL.—The term ‘high de22 ductible health plan’ means a health plan— 

23 ‘‘(i) in the case of self-only coverage, 

24 which has an annual deductible which is 
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1 not less than $1,000 and not more than 

2 $2,250, 

3 ‘‘(ii) in the case of family coverage, 

4 which has an annual deductible which is

5 not less than $2,000 and not more than 

6 $4,500, and 

7 ‘‘(iii) the annual out-of-pocket ex8 penses required to be paid under the plan 

9 (other than for premiums) for covered ben10 efits does not exceed— 

11 ‘‘(I) $3,000 for self-only cov12 erage, and 

13 ‘‘(II) $5,500 for family coverage. 

14 ‘‘(B) SPECIAL RULES.— 

15 ‘‘(i) EXCLUSION OF CERTAIN

16 PLANS.—Such term does not include a 

17 health plan if substantially all of its cov18 erage is coverage described in paragraph 

19 (1)(B). 

20 ‘‘(ii) SAFE HARBOR FOR ABSENCE OF

21 PREVENTIVE CARE DEDUCTIBLE.—A plan 

22 shall not fail to be treated as a high de23 ductible health plan by reason of failing to 

24 have a deductible for preventive care. 
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1 ‘‘(C) TREATMENT OF NETWORK SERV2 ICES.—

3 ‘‘(i) IN GENERAL.—In the case of a 

4 health plan which is a preferred provider 

5 organization plan and which would (with6 out regard to services provided outside 

7 such organization’s network of providers 

8 described in clause (iii)(I)) be a high de9 ductible health plan, such plan shall not 

10 fail to be a high deductible health plan be11 cause—

12 ‘‘(I) the annual deductible for 

13 services provided outside such network 

14 exceeds the applicable maximum dol15 lar amount in clause (i) or (ii) of sub16 paragraph (A), or 

17 ‘‘(II) the annual out-of-pocket ex18 penses required to be paid for services 

19 provided outside such network exceeds 

20 the applicable dollar amount in sub21 paragraph (A)(iii). 

22 ‘‘(ii) ANNUAL DEDUCTIBLE.—The an23 nual deductible taken into account under 

24 subsection (b)(2) with respect to a plan 

25 which is a high deductible health plan by 
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1 reason of clause (i) shall be the annual de2 ductible for services provided within such 

3 network. 

4 ‘‘(iii) PREFERRED PROVIDER ORGANI5 ZATION PLAN DEFINED.—In this subpara6 graph, the term ‘preferred provider organi7 zation plan’ means a health plan that—

8 ‘‘(I) has a network of providers 

9 that have agreed to a contractually 

10 specified reimbursement for covered 

11 benefits with the organization offering 

12 the plan, 

13 ‘‘(II) provides for reimbursement 

14 for all covered benefits regardless of 

15 whether such benefits are provided 

16 within such network of providers, and 

17 ‘‘(III) is offered by an organiza18 tion that is not licensed or organized 

19 under State law as a health mainte20 nance organization. 

21 ‘‘(3) PERMITTED INSURANCE.—The term ‘per22 mitted insurance’ has the meaning given such term 

23 in section 220(c)(3). 
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1 ‘‘(4) FAMILY COVERAGE.—The term ‘family 

2 coverage’ has the meaning given such term in sec3 tion 220(c)(5). 

4 ‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ 

5 has the meaning given such term in section 220(d). 

6 ‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of 

7 this section—

8 ‘‘(1) IN GENERAL.—The term ‘health savings 

9 account’ means a trust created or organized in the 

10 United States as a health savings account exclusively 

11 for the purpose of paying the qualified medical ex12 penses of the account holder, but only if the written 

13 governing instrument creating the trust meets the 

14 requirements described in section 220(d)(1) (applied 

15 without regard to ‘75 percent of’ in subparagraph 

16 (A)(ii) thereof). 

17 ‘‘(2) QUALIFIED MEDICAL EXPENSES.—The 

18 term ‘qualified medical expenses’ has the meaning 

19 given such term in section 220(d)(2). 

20 ‘‘(3) ACCOUNT HOLDER.—The term ‘account 

21 holder’ means the individual on whose behalf the 

22 health savings account was established. 

23 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

24 to the following rules shall apply for purposes of this 

25 section: 
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1 ‘‘(A) Section 219(d)(2) (relating to no de2 duction for rollovers). 

3 ‘‘(B) Section 219(f)(3) (relating to time 

4 when contributions deemed made). 

5 ‘‘(C) Except as provided in section 106(b), 

6 section 219(f)(5) (relating to employer pay7 ments). 

8 ‘‘(D) Section 408(g) (relating to commu9 nity property laws). 

10 ‘‘(E) Section 408(h) (relating to custodial 

11 accounts). 

12 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

13 ‘‘(1) IN GENERAL.—A health savings account is 

14 exempt from taxation under this subtitle unless such 

15 account has ceased to be a health savings account. 

16 Notwithstanding the preceding sentence, any such 

17 account is subject to the taxes imposed by section 

18 511 (relating to imposition of tax on unrelated busi19 ness income of charitable, etc. organizations). 

20 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

21 to the rules of paragraphs (2) and (4) of section 

22 408(e) shall apply to health savings accounts, and 

23 any amount treated as distributed under such rules 

24 shall be treated as not used to pay qualified medical 

25 expenses. 
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1 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

2 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

3 EXPENSES.—Any amount paid or distributed out of 

4 a health savings account which is used exclusively to 

5 pay qualified medical expenses of any account holder 

6 shall not be includible in gross income.

7 ‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR

8 QUALIFIED MEDICAL EXPENSES.—Any amount paid 

9 or distributed out of a health savings account which 

10 is not used exclusively to pay the qualified medical 

11 expenses of the account holder shall be included in 

12 the gross income of such holder. 

13 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE14 FORE DUE DATE OF RETURN.— 

15 ‘‘(A) IN GENERAL.—If any excess con16 tribution is contributed for a taxable year to 

17 any health savings account of an individual, 

18 paragraph (2) shall not apply to distributions 

19 from the health savings accounts of such indi20 vidual (to the extent such distributions do not 

21 exceed the aggregate excess contributions to all 

22 such accounts of such individual for such year) 

23 if— 

24 ‘‘(i) such distribution is received by 

25 the individual on or before the last day 
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1 prescribed by law (including extensions of 

2 time) for filing such individual’s return for 

3 such taxable year, and 

4 ‘‘(ii) such distribution is accompanied 

5 by the amount of net income attributable 

6 to such excess contribution. 

7 Any net income described in clause (ii) shall be 

8 included in the gross income of the individual 

9 for the taxable year in which it is received. 

10 ‘‘(B) EXCESS CONTRIBUTION.—For pur11 poses of subparagraph (A), the term ‘excess 

12 contribution’ means any contribution (other 

13 than a rollover contribution) which is neither 

14 excludable from gross income under section 

15 106(d) nor deductible under this section. 

16 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

17 USED FOR QUALIFIED MEDICAL EXPENSES.— 

18 ‘‘(A) IN GENERAL.—The tax imposed by 

19 this chapter on the account holder for any tax20 able year in which there is a payment or dis21 tribution from a health savings account of such 

22 holder which is includible in gross income under 

23 paragraph (2) shall be increased by 15 percent 

24 of the amount which is so includible. 
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1 ‘‘(B) EXCEPTION FOR DISABILITY OR

2 DEATH.—Subparagraph (A) shall not apply if 

3 the payment or distribution is made after the 

4 account holder becomes disabled within the 

5 meaning of section 72(m)(7) or dies. 

6 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

7 AFTER MEDICARE ELIGIBILITY.—Subparagraph 

8 (A) shall not apply to any payment or distribu9 tion after the date on which the account holder 

10 attains the age specified in section 1811 of the 

11 Social Security Act. 

12 ‘‘(5) ROLLOVER CONTRIBUTION.—An amount is 

13 described in this paragraph as a rollover contribu14 tion if it meets the requirements of subparagraphs 

15 (A) and (B). 

16 ‘‘(A) IN GENERAL.—Paragraph (2) shall 

17 not apply to any amount paid or distributed 

18 from an Archer MSA or a health savings ac19 count to the account holder to the extent the 

20 amount received is paid into a health savings 

21 account for the benefit of such holder not later 

22 than the 60th day after the day on which the 

23 holder receives the payment or distribution. 

24 ‘‘(B) LIMITATION.—This paragraph shall 

25 not apply to any amount described in subpara-
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1 graph (A) received by an individual from an Ar2 cher MSA or a health savings account if, at any 

3 time during the 1-year period ending on the day 

4 of such receipt, such individual received any 

5 other amount described in subparagraph (A) 

6 from an Archer MSA or a health savings ac7 count which was not includible in the individ8 ual’s gross income because of the application of 

9 this paragraph. 

10 ‘‘(6) ADDITIONAL TAX; SPECIAL RULES.—Rules 

11 similar to the rules of paragraphs (6), (7), and (8) 

12 of section 220(f) shall apply for purposes of this sec13 tion. 

14 ‘‘(g) COST-OF-LIVING ADJUSTMENT.—

15 ‘‘(1) IN GENERAL.—In the case of any taxable 

16 year beginning in a calendar year after 1998, each 

17 dollar amount in subsection (c)(2) shall be increased 

18 by an amount equal to—

19 ‘‘(A) such dollar amount, multiplied by 

20 ‘‘(B) the cost-of-living adjustment deter21 mined under section 1(f)(3) for the calendar 

22 year in which such taxable year begins by sub23 stituting ‘calendar year 1997’ for ‘calendar year 

24 1992’ in subparagraph (B) thereof. 
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1 ‘‘(2) SPECIAL RULES.—In the case of the 

2 $1,000 amount in subsection (c)(2)(A)(i) and the 

3 $2,000 amount in subsection (c)(2)(A)(ii), para4 graph (1)(B) shall be applied by substituting ‘cal5 endar year 2002’ for ‘calendar year 1997’. 

6 ‘‘(3) ROUNDING.—If any increase under para7 graph (1) or (2) is not a multiple of $50, such in8 crease shall be rounded to the nearest multiple of 

9 $50. 

10 ‘‘(h) REPORTS.—The Secretary may require the 

11 trustee of a health savings account to make such reports 

12 regarding such account to the Secretary and to the ac13 count holder with respect to contributions, distributions, 

14 and such other matters as the Secretary determines appro15 priate. The reports required by this subsection shall be 

16 filed at such time and in such manner and furnished to 

17 such individuals at such time and in such manner as may 

18 be required by the Secretary.’’. 

19 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI20 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

21 of section 62 of such Code is amended by inserting after 

22 paragraph (18) the following new paragraph: 

23 ‘‘(19) HEALTH SAVINGS ACCOUNTS.—The de24 duction allowed by section 223.’’. 
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1 (c) ROLLOVERS FROM ARCHER MSAS PER2 MITTED.—Subparagraph (A) of section 220(f)(5) of such 

3 Code (relating to rollover contribution) is amended by in4 serting ‘‘or a health savings account (as defined in section 

5 223(d))’’ after ‘‘paid into an Archer MSA’’. 

6 (d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

7 MEDICAL SAVINGS ACCOUNTS.—

8 (1) EXCLUSION FROM INCOME TAX.—Section 

9 106 of such Code (relating to contributions by em10 ployer to accident and health plans) is amended by 

11 adding at the end the following new subsection: 

12 ‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS AC13 COUNTS.— 

14 ‘‘(1) IN GENERAL.—In the case of an employee 

15 who is an eligible individual, amounts contributed by 

16 such employee’s employer to any health savings ac17 count of such employee shall be treated as employer18 provided coverage for medical expenses under an ac19 cident or health plan to the extent such amounts do 

20 not exceed the excess of—

21 ‘‘(A) the limitation under section 223(b)(1) 

22 (determined without regard to this subsection) 

23 which is applicable to such employee for such 

24 taxable year, over 
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1 ‘‘(B) the aggregate amount treated as em2 ployer-provided coverage for medical expenses 

3 under an accident or health plan under sub4 section (b). 

5 ‘‘(2) SPECIAL RULES.—Rules similar to the 

6 rules of paragraphs (2), (3), (4), and (5) of sub7 section (b) shall apply for purposes of this sub8 section. 

9 ‘‘(3) DEFINITIONS.—For purposes of this sub10 section, the terms ‘eligible individual’ and ‘health 

11 savings account’ have the respective meanings given 

12 to such terms by section 223. 

13 ‘‘(4) CROSS REFERENCE.—

‘‘For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees, see section 

4980G.’’.

14 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

15 (A) RAILROAD RETIREMENT TAX.—Sub16 section (e) of section 3231 of such Code is 

17 amended by adding at the end the following 

18 new paragraph: 

19 ‘‘(11) HEALTH SAVINGS ACCOUNT CONTRIBU20 TIONS.—The term ‘compensation’ shall not include 

21 any payment made to or for the benefit of an em22 ployee if at the time of such payment it is reason23 able to believe that the employee will be able to ex-
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1 clude such payment from income under section 

2 106(d).’’. 

3 (B) UNEMPLOYMENT TAX.—Subsection (b) 

4 of section 3306 of such Code is amended by 

5 striking ‘‘or’’ at the end of paragraph (16), by 

6 striking the period at the end of paragraph (17) 

7 and inserting ‘‘; or’’, and by inserting after 

8 paragraph (17) the following new paragraph: 

9 ‘‘(18) any payment made to or for the benefit 

10 of an employee if at the time of such payment it is 

11 reasonable to believe that the employee will be able 

12 to exclude such payment from income under section 

13 106(d).’’. 

14 (C) WITHHOLDING TAX.—Subsection (a) 

15 of section 3401 of such Code is amended by 

16 striking ‘‘or’’ at the end of paragraph (20), by 

17 striking the period at the end of paragraph (21) 

18 and inserting ‘‘; or’’, and by inserting after 

19 paragraph (21) the following new paragraph: 

20 ‘‘(22) any payment made to or for the benefit 

21 of an employee if at the time of such payment it is 

22 reasonable to believe that the employee will be able 

23 to exclude such payment from income under section 

24 106(d).’’
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1 (3) EMPLOYER CONTRIBUTIONS REQUIRED TO

2 BE SHOWN ON W–2.—Subsection (a) of section 6051 

3 of such Code is amended by striking ‘‘and’’ at the 

4 end of paragraph (10), by striking the period at the 

5 end of paragraph (11) and inserting ‘‘, and’’, and by 

6 inserting after paragraph (11) the following new 

7 paragraph: 

8 ‘‘(12) the amount contributed to any health 

9 savings account (as defined in section 223(d)) of 

10 such employee or such employee’s spouse.’’. 

11 (4) PENALTY FOR FAILURE OF EMPLOYER TO

12 MAKE COMPARABLE HEALTH SAVINGS ACCOUNT

13 CONTRIBUTIONS.—

14 (A) IN GENERAL.—Chapter 43 of such 

15 Code is amended by adding after section 4980F 

16 the following new section: 

17 ‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM18 PARABLE HEALTH SAVINGS ACCOUNT CON19 TRIBUTIONS. 

20 ‘‘(a) GENERAL RULE.—In the case of an employer 

21 who makes a contribution to the health savings account 

22 of any employee with respect to coverage under a high de23 ductible health plan of the employer during a calendar 

24 year, there is hereby imposed a tax on the failure of such 
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1 employer to meet the requirements of subsection (d) for 

2 such calendar year. 

3 ‘‘(b) AMOUNT OF TAX.—The amount of the tax im4 posed by subsection (a) on any failure for any calendar 

5 year is the amount equal to 35 percent of the aggregate 

6 amount contributed by the employer to health savings ac7 counts of employees for taxable years of such employees 

8 ending with or within such calendar year. 

9 ‘‘(c) WAIVER BY SECRETARY.—In the case of a fail10 ure which is due to reasonable cause and not to willful 

11 neglect, the Secretary may waive part or all of the tax 

12 imposed by subsection (a) to the extent that the payment 

13 of such tax would be excessive relative to the failure in14 volved. 

15 ‘‘(d) EMPLOYER REQUIRED TO MAKE COMPARABLE

16 HEALTH SAVINGS ACCOUNT CONTRIBUTIONS FOR ALL

17 PARTICIPATING EMPLOYEES.—An employer meets the re18 quirements of this subsection for any calendar year if the 

19 employer meets the requirements of section 4980E(d) ap20 plied by substituting ‘health savings account’ for ‘Archer 

21 MSA’ each place it appears. 

22 ‘‘(e) CONTROLLED GROUPS.—For purposes of this 

23 section, all persons treated as a single employer under sub24 section (b), (c), (m), or (o) of section 414 shall be treated 

25 as 1 employer. 
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1 ‘‘(f) DEFINITIONS.—Terms used in this section which 

2 are also used in section 223 have the respective meanings 

3 given such terms in section 223.’’. 

4 (B) CLERICAL AMENDMENT.—The table of 

5 sections for chapter 43 of such Code is amend6 ed by adding after the item relating to section 

7 4980F the following new item:

‘‘Sec. 4980G. Failure of employer to make comparable health savings account 

contributions.’’.

8 (e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 

9 of such Code (relating to tax on excess contributions to 

10 certain tax-favored accounts and annuities) is amended—

11 (1) by striking ‘‘or’’ at the end of paragraph 

12 (3) of subsection (a), 

13 (2) by inserting ‘‘or’’ at the end of paragraph 

14 (4) of subsection (a), 

15 (3) by inserting after paragraph (4) of sub16 section (a) the following new paragraph: 

17 ‘‘(5) a health savings account (within the mean18 ing of section 223(d)),’’, and 

19 (4) by adding at the end the following new sub20 section: 

21 ‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS

22 ACCOUNTS.—For purposes of this section, in the case of 

23 health savings accounts (within the meaning of section 
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1 223(d)), the term ‘excess contributions’ means the sum 

2 of—

3 ‘‘(1) the aggregate amount contributed for the 

4 taxable year to the accounts (other than rollover 

5 contributions referred to in section 223(f)(3)) which 

6 is neither excludable from gross income under sec7 tion 106(d) nor allowable as a deduction under sec8 tion 223 for such year, and 

9 ‘‘(2) the amount determined under this sub10 section for the preceding taxable year, reduced by 

11 the sum of—

12 ‘‘(A) the distributions out of the accounts 

13 which were included in gross income under sec14 tion 223(f)(2), and 

15 ‘‘(B) the excess (if any) of—

16 ‘‘(i) the maximum amount allowable 

17 as a deduction under section 223(b)(1) 

18 (determined without regard to section 

19 106(d)) for the taxable year, over 

20 ‘‘(ii) the amount contributed to the 

21 accounts for the taxable year. 

22 For purposes of this subsection, any contribution which 

23 is distributed out of the health savings account in a dis24 tribution to which section 223(f)(3) applies shall be treat25 ed as an amount not contributed.’’. 
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1 (f) TAX ON PROHIBITED TRANSACTIONS.—

2 (1) Section 4975 of such Code (relating to tax 

3 on prohibited transactions) is amended by adding at 

4 the end of subsection (c) the following new para5 graph: 

6 ‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS AC7 COUNTS.—An individual for whose benefit a health 

8 savings account (within the meaning of section 

9 223(d)) is established shall be exempt from the tax 

10 imposed by this section with respect to any trans11 action concerning such account (which would other12 wise be taxable under this section) if, with respect 

13 to such transaction, the account ceases to be a 

14 health savings account by reason of the application 

15 of section 223(e)(2) to such account.’’. 

16 (2) Paragraph (1) of section 4975(e) of such 

17 Code is amended by redesignating subparagraphs 

18 (E) and (F) as subparagraphs (F) and (G), respec19 tively, and by inserting after subparagraph (D) the 

20 following new subparagraph: 

21 ‘‘(E) a health savings account described in 

22 section 223(d),’’. 

23 (g) FAILURE TO PROVIDE REPORTS ON HEALTH

24 SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 

25 of such Code (relating to reports) is amended by redesig-
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1 nating subparagraphs (C) and (D) as subparagraphs (D) 

2 and (E), respectively, and by inserting after subparagraph 

3 (B) the following new subparagraph: 

4 ‘‘(C) section 223(h) (relating to health sav5 ings accounts),’’. 

6 (h) EXCEPTION FROM CAPITALIZATION OF POLICY

7 ACQUISITION EXPENSES.—Subparagraph (B) of section 

8 848(e)(1) of such Code (defining specified insurance con9 tract) is amended by striking ‘‘and’’ at the end of clause 

10 (iii), by striking the period at the end of clause (iv) and 

11 inserting ‘‘, and’’, and by adding at the end the following 

12 new clause: 

13 ‘‘(v) any contract which is a health 

14 savings account (as defined in section 

15 223(d)).’’. 

16 (i) CLERICAL AMENDMENT.—The table of sections 

17 for part VII of subchapter B of chapter 1 of such Code 

18 is amended by striking the last item and inserting the fol19 lowing:

‘‘Sec. 223. Medical savings accounts. 

‘‘Sec. 224. Cross reference.’’.

20 (j) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 December 31, 2003.
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1 SEC. 3. DISPOSITION OF UNUSED HEALTH BENEFITS IN 

2 CAFETERIA PLANS AND FLEXIBLE SPENDING 

3 ARRANGEMENTS. 

4 (a) IN GENERAL.—Section 125 of the Internal Rev5 enue Code of 1986 (relating to cafeteria plans) is amended 

6 by redesignating subsections (h) and (i) as subsections (i) 

7 and (j), respectively, and by inserting after subsection (g) 

8 the following: 

9 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

10 BENEFITS.—

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

12 a plan or other arrangement shall not fail to be 

13 treated as a cafeteria plan solely because qualified 

14 benefits under such plan include a health flexible 

15 spending arrangement under which not more than 

16 $500 of unused health benefits may be—

17 ‘‘(A) carried forward to the succeeding 

18 plan year of such health flexible spending ar19 rangement, or 

20 ‘‘(B) contributed on behalf of an employee 

21 to a qualified retirement plan (as defined in 

22 section 4974(c)), an eligible deferred compensa23 tion plan (as defined in section 457(b)), or a 

24 health savings account (as defined in section 

25 223(d)). 
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1 ‘‘(2) CONTRIBUTION OF UNUSED HEALTH BEN2 EFITS ON BEHALF OF EMPLOYEE.—For purposes of 

3 this title, contributions on behalf of an employee de4 scribed in paragraph (1) shall be treated as elective 

5 contributions made pursuant to a choice by the em6 ployee between such contributions and compensation 

7 which would otherwise be includible in the gross in8 come of the employee. Contributions described in 

9 paragraph (1) shall be excluded from the gross in10 come of the employee, or included in the gross in11 come of the employee and allowed as a deduction by 

12 the employee, to the extent that elective contribu13 tions would be treated in that manner under this 

14 title. 

15 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE16 MENT.—For purposes of this subsection, the term 

17 ‘health flexible spending arrangement’ means a flexi18 ble spending arrangement (as defined in section 

19 106(c)) that is a qualified benefit and only permits 

20 reimbursement for expenses for medical care (as de21 fined in section 213(d)(1) (without regard to sub22 paragraphs (C) and (D) thereof)). 

23 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur24 poses of this subsection, with respect to an em-
26

•HR 2351 IH 

1 ployee, the term ‘unused health benefits’ means the 

2 excess of—

3 ‘‘(A) the maximum amount of reimburse4 ment allowable to the employee during a plan 

5 year under a health flexible spending arrange6 ment, taking into account any election by the 

7 employee, over 

8 ‘‘(B) the actual amount of reimbursement 

9 during such year under such arrangement.’’. 

10 (b) EFFECTIVE DATE.—The amendment made by 

11 subsection (a) shall apply to taxable years beginning after 

12 December 31, 2003.

Æ