59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 114–308 

RESTORING ACCESS TO MEDICATION ACT OF 2015 

OCTOBER 23, 2015.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. RYAN of Wisconsin, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

together with 

ADDITIONAL VIEWS 

[To accompany H.R. 1270] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 1270) to amend the Internal Revenue Code of 1986 to repeal the amendments made by the Patient Protection and Affordable Care Act which disqualify expenses for over-the-counter drugs 

under health savings accounts and health flexible spending arrangements, having considered the same, report favorably thereon 

with an amendment and recommend that the bill as amended do 

pass. 

CONTENTS 

Page 

I. SUMMARY AND BACKGROUND ............................................................... 2 

A. Purpose and Summary ......................................................................... 2 

B. Background and Need for Legislation ................................................ 2 

C. Legislative History ............................................................................... 2 

II. EXPLANATION OF THE BILL ................................................................... 3 

A. Repeal of the Disqualification of Expenses for Over-the-Counter 

Drugs under Certain Accounts and Arrangements (sec. 2 of the 

bill and secs. 106, 220, 223 of the Code) .......................................... 3 

III. VOTES OF THE COMMITTEE .................................................................... 6 

IV. BUDGET EFFECTS OF THE BILL ............................................................ 6 

A. Committee Estimate of Budgetary Effects ......................................... 6 

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority ...................................................................... 7 

C. Cost Estimate Prepared by the Congressional Budget Office ........... 7 


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V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF 

THE HOUSE .............................................................................................. 10 

A. Committee Oversight Findings and Recommendations .................... 10 

B. Statement of General Performance Goals and Objectives ................ 10 

C. Information Relating to Unfunded Mandates .................................... 11 

D. Applicability of House Rule XXI 5(b) .................................................. 11 

E. Tax Complexity Analysis ..................................................................... 11 

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 

Benefits ............................................................................................... 16 

G. Duplication of Federal Programs ........................................................ 16 

H. Disclosure of Directed Rule Makings ................................................. 16 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 16 

A. Text of Existing Law Amended or Repealed by the Bill, as Reported .................................................................................................. 16 

B. Changes in Existing Law Proposed by the Bill, as Reported ........... 39 

VII. ADDITIONAL VIEWS ................................................................................... 62 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Restoring Access to Medication Act of 2015’’. 

SEC. 2. REPEAL OF DISQUALIFICATION OF EXPENSES FOR OVER-THE-COUNTER DRUGS 

UNDER CERTAIN ACCOUNTS AND ARRANGEMENTS. 

(a) HSAS.—Section 223(d)(2)(A) of the Internal Revenue Code of 1986 is amended 

by striking the last sentence. 

(b) ARCHER MSAS.—Section 220(d)(2)(A) of such Code is amended by striking the 

last sentence. 

(c) HEALTH FLEXIBLE SPENDING ARRANGEMENTS AND HEALTH REIMBURSEMENT

ARRANGEMENTS.—Section 106 of such Code is amended by striking subsection (f). 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to expenses incurred after December 31, 2015. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 1270, as reported by the Committee on Ways and 

Means, repeals the prohibition on using tax-free funds from HSAs, 

Archer MSAs, health FSAs, and HRAs to purchase over-the-counter 

medication. 

B. BACKGROUND AND NEED FOR LEGISLATION

While the Committee continues to actively pursue health care reform to relieve unnecessary burdens on the broader economy and 

on taxpayers in need of access to quality health care, the Committee also believes it is important to provide immediate relief from 

taxes imposing excessive constraints on individual choice. The 

Committee believes that eliminating the prohibition on using taxfree funds from HSAs, Archer MSAs, health FSAs, and HRAs to 

purchase over-the-counter medication will relieve an unfair tax 

burden. 

C. LEGISLATIVE HISTORY

Background 

H.R. 1270 was introduced on March 4, 2015, and was referred to 

the Committee on Ways and Means. 


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1Sec. 213(a). The threshold is 7.5 percent for taxable years beginning before January 1, 2017, 

with respect to a taxpayer if the taxpayer or the taxpayer’s spouse has attained age 65 before 

the close of the taxable year. Except where otherwise stated, all references are to the Internal 

Revenue Code of 1986, as amended. 2Sec. 213(d). There are certain limitations on the general definition including a rule that cosmetic surgery or similar procedures are generally not medical care. 3Sec. 213(b). 

4Sec. 213(d)(3). 

5 Rev. Rul. 2003–58, 2003–1 C.B. 959. 

6Secs. 106 and 3121(a)(2). 

Committee action 

The Committee on Ways and Means marked up H.R. 1270, the 

‘‘Restoring Access to Medication Act of 2015’’ on September 17, 

2015, and ordered the bill, as amended, favorably reported (with a 

quorum being present). 

Committee hearings 

The harmful effects of the prohibition on using tax-favored funds 

from various health-related savings and reimbursement vehicles to 

purchase over-the-counter medication was discussed at one hearing 

during the 114th Congress: 

• Full Committee Hearing on Obamacare Implementation and 

the Department of Health and Human Services FY 16 Budget Request (June 10, 2015). 

II. EXPLANATION OF THE BILL 

A. REPEAL OF THE DISQUALIFICATION OF EXPENSES FOR OVER-THE- COUNTER DRUGS UNDER CERTAIN ACCOUNTS AND ARRANGEMENTS

(SEC. 2 OF THE BILL AND SECS. 106, 220, 223 OF THE CODE)

PRESENT LAW

Individual deduction for medical expenses 

Expenses for medical care, not compensated for by insurance or 

otherwise, are deductible by an individual under the rules relating 

to itemized deductions to the extent the expenses exceed 10 percent 

of adjusted gross income (‘‘AGI’’) in a given year.1 Medical care generally is defined broadly as amounts paid for the diagnosis, cure, 

mitigation, treatment or prevention of disease, or for the purpose 

of affecting any structure of the body.2

Under an explicit limitation, any amount paid during a taxable 

year for medicine or drugs is deductible as a medical expense only 

if the medicine or drug is a prescribed drug or insulin.3 Prescribed 

drug for this purpose means a drug or biological which requires a 

prescription of a physician for its use by an individual.4 Thus, any 

amount paid for medicine available without a prescription (‘‘overthe-counter medicine’’) is not deductible as a medical expense, including any medicine prescribed or recommended by a physician.5

Exclusion for employer-provided health benefits 

Employees are not taxed on (that is, may exclude from gross income and from wages for payroll tax purposes) the value of employer-provided health coverage under an accident or health plan.6

In addition, any reimbursements under an employer-provided accident or health plan for medical care expenses for employees, their 

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7Sec. 105(b). 

8Treas. Reg. sec. 1.105–2. 

9Sec. 223. 

10For 2015, the maximum aggregate annual contribution that can be made to an HSA is $3,350 in the case of self-only coverage and $6,650 in the case of family coverage. The annual 

contribution limits are increased by $1,000 for individuals who have attained age 55 by the end 

of the taxable year (referred to as ‘‘catch-up contributions’’). Contributions, including catch-up 

contributions, cannot be made once an individual is enrolled in Medicare. 11Sec. 220. 

erally are excludible from gross income (and from wages for payroll 

tax purposes).7

An employer may agree to reimburse expenses for medical care 

of its employees (and their spouses, dependents, and adult children 

under age 27), not covered by a health insurance plan, through a 

flexible spending arrangement (‘‘FSA’’) which allows reimbursement not in excess of a specified dollar amount, provided the 

amount is only available for reimbursement for medical care.8 The 

amount available for reimbursement is either elected by an employee under a cafeteria plan (‘‘health FSA’’) or otherwise specified 

by the employer under a health reimbursement arrangement 

(‘‘HRA’’). Reimbursements under these arrangements are also excludible from gross income (and from wages for payroll tax purposes) as reimbursements for medical care under employer-provided health coverage. 

Health savings accounts 

An individual with a high deductible health plan (and no other 

health plan other than a plan that provides certain permitted insurance or permitted coverage) may establish a health savings account (‘‘HSA’’).9 In general, HSAs provide tax-favored treatment for 

current medical expenses as well as the ability to save on a taxfavored basis for future medical expenses. In general, HSAs are 

tax-exempt trusts or custodial accounts created exclusively to pay 

for the qualified medical expenses of the account holder and his or 

her spouse and dependents. Thus, earnings on amounts in HSAs 

are not taxable. 

Subject to limits,10 contributions made to an HSA by an employer, including contributions made through a cafeteria plan 

through salary reduction, are excludible from income (and from 

wages for payroll tax purposes). Contributions made by individuals 

are deductible for income tax purposes, regardless of whether the 

individuals itemize deductions. Distributions from an HSA that are 

used for qualified medical expenses are excludible from gross income. Distributions from an HSA that are not used for qualified 

medical expenses are includible in gross income and are subject to 

an additional tax of 20 percent. The 20-percent additional tax does 

not apply if the distribution is made after death, disability, or the 

individual attains the age of Medicare eligibility (i.e., age 65). Similar rules apply for another type of medical savings arrangement 

called an Archer medical savings account (‘‘Archer MSA’’).11

Medical care for excludible reimbursements 

For purposes of the exclusion for reimbursements under employer-provided accident and health plans (including under health 

FSAs and HRAs), and for distributions from HSAs and Archer 

MSAs used for qualified medical expenses, the definition of medical 

care is generally the same as the definition that applies for the 


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12The Patient Protection and Affordable Care Act, Pub. L. No 111–148, enacted March 23, 

2010, and the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111–152, enacted March 30, 2010, are collectively referred to as the Affordable Care Act.. 13 Rev. Rul. 2003–102, 2993–2 C.B. 559, obsoleted by Rev. Rul. 2010–23, 2010–39 I.R.B. 388. 14Sec. 9003 of the Affordable Care Act. Notice 2010–59, 2010–39 I.R.B. 388, provides guidance 

on this change to the definition of medical care for these purposes. 15This rule still differs from the rule in section 213(a) and (d)(3) disallowing the medical expense deduction for over-the-counter medicine. Under the section 213 rule, the expense for any 

medicine available without a prescription (other than insulin) is not deductible even if the particular individual has a prescription. 

itemized deduction for the cost of medical care. However, prior to 

the enactment of the Patient Protection and Affordable Care Act 

(referred to as the ‘‘Affordable Care Act’’),12 the limitation (applicable to the itemized deduction) that only prescription medicines or 

drugs and insulin are taken into account did not apply. Thus, for 

example, amounts paid from a health FSA or HRA, or funds distributed from an HSA to reimburse a taxpayer for over-the-counter 

medicine, such as nonprescription aspirin, allergy medicine, antacids, or pain relievers, were excludible from income even though, 

if the taxpayer paid for such amounts directly (without such reimbursement), the expenses could not be taken into account in determining the itemized deduction for medical expenses.13

For years beginning after December 31, 2010, the Affordable 

Care Act changed the definition of medical care for purposes of the 

exclusion for reimbursements for medical care under employer-provided accident and health plans and for distributions from HSAs 

and Archer MSAs used for qualified medical expenses to require 

that over-the-counter medicine (other than insulin) be prescribed 

by a physician in order for the medicine to be medical care for 

these purposes.14 Thus, under present law, preferential treatment 

under a health FSA or an HRA is available only on reimbursements for the cost of over-the-counter medicine if the medicine is 

prescribed by a physician, and distributions from an HSA or an Archer MSA used to purchase over-the-counter medicine are not a 

qualified medical expense unless the medicine is prescribed by a 

physician.15

REASON FOR CHANGE

The Committee observes that the requirement that over-thecounter medicine requires a prescription in order to be an eligible 

expense for individuals and families covered by a health FSA, HSA, 

HRA, or Archer MSA has left these consumers with three options: 

(1) seek an unnecessary appointment with a doctor to obtain a prescription, and then submit the purchase for reimbursement under 

a health FSA account; (2) purchase the over-the-counter medicine 

out-of-pocket, which significantly increases the after-tax cost to the 

consumer; or (3) forego treatment entirely and suffer from the 

symptoms of the condition. The Committee notes that all three options increase costs to the consumer and to our healthcare system. 

The Committee therefore believes that the provision of the Affordable Care Act that disqualified expenses for over-the-counter medicine (unless obtained with a prescription) from being medical expenses under health FSAs, HRAs, HSAs, and Archer HSAs should 

be repealed. 


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EXPLANATION OF PROVISION

The provision repeals the change to the definition of medical care 

made by the Affordable Care Act for purposes of the exclusion for 

reimbursements for medical care under employer-provided accident 

and health plans and for distributions from HSAs or Archer MSAs 

used for qualified medical expenses that requires that over-thecounter medicine (other than insulin) be prescribed by a physician 

in order for the medicine to qualify for tax-favored treatment under 

these health-related savings and reimbursement vehicles. Thus, for 

example, amounts paid from a health FSA or HRA, or funds distributed from an HSA or an Archer MSA, to reimburse a taxpayer 

for over-the-counter medicine, such as nonprescription aspirin, allergy medicine, antacids, or pain relievers, will be tax-free in accordance with the general rules associated with those health-related savings and reimbursement vehicles. 

EFFECTIVE DATE

The provision is effective with respect to expenses incurred after 

December 31, 2015. 

III. VOTES OF THE COMMITTEE 

In compliance with clause 3(b) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the vote of the Committee on Ways and Means in its consideration of H.R. 1270, the ‘‘Restoring Access to Medication Act of 

2015,’’ on September 17, 2015. 

The Chairman’s amendment in the nature of a substitute was 

adopted by a voice vote (with a quorum being present). 

The bill, H.R. 1270, was ordered favorably reported as amended 

to the House of Representatives by a voice vote (with a quorum 

being present). 

IV. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATE OF BUDGETARY EFFECTS

In compliance with clause 3(d) of rule XIII of the Rules of the 

House of Representatives, the following statement is made concerning the effects on the budget of the bill, H.R. 1270, as reported. 

The bill, as reported, is estimated to have the following effect on 

Federal budget receipts for fiscal years 2016–2025: [1]

FISCAL YEARS 

[Millions of Dollars] 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016–20 2016–25 

¥305 ¥527 ¥561 ¥600 ¥645 ¥695 ¥744 ¥796 ¥852 ¥909 ¥2,638 ¥6,634 

[1] Estimate includes the following off-budget effects: 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016–20 2016–25 

¥82 ¥120 ¥100 ¥110 ¥115 ¥115 ¥125 ¥135 ¥140 ¥140 ¥527 ¥1,182 

Pursuant to clause 8 of rule XIII of the Rules of the House of 

Representatives, the following statement is made by the Joint Committee on Taxation with respect to the provisions of the bill amendVerDate Sep 11 2014 06:34 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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ing the Internal Revenue Code of 1986: the gross budgetary effect 

(before incorporating macroeconomic effects) in any fiscal year is 

less than 0.25 percent of the current projected gross domestic product of the United States for that fiscal year; therefore, the bill is 

not ‘‘major legislation’’ for purposes of requiring that the estimate 

include the budgetary effects of changes in economic output, employment, capital stock and other macroeconomic variables. 

B. STATEMENT REGARDING NEW BUDGET AUTHORITY AND TAX

EXPENDITURES BUDGET AUTHORITY

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue-reducing tax provisions involve increased tax expenditures. (See amounts in table in Part IV.A., 

above.) 

C. COST ESTIMATE PREPARED BY THE CONGRESSIONAL BUDGET

OFFICE

In compliance with clause 3(c)(3) of rule XIII of the Rules of the 

House of Representatives, requiring a cost estimate prepared by 

the CBO, the following statement by CBO is provided. 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, September 22, 2015. 

Hon. PAUL RYAN

Chairman, Committee on Ways and Means, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1270, the Restoring Access to Medication Act of 2015. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Peter Huether. 

Sincerely, 

KEITH HALL. 

Enclosure. 

H.R. 1270—Restoring Access to Medication Act of 2015 

Summary: H.R. 1270 would amend the Internal Revenue Code to 

repeal the provisions that disqualify expenses for over-the-counter 

medicine under health savings accounts (HSAs), Archer medical 

savings accounts (Archer MSAs), health flexible spending arrangements (FSAs), and health reimbursement arrangements (HRAs). 

The staff of the Joint Committee on Taxation (JCT) estimates that 

enacting H.R. 1270 would reduce revenues by about $6.6 billion 

over the 2016–2025 period. Of that reduction, about $1.2 billion 

would result from changes in off-budget revenues (from Social Security payroll taxes, which are categorized as off-budget). Pay-asyou-go procedures apply because enacting the legislation would affect on-budget revenues. 

JCT has determined that the bill contains no intergovernmental 

or private-sector mandates as defined in the Unfunded Mandates 

Reform Act (UMRA). 


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Estimated cost to the Federal Government: The estimated budgetary impact of H.R. 1270 is shown in the following table. 


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By fiscal year, in millions of dollars 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 2020 2016– 2025 

CHANGES IN REVENUES 

Estimated Revenues ....................................................................................... ¥305 ¥527 ¥561 ¥600 ¥645 ¥695 ¥744 ¥796 ¥852 ¥909 ¥2,638 ¥6,634 

On-budget .............................................................................................. ¥223 ¥407 ¥461 ¥490 ¥530 ¥580 ¥619 ¥661 ¥712 ¥769 ¥2,111 ¥5,452 

Off-budget ............................................................................................. ¥82 ¥120 ¥100 ¥110 ¥115 ¥115 ¥125 ¥135 ¥140 ¥140 ¥527 ¥1,182 

Source: Staff of the Joint Committee on Taxation. 


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Basis of Estimate: The bill would allow taxpayers to be reimbursed for purchases of over-the-counter medications from their 

HSAs, Archer MSAs, FSAs, and HRAs. Under current law, expenses for over-the-counter medications are not eligible for reimbursement from those accounts unless the medicine is prescribed 

by a physician. The bill would expand the expenses eligible for reimbursement under these health accounts, which provide tax-favored treatment for medical expenses. The bill would be effective 

for expenses incurred after December 31, 2015. JCT estimates that 

enacting H.R. 1270 would reduce on-budget revenues by about $5.4 

billion and off-budget revenues by about $1.2 billion from 2016 

through 2025, thereby increasing federal deficits by about $6.6 billion over that period. 

Pay-As-You-Go Considerations: The Statutory Pay-As-You-Go Act 

of 2010 establishes budget-reporting and enforcement procedures 

for legislation affecting direct spending or revenues. The net 

changes in revenues that are subject to those pay-as-you-go procedures are shown in the following table. Only on-budget changes to 

outlays or revenues are subject to pay-as-you-go procedures. 

CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 1270, AS ORDERED REPORTED BY THE 

HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 17, 2015 

By fiscal year, in millions of dollars 

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016– 

2020 

2016– 

2025 

NET INCREASE IN THE ON-BUDGET DEFICIT 

Statutory Pay-As-You-Go Effects .................................. 223 407 461 490 530 580 619 661 712 769 2,111 5,452 

Source: Staff of the Joint Committee on Taxation. 

Intergovernmental and private-sector impact: JCT has determined that the bill contains no intergovernmental or private-sector 

mandates as defined in UMRA. 

Estimate prepared by: Peter Huether. 

Estimate approved by: David Weiner, Assistant Director for Tax 

Analysis. 

V. OTHER MATTERS TO BE DISCUSSED UNDER THE 

RULES OF THE HOUSE 

A. COMMITTEE OVERSIGHT FINDINGS AND RECOMMENDATIONS

With respect to clause 3(c)(1) of rule XIII of the Rules of the 

House of Representatives (relating to oversight findings), the Committee advises that it was as a result of the Committee’s review of 

the provisions of H.R. 1270 that the Committee concluded that it 

is appropriate to report the bill, as amended, favorably to the 

House of Representatives with the recommendation that the bill do 

pass. 

B. STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

With respect to clause 3(c)(4) of rule XIII of the Rules of the 

House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of genVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00010 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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eral performance goals and objectives for which any measure authorizes funding is required. 

C. INFORMATION RELATING TO UNFUNDED MANDATES

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

D. APPLICABILITY OF HOUSE RULE XXI 5(b) 

Rule XXI 5(b) of the Rules of the House of Representatives provides, in part, that ‘‘A bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase may not 

be considered as passed or agreed to unless so determined by a 

vote of not less than three-fifths of the Members voting, a quorum 

being present.’’ The Committee has carefully reviewed the bill, and 

states that the bill does not involve any Federal income tax rate 

increases within the meaning of the rule. 

E. TAX COMPLEXITY ANALYSIS

The following statement is made pursuant to clause 3(h)(1) of 

rule XIII of the Rules of the House of Representatives. Section 

4022(b) of the Internal Revenue Service Restructuring and Reform 

Act of 1998 requires the staff of the Joint Committee on Taxation 

(in consultation with the Internal Revenue Service and the Treasury Department) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House Committee on Ways and 

Means, or any committee of conference if the legislation includes a 

provision that directly or indirectly amends the Internal Revenue 

Code and has widespread applicability to individuals or small businesses. For each such provision identified by the staff of the Joint 

Committee on Taxation a summary description of the provision is 

provided along with an estimate of the number and type of affected 

taxpayers, and a discussion regarding the relevant complexity and 

administrative issues. 

1. Modifications to definition of medical care with respect to overthe-counter-medicine 

Summary description of the provisions 

The provision changes the definition of medical care for purposes 

of the exclusion for reimbursements for medical care under employer-provided accident and health plans (which include health 

FSAs and HRAs) and for distributions from HSAs or Archer MSAs 

used for qualified medical expenses to include over-the-counter 

medicine not prescribed by a physician. 

Number of affected taxpayers 

It is estimated that the provision will affect over ten percent of 

individual tax returns. 


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Discussion 

Taxpayers voluntarily claiming reimbursement for over-thecounter medicines may have an increased burden in record keeping 

and claim submissions. 


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F. CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND

LIMITED TARIFF BENEFITS

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill, and states that the provisions of the bill do not 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

G. DUPLICATION OF FEDERAL PROGRAMS

In compliance with Sec. 3(g)(2) of H. Res. 5 (114th Congress), the 

Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program, (2) a program included in any 

report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or (3) a program related 

to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to the Federal Program Information Act (Public Law 95–220, as amended by Public Law 98– 

169). 

H. DISCLOSURE OF DIRECTED RULE MAKINGS

In compliance with Sec. 3(i) of H. Res. 5 (114th Congress), the 

following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no directed rule makings within the meaning of such section. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

A. TEXT OF EXISTING LAW AMENDED OR REPEALED BY THE BILL, AS

REPORTED

In compliance with clause 3(e)(1)(A) of rule XIII of the Rules of 

the House of Representatives, the text of each section proposed to 

be amended or repealed by the bill, as reported, is shown below: 

TEXT OF EXISTING LAW AMENDED OR REPEALED BY THE BILL, AS

REPORTED

In compliance with clause 3(e)(1)(A) of rule XIII of the Rules of 

the House of Representatives, the text of each section proposed to 

be amended or repealed by the bill, as reported, is shown below: 

INTERNAL REVENUE CODE OF 1986 

* * * * * * * 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 


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Subchapter B—Computation of Taxable Income 

* * * * * * * 

PART III—ITEMS SPECIFICALLY EXCLUDED FROM 

GROSS INCOME 

* * * * * * * 

SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH 

PLANS. 

(a) GENERAL RULE.—Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan. 

(b) CONTRIBUTIONS TO ARCHER MSAS.— (1) IN GENERAL.—In the case of an employee who is an eligible individual, amounts contributed by such employee’s employer to any Archer MSA 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 220(b)(1) (determined without 

regard to this subsection) 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) SPECIAL RULE FOR DEDUCTION OF EMPLOYER CONTRIBU- TIONS.—Any employer contribution to an Archer MSA, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid. 

(4) EMPLOYER MSA CONTRIBUTIONS 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 Archer 

MSAs of such individual or such individual’s spouse for such 

taxable year. 

(5) MSA CONTRIBUTIONS NOT PART OF COBRA COVERAGE.— 

Paragraph (1) shall not apply for purposes of section 4980B. 

(6) DEFINITIONS.—For purposes of this subsection, the terms 

‘‘eligible individual’’ and ‘‘Archer MSA’’ have the respective 

meanings given to such terms by section 220. 

(7) CROSS REFERENCE.—For penalty on failure by employer 

to make comparable contributions to the Archer MSAs of comparable employees, see section 4980E. 

(c) INCLUSION OF LONG-TERM CARE BENEFITS PROVIDED

THROUGH FLEXIBLE SPENDING ARRANGEMENTS.— 

(1) IN GENERAL.—Gross income of an employee shall include 

employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such 

coverage is provided through a flexible spending or similar arrangement. 

(2) FLEXIBLE SPENDING ARRANGEMENT.—For purposes of this 

subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which— 


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18 

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable 

conditions), and 

(B) the maximum amount of reimbursement which is 

reasonably available to a participant for such coverage is 

less than 500 percent of the value of such coverage. 

In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage. 

(d) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.— (1) IN GENERAL.—In the case of an employee who is an eligible individual (as defined in section 223(c)(1)), amounts contributed by such employee’s employer to any health savings account (as defined in section 223(d)) 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 223(b) (determined 

without regard to this subsection) which is applicable to such 

employee for such taxable year. 

(2) SPECIAL RULES.—Rules similar to the rules of paragraphs 

(2), (3), (4), and (5) of subsection (b) shall apply for purposes 

of this subsection. 

(3) CROSS REFERENCE.—For penalty on failure by employer 

to make comparable contributions to the health savings accounts of comparable employees, see section 4980G. 

(e) FSA AND HRA TERMINATIONS TO FUND HSAS.— (1) IN GENERAL.—A plan shall not fail to be treated as a 

health flexible spending arrangement or health reimbursement 

arrangement under this section or section 105 merely because 

such plan provides for a qualified HSA distribution. 

(2) QUALIFIED HSA DISTRIBUTION.—The term ‘‘qualified HSA 

distribution’’ means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the 

extent that such distribution— 

(A) does not exceed the lesser of the balance in such arrangement on September 21, 2006, or as of the date of 

such distribution, and 

(B) is contributed by the employer directly to the health 

savings account of the employee before January 1, 2012. 

Such term shall not include more than 1 distribution with respect to any arrangement. 

(3) ADDITIONAL TAX FOR FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COVERAGE.— 

(A) IN GENERAL.—If, at any time during the testing period, the employee is not an eligible individual, then the 

amount of the qualified HSA distribution— 

(i) shall be includible in the gross income of the employee for the taxable year in which occurs the first 

month in the testing period for which such employee 

is not an eligible individual, and 

(ii) the tax imposed by this chapter for such taxable 

year on the employee shall be increased by 10 percent 

of the amount which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Clauses (i) 

and (ii) of subparagraph (A) shall not apply if the emVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00018 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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19 

ployee ceases to be an eligible individual by reason of the 

death of the employee or the employee becoming disabled 

(within the meaning of section 72(m)(7)). 

(4) DEFINITIONS AND SPECIAL RULES.—For purposes of this 

subsection— 

(A) TESTING PERIOD.—The term ‘‘testing period’’ means 

the period beginning with the month in which the qualified HSA distribution is contributed to the health savings 

account and ending on the last day of the 12th month following such month. 

(B) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible individual’’ 

has the meaning given such term by section 223(c)(1). 

(C) TREATMENT AS ROLLOVER CONTRIBUTION.—A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5). 

(5) TAX TREATMENT RELATING TO DISTRIBUTIONS.—For purposes of this title— 

(A) IN GENERAL.—A qualified HSA distribution shall be 

treated as a payment described in subsection (d). 

(B) COMPARABILITY EXCISE TAX.— (i) IN GENERAL.—Except as provided in clause (ii), 

section 4980G shall not apply to qualified HSA distributions. 

(ii) FAILURE TO OFFER TO ALL EMPLOYEES.—In the 

case of a qualified HSA distribution to any employee, 

the failure to offer such distribution to any eligible individual covered under a high deductible health plan 

of the employer shall (notwithstanding section 

4980G(d)) be treated for purposes of section 4980G as 

a failure to meet the requirements of section 4980G(b). 

(f) REIMBURSEMENTS FOR MEDICINE RESTRICTED TO PRESCRIBED

DRUGS AND INSULIN.—For purposes of this section and section 105, 

reimbursement for expenses incurred for a medicine or a drug shall 

be treated as a reimbursement for medical expenses only if such 

medicine or drug is a prescribed drug (determined without regard 

to whether such drug is available without a prescription) or is insulin. 

* * * * * * * 

PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR 

INDIVIDUALS 

* * * * * * * 

SEC. 220. ARCHER MSAS. 

(a) DEDUCTION ALLOWED.—In the case of an individual who is an 

eligible individual for any month during the taxable year, there 

shall be allowed as a deduction for the taxable year an amount 

equal to the aggregate amount paid in cash during such taxable 

year by such individual to an Archer MSA of such individual. 

(b) LIMITATIONS.— 

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

under subsection (a) to an individual for the taxable year shall 

not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual. 


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(2) MONTHLY LIMITATION.—The monthly limitation for any 

month is the amount equal to 1/12 of— 

(A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first 

day of such month, 65 percent of the annual deductible 

under such coverage, and 

(B) in the case of an individual who has family coverage 

under the high deductible health plan as of the first day 

of such month, 75 percent of the annual deductible under 

such coverage. 

(3) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case of 

individuals who are married to each other, if either spouse has 

family coverage— 

(A) both spouses shall be treated as having only such 

family coverage (and if such spouses each have family coverage under different plans, as having the family coverage 

with the lowest annual deductible), and 

(B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally between them unless they agree on a different division. 

(4) DEDUCTION NOT TO EXCEED COMPENSATION.— (A) EMPLOYEES.—The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not 

exceed such individual’s wages, salaries, tips, and other 

employee compensation which are attributable to such individual’s employment by the employer referred to in such 

subclause. 

(B) SELF-EMPLOYED INDIVIDUALS.—The deduction allowed under subsection (a) for contributions as an eligible 

individual described in subclause (II) of subsection 

(c)(1)(A)(iii) shall not exceed such individual’s earned income (as defined in section 401(c)(1)) derived by the taxpayer from the trade or business with respect to which the 

high deductible health plan is established. 

(C) COMMUNITY PROPERTY LAWS NOT TO APPLY.—The 

limitations under this paragraph shall be determined without regard to community property laws. 

(5) COORDINATION WITH EXCLUSION FOR EMPLOYER CONTRIBUTIONS.—No deduction shall be allowed under this section for 

any amount paid for any taxable year to an Archer MSA of an 

individual if— 

(A) any amount is contributed to any Archer MSA of 

such individual for such year which is excludable from 

gross income under section 106(b), or 

(B) if such individual’s spouse is covered under the high 

deductible health plan covering such individual, any 

amount is contributed for such year to any Archer MSA of 

such spouse which is so excludable. 

(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction 

shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to 

another taxpayer for a taxable year beginning in the calendar 

year in which such individual’s taxable year begins. 


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(7) MEDICARE ELIGIBLE INDIVIDUALS.—The limitation under 

this subsection for any month with respect to an individual 

shall be zero for the first month such individual is entitled to 

benefits under title XVIII of the Social Security Act and for 

each month thereafter. 

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

(1) ELIGIBLE INDIVIDUAL.— (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, 

(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, and 

(iii) 

(I) the high deductible health plan covering such 

individual is established and maintained by the 

employer of such individual or of the spouse of 

such individual and such employer is a small employer, or 

(II) such individual is an employee (within the 

meaning of section 401(c)(1)) or the spouse of such 

an employee and the high deductible health plan 

covering such individual is not established or 

maintained by any employer of such individual or 

spouse. 

(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph 

(A)(ii) shall be applied without regard to— 

(i) coverage for any benefit provided by permitted insurance, and 

(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, 

or long-term care. 

(C) CONTINUED ELIGIBILITY OF EMPLOYEE AND SPOUSE

ESTABLISHING ARCHER MSAS.—If, while an employer is a 

small employer— 

(i) any amount is contributed to an Archer MSA of 

an individual who is an employee of such employer or 

the spouse of such an employee, and 

(ii) such amount is excludable from gross income 

under section 106(b) or allowable as a deduction under 

this section, 

such individual shall not cease to meet the requirement of 

subparagraph (A)(iii)(I) by reason of such employer ceasing 

to be a small employer so long as such employee continues 

to be an employee of such employer. 

(D) LIMITATIONS ON ELIGIBILITY.—For limitations on 

number of taxpayers who are eligible to have Archer 

MSAs, see subsection (i). 

(2) HIGH DEDUCTIBLE HEALTH PLAN.— 


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(A) IN GENERAL.—The term ‘‘high deductible health 

plan’’ means a health plan— 

(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not 

more than $2,250, 

(ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not 

more than $4,500, and 

(iii) the annual out-of-pocket expenses required to be 

paid under the plan (other than for premiums) for covered benefits does not exceed— 

(I) $3,000 for self-only coverage, and 

(II) $5,500 for family coverage. 

(B) SPECIAL RULES.— 

(i) EXCLUSION OF CERTAIN PLANS.—Such term does 

not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B). 

(ii) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE

DEDUCTIBLE.—A plan shall not fail to be treated as a 

high deductible health plan by reason of failing to 

have a deductible for preventive care if the absence of 

a deductible for such care is required by State law. 

(3) PERMITTED INSURANCE.—The term ‘‘permitted insurance’’ 

means— 

(A) insurance if substantially all of the coverage provided under such insurance relates to— 

(i) liabilities incurred under workers’ compensation 

laws, 

(ii) tort liabilities, 

(iii) liabilities relating to ownership or use of property, or 

(iv) such other similar liabilities as the Secretary 

may specify by regulations, 

(B) insurance for a specified disease or illness, and 

(C) insurance paying a fixed amount per day (or other 

period) of hospitalization. 

(4) SMALL EMPLOYER.— 

(A) IN GENERAL.—The term ‘‘small employer’’ means, 

with respect to any calendar year, any employer if such 

employer employed an average of 50 or fewer employees on 

business days during either of the 2 preceding calendar 

years. For purposes of the preceding sentence, a preceding 

calendar year may be taken into account only if the employer was in existence throughout such year. 

(B) EMPLOYERS NOT IN EXISTENCE IN PRECEDING YEAR.— 

In the case of an employer which was not in existence 

throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected 

such employer will employ on business days in the current 

calendar year. 

(C) CERTAIN GROWING EMPLOYERS RETAIN TREATMENT AS

SMALL EMPLOYER.—The term ‘‘small employer’’ includes, 

with respect to any calendar year, any employer if— 


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(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph 

(B)) for any preceding calendar year after 1996, 

(ii) any amount was contributed to the Archer MSA 

of any employee of such employer with respect to coverage of such employee under a high deductible health 

plan of such employer during such preceding calendar 

year and such amount was excludable from gross income under section 106(b) or allowable as a deduction 

under this section, and 

(iii) such employer employed an average of 200 or 

fewer employees on business days during each preceding calendar year after 1996. 

(D) SPECIAL RULES.— 

(i) CONTROLLED GROUPS.—For purposes of this paragraph, all persons treated as a single employer under 

subsection (b), (c), (m), or (o) of section 414 shall be 

treated as 1 employer. 

(ii) PREDECESSORS.—Any reference in this paragraph to an employer shall include a reference to any 

predecessor of such employer. 

(5) FAMILY COVERAGE.—The term ‘‘family coverage’’ means 

any coverage other than self-only coverage. 

(d) ARCHER MSA.—For purposes of this section— 

(1) ARCHER MSA.—The term ‘‘Archer MSA’’ means a trust 

created or organized in the United States as a medical savings 

account exclusively for the purpose of paying the qualified 

medical expenses of the account holder, but only if the written 

governing instrument creating the trust meets the following requirements: 

(A) Except in the case of a rollover contribution described in subsection (f)(5), no contribution will be accepted— 

(i) unless it is in cash, or 

(ii) to the extent such contribution, when added to 

previous contributions to the trust for the calendar 

year, exceeds 75 percent of the highest annual limit 

deductible permitted under subsection (c)(2)(A)(ii) for 

such calendar year. 

(B) The trustee is a bank (as defined in section 408(n)), 

an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the 

Secretary that the manner in which such person will administer the trust will be consistent with the requirements 

of this section. 

(C) No part of the trust assets will be invested in life insurance contracts. 

(D) The assets of the trust will not be commingled with 

other property except in a common trust fund or common 

investment fund. 

(E) The interest of an individual in the balance in his account is nonforfeitable. 

(2) QUALIFIED MEDICAL EXPENSES.— 

(A) IN GENERAL.—The term ‘‘qualified medical expenses’’ 

means, with respect to an account holder, amounts paid by 


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24 

such holder 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. Such term 

shall include an amount paid for medicine or a drug only 

if such medicine or drug is a prescribed drug (determined 

without regard to whether such drug is available without 

a prescription) or is insulin. 

(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.— 

(i) IN GENERAL.—Subparagraph (A) shall not apply 

to any payment for insurance. 

(ii) EXCEPTIONS.—Clause (i) shall not apply to any 

expense for coverage under— 

(I) a health plan during any period of continuation coverage required under any Federal law, 

(II) a qualified long-term care insurance contract (as defined in section 7702B(b)), or 

(III) a health plan during a period in which the 

individual is receiving unemployment compensation under any Federal or State law. 

(C) MEDICAL EXPENSES OF INDIVIDUALS WHO ARE NOT EL- IGIBLE INDIVIDUALS.—Subparagraph (A) shall apply to an 

amount paid by an account holder for medical care of an 

individual who is not described in clauses (i) and (ii) of 

subsection (c)(1)(A)for the month in which the expense for 

such care is incurred only if no amount is contributed 

(other than a rollover contribution) to any Archer MSA of 

such account holder for the taxable year which includes 

such month. This subparagraph shall not apply to any expense for coverage described in subclause (I) or (III) of subparagraph (B)(ii). 

(3) ACCOUNT HOLDER.—The term ‘‘account holder’’ means the 

individual on whose behalf the Archer MSA was established. 

(4) CERTAIN RULES TO APPLY.—Rules similar to the following 

rules shall apply for purposes of this section: 

(A) Section 219(d)(2) (relating to no deduction for rollovers). 

(B) Section 219(f)(3) (relating to time when contributions 

deemed made). 

(C) Except as provided in section 106(b), section 219(f)(5) 

(relating to employer payments). 

(D) Section 408(g) (relating to community property laws). 

(E) Section 408(h) (relating to custodial accounts). 

(e) TAX TREATMENT OF ACCOUNTS.— 

(1) IN GENERAL.—An Archer MSA is exempt from taxation 

under this subtitle unless such account has ceased to be an Archer MSA. 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) ACCOUNT TERMINATIONS.—Rules similar to the rules of 

paragraphs (2) and (4) of section 408(e) shall apply to Archer 


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25 

MSAs, and any amount treated as distributed under such rules 

shall be treated as not used to pay qualified medical expenses. 

(f) TAX TREATMENT OF DISTRIBUTIONS.— (1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—Any 

amount paid or distributed out of an Archer MSA which is 

used exclusively to pay qualified medical expenses of any account holder shall not be includible in gross income. 

(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MED- ICAL EXPENSES.—Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified 

medical expenses of the account holder shall be included in the 

gross income of such holder. 

(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF

RETURN.— 

(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any Archer MSA of an individual, paragraph (2) shall not apply to distributions from 

the Archer MSAs of such individual (to the extent such 

distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) 

if— 

(i) such distribution is received by the individual on 

or before the last day prescribed by law (including extensions of time) for filing such individual’s return for 

such taxable year, and 

(ii) such distribution is accompanied by the amount 

of net income attributable to such excess contribution. 

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

in the gross income of the individual for the taxable year 

in which it is received. 

(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘‘excess contribution’’ means any contribution (other than a rollover contribution) which is neither excludable from gross income under section 106(b) nor 

deductible under this section. 

(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR QUALI- FIED MEDICAL EXPENSES.— (A) IN GENERAL.—The tax imposed by this chapter on 

the account holder for any taxable year in which there is 

a payment or distribution from an Archer MSA of such 

holder which is includible in gross income under paragraph (2) shall be increased by 20 percent of the amount 

which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution is 

made after the account holder becomes disabled within the 

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

(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account 

holder attains the age specified in section 1811 of the Social Security Act. 

(5) ROLLOVER CONTRIBUTION.—An amount is described in 

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B). 


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(A) IN GENERAL.—Paragraph (2) shall not apply to any 

amount paid or distributed from an Archer MSA to the account holder to the extent the amount received is paid into 

an Archer MSA or a health savings account (as defined in 

section 223(d)) for the benefit of such holder not later than 

the 60th day after the day on which the holder receives 

the payment or distribution. 

(B) LIMITATION.—This paragraph shall not apply to any 

amount described in subparagraph (A) received by an individual from an Archer MSA if, at any time during the 1- 

year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from an Archer MSA which was not includible 

in the individual’s gross income because of the application 

of this paragraph. 

(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—For 

purposes of determining the amount of the deduction under 

section 213, any payment or distribution out of an Archer MSA 

for qualified medical expenses shall not be treated as an expense paid for medical care. 

(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The transfer of an individual’s interest in an Archer MSA to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) 

shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and 

such interest shall, after such transfer, be treated as an Archer 

MSA with respect to which such spouse is the account holder. 

(8) TREATMENT AFTER DEATH OF ACCOUNT HOLDER.— 

(A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE.— 

If the account holder’s surviving spouse acquires such 

holder’s interest in an Archer MSA by reason of being the 

designated beneficiary of such account at the death of the 

account holder, such Archer MSA shall be treated as if the 

spouse were the account holder. 

(B) OTHER CASES.— (i) IN GENERAL.—If, by reason of the death of the account holder, any person acquires the account holder’s 

interest in an Archer MSA in a case to which subparagraph (A) does not apply— 

(I) such account shall cease to be an Archer 

MSA as of the date of death, and 

(II) an amount equal to the fair market value of 

the assets in such account on such date shall be 

includible if such person is not the estate of such 

holder, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such holder, in such holder’s 

gross income for the last taxable year of such 

holder. 

(ii) SPECIAL RULES.— (I) REDUCTION OF INCLUSION FOR PRE-DEATH EX- PENSES.—The amount includible in gross income 

under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified 


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27 

medical expenses which were incurred by the decedent before the date of the decedent’s death and 

paid by such person within 1 year after such date. 

(II) DEDUCTION FOR ESTATE TAXES.—An appropriate deduction shall be allowed under section 

691(c) to any person (other than the decedent or 

the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such 

person. 

(g) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable 

year beginning in a calendar year after 1998, each dollar amount 

in subsection (c)(2) shall be increased by an amount equal to— 

(1) such dollar amount, multiplied by 

(2) the cost-of-living adjustment determined under section 

1(f)(3) for the calendar year in which such taxable year begins 

by substituting ‘‘calendar year 1997’’ for ‘‘calendar year 1992’’ 

in subparagraph (B) thereof. 

If any increase under the preceding sentence is not a multiple of 

$50, such increase shall be rounded to the nearest multiple of $50. 

(h) REPORTS.—The Secretary may require the trustee of an Archer MSA to make such reports regarding such account to the Secretary and to the account holder with respect to contributions, distributions, and such other matters as the Secretary determines appropriate. The reports required by this subsection shall be filed at 

such time and in such manner and furnished to such individuals 

at such time and in such manner as may be required by the Secretary. 

(i) LIMITATION ON NUMBER OF TAXPAYERS HAVING ARCHER

MSAS.— 

(1) IN GENERAL.—Except as provided in paragraph (5), no individual shall be treated as an eligible individual for any taxable year beginning after the cut-off year unless— 

(A) such individual was an active MSA participant for 

any taxable year ending on or before the close of the cutoff year, or 

(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by 

reason of coverage under a high deductible health plan of 

an MSA-participating employer. 

(2) CUT-OFF YEAR.—For purposes of paragraph (1), the term 

‘‘cut-off year’’ means the earlier of— 

(A) calendar year 2007, or 

(B) the first calendar year before 2007 for which the Secretary determines under subsection (j) that the numerical 

limitation for such year has been exceeded. 

(3) ACTIVE MSA PARTICIPANT.—For purposes of this subsection— 

(A) IN GENERAL.—The term ‘‘active MSA participant’’ 

means, with respect to any taxable year, any individual 

who is the account holder of any Archer MSA into which 

any contribution was made which was excludable from 

gross income under section 106(b), or allowable as a deduction under this section, for such taxable year. 

(B) SPECIAL RULE FOR CUT-OFF YEARS BEFORE 2007.—In 

the case of a cut-off year before 2007— 


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(i) an individual shall not be treated as an eligible 

individual for any month of such year or an active 

MSA participant under paragraph (1)(A) unless such 

individual is, on or before the cut-off date, covered 

under a high deductible health plan, and 

(ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before 

the cut-off date, offered coverage under a high deductible health plan to any employee. 

(C) CUT-OFF DATE.—For purposes of subparagraph (B)— 

(i) IN GENERAL.—Except as otherwise provided in 

this subparagraph, the cut-off date is October 1 of the 

cut-off year. 

(ii) EMPLOYEES WITH ENROLLMENT PERIODS AFTER

OCTOBER 1.—In the case of an individual described in 

subclause (I) of subsection (c)(1)(A)(iii), if the regularly 

scheduled enrollment period for health plans of the individual’s employer occurs during the last 3 months of 

the cut-off year, the cut-off date is December 31 of the 

cut-off year. 

(iii) SELF-EMPLOYED INDIVIDUALS.—In the case of an 

individual described in subclause (II) of subsection 

(c)(1)(A)(iii), the cut-off date is November 1 of the cutoff year. 

(iv) SPECIAL RULES FOR 1997.—If 1997 is a cut-off 

year by reason of subsection (j)(1)(A)— 

(I) each of the cut-off dates under clauses (i) and 

(iii) shall be 1 month earlier than the date determined without regard to this clause, and 

(II) clause (ii) shall be applied by substituting ‘‘4 

months’’ for ‘‘3 months’’. 

(4) MSA-PARTICIPATING EMPLOYER.—For purposes of this 

subsection, the term ‘‘MSA-participating employer’’ means any 

small employer if— 

(A) such employer made any contribution to the Archer 

MSA of any employee during the cut-off year or any preceding calendar year which was excludable from gross income under section 106(b), or 

(B) at least 20 percent of the employees of such employer 

who are eligible individuals for any month of the cut-off 

year by reason of coverage under a high deductible health 

plan of such employer each made a contribution of at least 

$100 to their Archer MSAs for any taxable year ending 

with or within the cut-off year which was allowable as a 

deduction under this section. 

(5) ADDITIONAL ELIGIBILITY AFTER CUT-OFF YEAR.—If the Secretary determines under subsection (j)(2)(A) that the numerical 

limit for the calendar year following a cut-off year described in 

paragraph (2)(B) has not been exceeded— 

(A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible 

health plan during the first 6 months of the second calendar year following the cut-off year (and such individual 

shall be treated as an active MSA participant for purposes 


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29 

of this subsection if a contribution is made to any Archer 

MSA with respect to such coverage), and 

(B) any employer who offers coverage under a high deductible health plan to any employee during such 6-month 

period shall be treated as an MSA-participating employer 

for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage. 

For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by substituting ‘‘750,000’’ for ‘‘600,000’’. 

(j) DETERMINATION OF WHETHER NUMERICAL LIMITS ARE EX- CEEDED.— 

(1) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1997.— 

The numerical limitation for 1997 is exceeded if, based on the 

reports required under paragraph (4), the number of Archer 

MSAs established as of— 

(A) April 30, 1997, exceeds 375,000, or 

(B) June 30, 1997, exceeds 525,000. 

(2) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1998, 

1999, 2001, 2002, 2004, 2005, OR 2006.— 

(A) IN GENERAL.—The numerical limitation for 1998, 

1999, 2001, 2002, 2004, 2005, or 2006 is exceeded if the 

sum of— 

(i) the number of MSA returns filed on or before 

April 15 of such calendar year for taxable years ending 

with or within the preceding calendar year, plus 

(ii) the Secretary’s estimate (determined on the 

basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will 

be filed after such date, 

exceeds 750,000 (600,000 in the case of 1998). For purposes of the preceding sentence, the term ‘‘MSA return’’ 

means any return on which any exclusion is claimed under 

section 106(b) or any deduction is claimed under this section. 

(B) ALTERNATIVE COMPUTATION OF LIMITATION.—The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, 

or 2006 is also exceeded if the sum of— 

(i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus 

(ii) the product of 2.5 and the number of Archer 

MSAs established during the portion of such year preceding July 1 (based on the reports required under 

paragraph (4)) for taxable years beginning in such 

year, 

exceeds 750,000. 

(C) NO LIMITATION FOR 2000 OR 2003.—The numerical limitation shall not apply for 2000 or 2003. 

(3) PREVIOUSLY UNINSURED INDIVIDUALS NOT INCLUDED IN

DETERMINATION.— (A) IN GENERAL.—The determination of whether any calendar year is a cut-off year shall be made by not counting 

the Archer MSA of any previously uninsured individual. 

(B) PREVIOUSLY UNINSURED INDIVIDUAL.—For purposes 

of this subsection, the term ‘‘previously uninsured individual’’ means, with respect to any Archer MSA, any indiVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00029 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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vidual who had no health plan coverage (other than coverage referred to in subsection (c)(1)(B)) at any time during 

the 6-month period before the date such individual’s coverage under the high deductible health plan commences. 

(4) REPORTING BY MSA TRUSTEES.— (A) IN GENERAL.—Not later than August 1 of 1997, 1998, 

1999, 2001, 2002, 2004, 2005, and 2006, each person who 

is the trustee of an Archer MSA established before July 1 

of such calendar year shall make a report to the Secretary 

(in such form and manner as the Secretary shall specify) 

which specifies— 

(i) the number of Archer MSAs established before 

such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee, 

(ii) the name and TIN of the account holder of each 

such account, and 

(iii) the number of such accounts which are accounts 

of previously uninsured individuals. 

(B) ADDITIONAL REPORT FOR 1997.—Not later than June 

1, 1997, each person who is the trustee of an Archer MSA 

established before May 1, 1997, shall make an additional 

report described in subparagraph (A) but only with respect 

to accounts established before May 1, 1997. 

(C) PENALTY FOR FAILURE TO FILE REPORT.—The penalty 

provided in section 6693(a) shall apply to any report required by this paragraph, except that— 

(i) such section shall be applied by substituting ‘‘$25’’ for ‘‘$50’’, and 

(ii) the maximum penalty imposed on any trustee shall not exceed $5,000. 

(D) AGGREGATION OF ACCOUNTS.—To the extent practicable, in determining the number of Archer MSAs on the 

basis of the reports under this paragraph, all Archer MSAs 

of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall 

be treated as 1 account. 

(5) DATE OF MAKING DETERMINATIONS.—Any determination 

under this subsection that a calendar year is a cut-off year 

shall be made by the Secretary and shall be published not later 

than October 1 of such year. 

* * * * * * * 

SEC. 223. HEALTH SAVINGS ACCOUNTS. 

(a) DEDUCTION ALLOWED.—In the case of an individual who is an 

eligible individual for any month during the taxable year, there 

shall be allowed as a deduction for the 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. 

(b) LIMITATIONS.— (1) IN GENERAL.—The amount allowable as a deduction 

under subsection (a) to an individual for the taxable year shall 

not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual. 


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(2) MONTHLY LIMITATION.—The monthly limitation for any 

month is 1⁄12 of— 

(A) in the case of an eligible individual who has selfonly coverage under a high deductible health plan as of 

the first day of such month, $2,250. 

(B) in the case of an eligible individual who has family 

coverage under a high deductible health plan as of the first 

day of such month, $4,500. 

(3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55 OR

OLDER.— 

(A) IN GENERAL.—In the case of an individual who has 

attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of 

paragraph (2) shall be increased by the additional contribution amount. 

(B) ADDITIONAL CONTRIBUTION AMOUNT.—For purposes 

of this section, the additional contribution amount is the 

amount determined in accordance with the following table: 

For taxable years beginning in: The additional contribution amount is: 

2004 $500

2005 $600

2006 $700

2007 $800

2008 $900

2009 and thereafter $1,000. 

(4) COORDINATION WITH OTHER CONTRIBUTIONS.—The limitation which would (but for this paragraph) apply under this 

subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of— 

(A) the aggregate amount paid for such taxable year to 

Archer MSAs of such individual, 

(B) the aggregate amount contributed to health savings 

accounts of such individual which is excludable from the 

taxpayer’s gross income for such taxable year under section 106(d) (and such amount shall not be allowed as a deduction under subsection (a)), and 

(C) the aggregate amount contributed to health savings 

accounts of such individual for such taxable year under 

section 408(d)(9) (and such amount shall not be allowed as 

a deduction under subsection (a)). 

Subparagraph (A) shall not apply with respect to any individual to whom paragraph (5) applies. 

(5) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case of 

individuals who are married to each other, if either spouse has 

family coverage— 

(A) both spouses shall be treated as having only such 

family coverage (and if such spouses each have family coverage under different plans, as having the family coverage 

with the lowest annual deductible), and 

(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))— 


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(i) shall be reduced by the aggregate amount paid to 

Archer MSAs of such spouses for the taxable year, and 

(ii) after such reduction, shall be divided equally between them unless they agree on a different division. 

(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction 

shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to 

another taxpayer for a taxable year beginning in the calendar 

year in which such individual’s taxable year begins. 

(7) MEDICARE ELIGIBLE INDIVIDUALS.—The limitation under 

this subsection for any month with respect to an individual 

shall be zero for the first month such individual is entitled to 

benefits under title XVIII of the Social Security Act and for 

each month thereafter. 

(8) INCREASE IN LIMIT FOR INDIVIDUALS BECOMING ELIGIBLE

INDIVIDUALS AFTER THE BEGINNING OF THE YEAR.— 

(A) IN GENERAL.—For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month 

of such taxable year shall be treated— 

(i) as having been an eligible individual during each 

of the months in such taxable year, and 

(ii) as having been enrolled, during each of the 

months such individual is treated as an eligible individual solely by reason of clause (i), in the same high 

deductible health plan in which the individual was enrolled for the last month of such taxable year. 

(B) FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH

PLAN COVERAGE.— 

(i) IN GENERAL.—If, at any time during the testing 

period, the individual is not an eligible individual, 

then— 

(I) gross income of the individual for the taxable 

year in which occurs the first month in the testing 

period for which such individual is not an eligible 

individual is increased by the aggregate amount of 

all contributions to the health savings account of 

the individual which could not have been made 

but for subparagraph (A), and 

(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 

10 percent of the amount of such increase. 

(ii) EXCEPTION FOR DISABILITY OR DEATH.—Subclauses (I) and (II) of clause (i) shall not apply if the 

individual ceased to be an eligible individual by reason 

of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)). 

(iii) TESTING PERIOD.—The term ‘‘testing period’’ 

means the period beginning with the last month of the 

taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such 

month. 

(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

(1) ELIGIBLE INDIVIDUAL.— 


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(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. 

(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph 

(A)(ii) shall be applied without regard to— 

(i) coverage for any benefit provided by permitted insurance, 

(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, 

or long-term care, and 

(iii) for taxable years beginning after December 31, 

2006, coverage under a health flexible spending arrangement during any period immediately following 

the end of a plan year of such arrangement during 

which unused benefits or contributions remaining at 

the end of such plan year may be paid or reimbursed 

to plan participants for qualified benefit expenses incurred during such period if— 

(I) the balance in such arrangement at the end 

of such plan year is zero, or 

(II) the individual is making a qualified HSA 

distribution (as defined in section 106(e)) in an 

amount equal to the remaining balance in such 

arrangement as of the end of such plan year, in 

accordance with rules prescribed by the Secretary. 

(C) SPECIAL RULE FOR INDIVIDUALS ELIGIBLE FOR CER- TAIN VETERANS BENEFITS.—An individual shall not fail to 

be treated as an eligible individual for any period merely 

because the individual receives hospital care or medical 

services under any law administered by the Secretary of 

Veterans Affairs for a service-connected disability (within 

the meaning of section 101(16) of title 38, United States 

Code). 

(2) HIGH DEDUCTIBLE HEALTH PLAN.— 

(A) IN GENERAL.—The term ‘‘high deductible health 

plan’’ means a health plan— 

(i) which has an annual deductible which is not less 

than— 

(I) $1,000 for self-only coverage, and 

(II) twice the dollar amount in subclause (I) for 

family coverage, and 

(ii) the sum of the annual deductible and the other 

annual out-of-pocket expenses required to be paid 

under the plan (other than for premiums) for covered 

benefits does not exceed— 

(I) $5,000 for self-only coverage, and 


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(II) twice the dollar amount in subclause (I) for 

family coverage. 

(B) EXCLUSION OF CERTAIN PLANS.—Such term does not 

include a health plan if substantially all of its coverage is 

coverage described in paragraph (1)(B). 

(C) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE DE- DUCTIBLE.—A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 

1871 of the Social Security Act, except as otherwise provided by the Secretary). 

(D) SPECIAL RULES FOR NETWORK PLANS.—In the case of 

a plan using a network of providers— 

(i) ANNUAL OUT-OF-POCKET LIMITATION.—Such plan 

shall not fail to be treated as a high deductible health 

plan by reason of having an out-of-pocket limitation 

for services provided outside of such network which 

exceeds the applicable limitation under subparagraph 

(A)(ii). 

(ii) ANNUAL DEDUCTIBLE.—Such plan’s annual deductible for services provided outside of such network 

shall not be taken into account for purposes of subsection (b)(2). 

(3) PERMITTED INSURANCE.—The term ‘‘permitted insurance’’ 

means— 

(A) insurance if substantially all of the coverage provided under such insurance relates to— 

(i) liabilities incurred under workers’ compensation 

laws, 

(ii) tort liabilities, 

(iii) liabilities relating to ownership or use of property, or 

(iv) such other similar liabilities as the Secretary 

may specify by regulations, 

(B) insurance for a specified disease or illness, and 

(C) insurance paying a fixed amount per day (or other 

period) of hospitalization. 

(4) FAMILY COVERAGE.—The term ‘‘family coverage’’ means 

any coverage other than self-only coverage. 

(5) ARCHER MSA.—The term ‘‘Archer MSA’’ has the meaning 

given such term in section 220(d). 

(d) HEALTH SAVINGS ACCOUNT.—For purposes of this section— 

(1) IN GENERAL.—The term ‘‘health savings account’’ means 

a trust created or organized in the United States as a health 

savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the 

written governing instrument creating the trust meets the following requirements: 

(A) Except in the case of a rollover contribution described in subsection (f)(5) or section 220(f)(5), no contribution will be accepted— 

(i) unless it is in cash, or 

(ii) to the extent such contribution, when added to 

previous contributions to the trust for the calendar 

year, exceeds the sum of— 


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35 

(I) the dollar amount in effect under subsection 

(b)(2)(B), and 

(II) the dollar amount in effect under subsection 

(b)(3)(B). 

(B) The trustee is a bank (as defined in section 408(n)), 

an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the 

Secretary that the manner in which such person will administer the trust will be consistent with the requirements 

of this section. 

(C) No part of the trust assets will be invested in life insurance contracts. 

(D) The assets of the trust will not be commingled with 

other property except in a common trust fund or common 

investment fund. 

(E) The interest of an individual in the balance in his account is nonforfeitable. 

(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. Such term shall include an amount paid for 

medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to whether such 

drug is available without a prescription) or is insulin. 

(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.—Subparagraph (A) shall not apply to any payment for insurance. 

(C) EXCEPTIONS.—Subparagraph (B) shall not apply to 

any expense for coverage under— 

(i) a health plan during any period of continuation 

coverage required under any Federal law, 

(ii) a qualified long-term care insurance contract (as 

defined in section 7702B(b)), 

(iii) a health plan during a period in which the individual is receiving unemployment compensation under 

any Federal or State law, or 

(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social 

Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of 

the Social Security Act). 

(3) ACCOUNT BENEFICIARY.—The term ‘‘account beneficiary’’ 

means the individual on whose behalf the health savings account was established. 

(4) CERTAIN RULES TO APPLY.—Rules similar to the following 

rules shall apply for purposes of this section: 

(A) Section 219(d)(2) (relating to no deduction for rollovers). 


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(B) Section 219(f)(3) (relating to time when contributions 

deemed made). 

(C) Except as provided in section 106(d), section 219(f)(5) 

(relating to employer payments). 

(D) Section 408(g) (relating to community property laws). 

(E) Section 408(h) (relating to custodial accounts). 

(e) TAX TREATMENT OF ACCOUNTS.— 

(1) IN GENERAL.—A health savings account is exempt from 

taxation under this subtitle unless such account has ceased to 

be a health savings account. 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) ACCOUNT TERMINATIONS.—Rules similar to the rules of 

paragraphs (2) and (4) of section 408(e) shall apply to health 

savings accounts, and any amount treated as distributed under 

such rules shall be treated as not used to pay qualified medical 

expenses. 

(f) TAX TREATMENT OF DISTRIBUTIONS.— 

(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—Any 

amount paid or distributed out of a health savings account 

which is used exclusively to pay qualified medical expenses of 

any account beneficiary shall not be includible in gross income. 

(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDICAL EXPENSES.—Any amount paid or distributed out of a 

health savings account which is not used exclusively to pay the 

qualified medical expenses of the account beneficiary shall be 

included in the gross income of such beneficiary. 

(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF

RETURN.— 

(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any health savings account of an 

individual, paragraph (2) shall not apply to distributions 

from the health savings accounts of such individual (to the 

extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual 

for such year) if— 

(i) such distribution is received by the individual on 

or before the last day prescribed by law (including extensions of time) for filing such individual’s return for 

such taxable year, and 

(ii) such distribution is accompanied by the amount 

of net income attributable to such excess contribution. 

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

in the gross income of the individual for the taxable year 

in which it is received. 

(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘‘excess contribution’’ means any contribution (other than a rollover contribution described in 

paragraph (5) or section 220(f)(5)) which is neither excludable from gross income under section 106(d) nor deductible 

under this section. 

(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR QUALIFIED MEDICAL EXPENSES.— 


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(A) IN GENERAL.—The tax imposed by this chapter on 

the account beneficiary for any taxable year in which there 

is a payment or distribution from a health savings account 

of such beneficiary which is includible in gross income 

under paragraph (2) shall be increased by 20 percent of 

the amount which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution is 

made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies. 

(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account 

beneficiary attains the age specified in section 1811 of the 

Social Security Act. 

(5) ROLLOVER CONTRIBUTION.—An amount is described in 

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B). 

(A) IN GENERAL.—Paragraph (2) shall not apply to any 

amount paid or distributed from a health savings account 

to the account beneficiary to the extent the amount received is paid into a health savings account for the benefit 

of such beneficiary not later than the 60th day after the 

day on which the beneficiary receives the payment or distribution. 

(B) LIMITATION.—This paragraph shall not apply to any 

amount described in subparagraph (A) received by an individual from a health savings account if, at any time during 

the 1-year period ending on the day of such receipt, such 

individual received any other amount described in subparagraph (A) from a health savings account which was 

not includible in the individual’s gross income because of 

the application of this paragraph. 

(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—For 

purposes of determining the amount of the deduction under 

section 213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated 

as an expense paid for medical care. 

(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The transfer of an individual’s interest in a health savings account to an 

individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 

71(b)(2) shall not be considered a taxable transfer made by 

such individual notwithstanding any other provision of this 

subtitle, and such interest shall, after such transfer, be treated 

as a health savings account with respect to which such spouse 

is the account beneficiary. 

(8) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY.— 

(A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE.— If the account beneficiary’s surviving spouse acquires such 

beneficiary’s interest in a health savings account by reason 

of being the designated beneficiary of such account at the 

death of the account beneficiary, such health savings account shall be treated as if the spouse were the account 

beneficiary. 


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(B) OTHER CASES.— (i) IN GENERAL.—If, by reason of the death of the account beneficiary, any person acquires the account 

beneficiary’s interest in a health savings account in a 

case to which subparagraph (A) does not apply— 

(I) such account shall cease to be a health savings account as of the date of death, and 

(II) an amount equal to the fair market value of 

the assets in such account on such date shall be 

includible if such person is not the estate of such 

beneficiary, in such person’s gross income for the 

taxable year which includes such date, or if such 

person is the estate of such beneficiary, in such 

beneficiary’s gross income for the last taxable year 

of such beneficiary. 

(ii) SPECIAL RULES.— 

(I) REDUCTION OF INCLUSION FOR PREDEATH EX- PENSES.—The amount includible in gross income 

under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified 

medical expenses which were incurred by the decedent before the date of the decedent’s death and 

paid by such person within 1 year after such date. 

(II) DEDUCTION FOR ESTATE TAXES.—An appropriate deduction shall be allowed under section 

691(c) to any person (other than the decedent or 

the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such 

person. 

(g) COST-OF-LIVING ADJUSTMENT.— 

(1) IN GENERAL.—Each dollar amount in subsections (b)(2) 

and (c)(2)(A) shall be increased by an amount equal to— 

(A) such dollar amount, multiplied by 

(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 for ‘‘calendar year 

1992’’ in subparagraph (B) thereof— 

(i) except as provided in clause (ii), ‘‘calendar year 

1997’’, and 

(ii) in the case of each dollar amount in subsection 

(c)(2)(A), ‘‘calendar year 2003’’. 

In the case of adjustments made for any taxable year beginning after 2007, section 1(f)(4) shall be applied for purposes of 

this paragraph by substituting ‘‘March 31’’ for ‘‘August 31’’, 

and the Secretary shall publish the adjusted amounts under 

subsections (b)(2) and (c)(2)(A) for taxable years beginning in 

any calendar year no later than June 1 of the preceding calendar year. 

(2) ROUNDING.—If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest 

multiple of $50. 

(h) REPORTS.—The Secretary may require— 

(1) the trustee of a health savings account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, 


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the return of excess contributions, and such other matters as 

the Secretary determines appropriate, and 

(2) any person who provides an individual with a high deductible health plan to make such reports to the Secretary and 

to the account beneficiary with respect to such plan as the Secretary determines appropriate. 

The reports required by this subsection shall be filed at such time 

and in such manner and furnished to such individuals at such time 

and in such manner as may be required by the Secretary. 

* * * * * * * 

B. CHANGES IN EXISTING LAW PROPOSED BY THE BILL, AS REPORTED

In compliance with clause 3(e)(1)(B) of rule XIII of the Rules of 

the House of Representatives, changes in existing law proposed by 

the bill, as reported, are shown as follows (existing law proposed 

to be omitted is enclosed in black brackets, new matter is printed 

in italics, existing law in which no change is proposed is shown in 

roman): 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e)(1)(B) of rule XIII of the Rules of 

the House of Representatives, changes in existing law proposed by 

the bill, as reported, are shown as follows (existing law proposed 

to be omitted is enclosed in black brackets and existing law in 

which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

* * * * * * * 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter B—Computation of Taxable Income 

* * * * * * * 

PART III—ITEMS SPECIFICALLY EXCLUDED FROM 

GROSS INCOME 

* * * * * * * 

SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH 

PLANS. 

(a) GENERAL RULE.—Except as otherwise provided in this section, gross income of an employee does not include employer-provided coverage under an accident or health plan. 

(b) CONTRIBUTIONS TO ARCHER MSAS.— 

(1) IN GENERAL.—In the case of an employee who is an eligible individual, amounts contributed by such employee’s emVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00039 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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ployer to any Archer MSA 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 220(b)(1) (determined without 

regard to this subsection) 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) SPECIAL RULE FOR DEDUCTION OF EMPLOYER CONTRIBUTIONS.—Any employer contribution to an Archer MSA, if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid. 

(4) EMPLOYER MSA CONTRIBUTIONS 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 Archer 

MSAs of such individual or such individual’s spouse for such 

taxable year. 

(5) MSA CONTRIBUTIONS NOT PART OF COBRA COVERAGE.— Paragraph (1) shall not apply for purposes of section 4980B. 

(6) DEFINITIONS.—For purposes of this subsection, the terms 

‘‘eligible individual’’ and ‘‘Archer MSA’’ have the respective 

meanings given to such terms by section 220. 

(7) CROSS REFERENCE.—For penalty on failure by employer 

to make comparable contributions to the Archer MSAs of comparable employees, see section 4980E. 

(c) INCLUSION OF LONG-TERM CARE BENEFITS PROVIDED

THROUGH FLEXIBLE SPENDING ARRANGEMENTS.— (1) IN GENERAL.—Gross income of an employee shall include 

employer-provided coverage for qualified long-term care services (as defined in section 7702B(c)) to the extent that such 

coverage is provided through a flexible spending or similar arrangement. 

(2) FLEXIBLE SPENDING ARRANGEMENT.—For purposes of this 

subsection, a flexible spending arrangement is a benefit program which provides employees with coverage under which— 

(A) specified incurred expenses may be reimbursed (subject to reimbursement maximums and other reasonable 

conditions), and 

(B) the maximum amount of reimbursement which is 

reasonably available to a participant for such coverage is 

less than 500 percent of the value of such coverage. 

In the case of an insured plan, the maximum amount reasonably available shall be determined on the basis of the underlying coverage. 

(d) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.— (1) IN GENERAL.—In the case of an employee who is an eligible individual (as defined in section 223(c)(1)), amounts contributed by such employee’s employer to any health savings account (as defined in section 223(d)) of such employee shall be 

treated as employer-provided coverage for medical expenses 

under an accident or health plan to the extent such amounts 


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41 

do not exceed the limitation under section 223(b) (determined 

without regard to this subsection) which is applicable to such 

employee for such taxable year. 

(2) SPECIAL RULES.—Rules similar to the rules of paragraphs 

(2), (3), (4), and (5) of subsection (b) shall apply for purposes 

of this subsection. 

(3) CROSS REFERENCE.—For penalty on failure by employer 

to make comparable contributions to the health savings accounts of comparable employees, see section 4980G. 

(e) FSA AND HRA TERMINATIONS TO FUND HSAS.— 

(1) IN GENERAL.—A plan shall not fail to be treated as a 

health flexible spending arrangement or health reimbursement 

arrangement under this section or section 105 merely because 

such plan provides for a qualified HSA distribution. 

(2) QUALIFIED HSA DISTRIBUTION.—The term ‘‘qualified HSA 

distribution’’ means a distribution from a health flexible spending arrangement or health reimbursement arrangement to the 

extent that such distribution— 

(A) does not exceed the lesser of the balance in such arrangement on September 21, 2006, or as of the date of 

such distribution, and 

(B) is contributed by the employer directly to the health 

savings account of the employee before January 1, 2012. 

Such term shall not include more than 1 distribution with respect to any arrangement. 

(3) ADDITIONAL TAX FOR FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COVERAGE.— 

(A) IN GENERAL.—If, at any time during the testing period, the employee is not an eligible individual, then the 

amount of the qualified HSA distribution— 

(i) shall be includible in the gross income of the employee for the taxable year in which occurs the first 

month in the testing period for which such employee 

is not an eligible individual, and 

(ii) the tax imposed by this chapter for such taxable 

year on the employee shall be increased by 10 percent 

of the amount which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Clauses (i) 

and (ii) of subparagraph (A) shall not apply if the employee ceases to be an eligible individual by reason of the 

death of the employee or the employee becoming disabled 

(within the meaning of section 72(m)(7)). 

(4) DEFINITIONS AND SPECIAL RULES.—For purposes of this 

subsection— 

(A) TESTING PERIOD.—The term ‘‘testing period’’ means 

the period beginning with the month in which the qualified HSA distribution is contributed to the health savings 

account and ending on the last day of the 12th month following such month. 

(B) ELIGIBLE INDIVIDUAL.—The term ‘‘eligible individual’’ 

has the meaning given such term by section 223(c)(1). 

(C) TREATMENT AS ROLLOVER CONTRIBUTION.—A qualified HSA distribution shall be treated as a rollover contribution described in section 223(f)(5). 


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(5) TAX TREATMENT RELATING TO DISTRIBUTIONS.—For purposes of this title— 

(A) IN GENERAL.—A qualified HSA distribution shall be 

treated as a payment described in subsection (d). 

(B) COMPARABILITY EXCISE TAX.— (i) IN GENERAL.—Except as provided in clause (ii), 

section 4980G shall not apply to qualified HSA distributions. 

(ii) FAILURE TO OFFER TO ALL EMPLOYEES.—In the 

case of a qualified HSA distribution to any employee, 

the failure to offer such distribution to any eligible individual covered under a high deductible health plan 

of the employer shall (notwithstanding section 

4980G(d)) be treated for purposes of section 4980G as 

a failure to meet the requirements of section 4980G(b). 

ø(f) REIMBURSEMENTS FOR MEDICINE RESTRICTED TO PRESCRIBED

DRUGS AND INSULIN.—For purposes of this section and section 105, 

reimbursement for expenses incurred for a medicine or a drug shall 

be treated as a reimbursement for medical expenses only if such 

medicine or drug is a prescribed drug (determined without regard 

to whether such drug is available without a prescription) or is insulin.¿ 

* * * * * * * 

PART VII—ADDITIONAL ITEMIZED DEDUCTIONS FOR 

INDIVIDUALS 

* * * * * * * 

SEC. 220. ARCHER MSAS. 

(a) DEDUCTION ALLOWED.—In the case of an individual who is an 

eligible individual for any month during the taxable year, there 

shall be allowed as a deduction for the taxable year an amount 

equal to the aggregate amount paid in cash during such taxable 

year by such individual to an Archer MSA of such individual. 

(b) LIMITATIONS.— 

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

under subsection (a) to an individual for the taxable year shall 

not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual. 

(2) MONTHLY LIMITATION.—The monthly limitation for any 

month is the amount equal to 1/12 of— 

(A) in the case of an individual who has self-only coverage under the high deductible health plan as of the first 

day of such month, 65 percent of the annual deductible 

under such coverage, and 

(B) in the case of an individual who has family coverage 

under the high deductible health plan as of the first day 

of such month, 75 percent of the annual deductible under 

such coverage. 

(3) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case of 

individuals who are married to each other, if either spouse has 

family coverage— 

(A) both spouses shall be treated as having only such 

family coverage (and if such spouses each have family covVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00042 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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43 

erage under different plans, as having the family coverage 

with the lowest annual deductible), and 

(B) the limitation under paragraph (1) (after the application of subparagraph (A) of this paragraph) shall be divided equally between them unless they agree on a different division. 

(4) DEDUCTION NOT TO EXCEED COMPENSATION.— 

(A) EMPLOYEES.—The deduction allowed under subsection (a) for contributions as an eligible individual described in subclause (I) of subsection (c)(1)(A)(iii) shall not 

exceed such individual’s wages, salaries, tips, and other 

employee compensation which are attributable to such individual’s employment by the employer referred to in such 

subclause. 

(B) SELF-EMPLOYED INDIVIDUALS.—The deduction allowed under subsection (a) for contributions as an eligible 

individual described in subclause (II) of subsection 

(c)(1)(A)(iii) shall not exceed such individual’s earned income (as defined in section 401(c)(1)) derived by the taxpayer from the trade or business with respect to which the 

high deductible health plan is established. 

(C) COMMUNITY PROPERTY LAWS NOT TO APPLY.—The 

limitations under this paragraph shall be determined without regard to community property laws. 

(5) COORDINATION WITH EXCLUSION FOR EMPLOYER CONTRIBUTIONS.—No deduction shall be allowed under this section for 

any amount paid for any taxable year to an Archer MSA of an 

individual if— 

(A) any amount is contributed to any Archer MSA of 

such individual for such year which is excludable from 

gross income under section 106(b), or 

(B) if such individual’s spouse is covered under the high 

deductible health plan covering such individual, any 

amount is contributed for such year to any Archer MSA of 

such spouse which is so excludable. 

(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction 

shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to 

another taxpayer for a taxable year beginning in the calendar 

year in which such individual’s taxable year begins. 

(7) MEDICARE ELIGIBLE INDIVIDUALS.—The limitation under 

this subsection for any month with respect to an individual 

shall be zero for the first month such individual is entitled to 

benefits under title XVIII of the Social Security Act and for 

each month thereafter. 

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

(1) ELIGIBLE INDIVIDUAL.— 

(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, 

(ii) such individual is not, while covered under a 

high deductible health plan, covered under any health 

plan— 


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44 

(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, and 

(iii) 

(I) the high deductible health plan covering such 

individual is established and maintained by the 

employer of such individual or of the spouse of 

such individual and such employer is a small employer, or 

(II) such individual is an employee (within the 

meaning of section 401(c)(1)) or the spouse of such 

an employee and the high deductible health plan 

covering such individual is not established or 

maintained by any employer of such individual or 

spouse. 

(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph 

(A)(ii) shall be applied without regard to— 

(i) coverage for any benefit provided by permitted insurance, and 

(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, 

or long-term care. 

(C) CONTINUED ELIGIBILITY OF EMPLOYEE AND SPOUSE

ESTABLISHING ARCHER MSAS.—If, while an employer is a 

small employer— 

(i) any amount is contributed to an Archer MSA of 

an individual who is an employee of such employer or 

the spouse of such an employee, and 

(ii) such amount is excludable from gross income 

under section 106(b) or allowable as a deduction under 

this section, 

such individual shall not cease to meet the requirement of 

subparagraph (A)(iii)(I) by reason of such employer ceasing 

to be a small employer so long as such employee continues 

to be an employee of such employer. 

(D) LIMITATIONS ON ELIGIBILITY.—For limitations on 

number of taxpayers who are eligible to have Archer 

MSAs, see subsection (i). 

(2) HIGH DEDUCTIBLE HEALTH PLAN.— 

(A) IN GENERAL.—The term ‘‘high deductible health 

plan’’ means a health plan— 

(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,500 and not 

more than $2,250, 

(ii) in the case of family coverage, which has an annual deductible which is not less than $3,000 and not 

more than $4,500, and 

(iii) the annual out-of-pocket expenses required to be 

paid under the plan (other than for premiums) for covered benefits does not exceed— 

(I) $3,000 for self-only coverage, and 

(II) $5,500 for family coverage. 

(B) SPECIAL RULES.— 


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(i) EXCLUSION OF CERTAIN PLANS.—Such term does 

not include a health plan if substantially all of its coverage is coverage described in paragraph (1)(B). 

(ii) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE

DEDUCTIBLE.—A plan shall not fail to be treated as a 

high deductible health plan by reason of failing to 

have a deductible for preventive care if the absence of 

a deductible for such care is required by State law. 

(3) PERMITTED INSURANCE.—The term ‘‘permitted insurance’’ 

means— 

(A) insurance if substantially all of the coverage provided under such insurance relates to— 

(i) liabilities incurred under workers’ compensation 

laws, 

(ii) tort liabilities, 

(iii) liabilities relating to ownership or use of property, or 

(iv) such other similar liabilities as the Secretary 

may specify by regulations, 

(B) insurance for a specified disease or illness, and 

(C) insurance paying a fixed amount per day (or other 

period) of hospitalization. 

(4) SMALL EMPLOYER.— 

(A) IN GENERAL.—The term ‘‘small employer’’ means, 

with respect to any calendar year, any employer if such 

employer employed an average of 50 or fewer employees on 

business days during either of the 2 preceding calendar 

years. For purposes of the preceding sentence, a preceding 

calendar year may be taken into account only if the employer was in existence throughout such year. 

(B) EMPLOYERS NOT IN EXISTENCE IN PRECEDING YEAR.— 

In the case of an employer which was not in existence 

throughout the 1st preceding calendar year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected 

such employer will employ on business days in the current 

calendar year. 

(C) CERTAIN GROWING EMPLOYERS RETAIN TREATMENT AS

SMALL EMPLOYER.—The term ‘‘small employer’’ includes, 

with respect to any calendar year, any employer if— 

(i) such employer met the requirement of subparagraph (A) (determined without regard to subparagraph 

(B)) for any preceding calendar year after 1996, 

(ii) any amount was contributed to the Archer MSA 

of any employee of such employer with respect to coverage of such employee under a high deductible health 

plan of such employer during such preceding calendar 

year and such amount was excludable from gross income under section 106(b) or allowable as a deduction 

under this section, and 

(iii) such employer employed an average of 200 or 

fewer employees on business days during each preceding calendar year after 1996. 

(D) SPECIAL RULES.— 


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(i) CONTROLLED GROUPS.—For purposes of this paragraph, all persons treated as a single employer under 

subsection (b), (c), (m), or (o) of section 414 shall be 

treated as 1 employer. 

(ii) PREDECESSORS.—Any reference in this paragraph to an employer shall include a reference to any 

predecessor of such employer. 

(5) FAMILY COVERAGE.—The term ‘‘family coverage’’ means 

any coverage other than self-only coverage. 

(d) ARCHER MSA.—For purposes of this section— 

(1) ARCHER MSA.—The term ‘‘Archer MSA’’ means a trust 

created or organized in the United States as a medical savings 

account exclusively for the purpose of paying the qualified 

medical expenses of the account holder, but only if the written 

governing instrument creating the trust meets the following requirements: 

(A) Except in the case of a rollover contribution described in subsection (f)(5), no contribution will be accepted— 

(i) unless it is in cash, or 

(ii) to the extent such contribution, when added to 

previous contributions to the trust for the calendar 

year, exceeds 75 percent of the highest annual limit 

deductible permitted under subsection (c)(2)(A)(ii) for 

such calendar year. 

(B) The trustee is a bank (as defined in section 408(n)), 

an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the 

Secretary that the manner in which such person will administer the trust will be consistent with the requirements 

of this section. 

(C) No part of the trust assets will be invested in life insurance contracts. 

(D) The assets of the trust will not be commingled with 

other property except in a common trust fund or common 

investment fund. 

(E) The interest of an individual in the balance in his account is nonforfeitable. 

(2) QUALIFIED MEDICAL EXPENSES.— (A) IN GENERAL.—The term ‘‘qualified medical expenses’’ 

means, with respect to an account holder, amounts paid by 

such holder 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. øSuch 

term shall include an amount paid for medicine or a drug 

only if such medicine or drug is a prescribed drug (determined without regard to whether such drug is available 

without a prescription) or is insulin.¿ 

(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.— 

(i) IN GENERAL.—Subparagraph (A) shall not apply 

to any payment for insurance. 


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47 

(ii) EXCEPTIONS.—Clause (i) shall not apply to any 

expense for coverage under— 

(I) a health plan during any period of continuation coverage required under any Federal law, 

(II) a qualified long-term care insurance contract (as defined in section 7702B(b)), or 

(III) a health plan during a period in which the 

individual is receiving unemployment compensation under any Federal or State law. 

(C) MEDICAL EXPENSES OF INDIVIDUALS WHO ARE NOT EL- IGIBLE INDIVIDUALS.—Subparagraph (A) shall apply to an 

amount paid by an account holder for medical care of an 

individual who is not described in clauses (i) and (ii) of 

subsection (c)(1)(A)for the month in which the expense for 

such care is incurred only if no amount is contributed 

(other than a rollover contribution) to any Archer MSA of 

such account holder for the taxable year which includes 

such month. This subparagraph shall not apply to any expense for coverage described in subclause (I) or (III) of subparagraph (B)(ii). 

(3) ACCOUNT HOLDER.—The term ‘‘account holder’’ means the 

individual on whose behalf the Archer MSA was established. 

(4) CERTAIN RULES TO APPLY.—Rules similar to the following 

rules shall apply for purposes of this section: 

(A) Section 219(d)(2) (relating to no deduction for rollovers). 

(B) Section 219(f)(3) (relating to time when contributions 

deemed made). 

(C) Except as provided in section 106(b), section 219(f)(5) 

(relating to employer payments). 

(D) Section 408(g) (relating to community property laws). 

(E) Section 408(h) (relating to custodial accounts). 

(e) TAX TREATMENT OF ACCOUNTS.— (1) IN GENERAL.—An Archer MSA is exempt from taxation 

under this subtitle unless such account has ceased to be an Archer MSA. 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) ACCOUNT TERMINATIONS.—Rules similar to the rules of 

paragraphs (2) and (4) of section 408(e) shall apply to Archer 

MSAs, and any amount treated as distributed under such rules 

shall be treated as not used to pay qualified medical expenses. 

(f) TAX TREATMENT OF DISTRIBUTIONS.— 

(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—Any 

amount paid or distributed out of an Archer MSA which is 

used exclusively to pay qualified medical expenses of any account holder shall not be includible in gross income. 

(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MED- ICAL EXPENSES.—Any amount paid or distributed out of an Archer MSA which is not used exclusively to pay the qualified 

medical expenses of the account holder shall be included in the 

gross income of such holder. 

(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF

RETURN.— 


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(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any Archer MSA of an individual, paragraph (2) shall not apply to distributions from 

the Archer MSAs of such individual (to the extent such 

distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) 

if— 

(i) such distribution is received by the individual on 

or before the last day prescribed by law (including extensions of time) for filing such individual’s return for 

such taxable year, and 

(ii) such distribution is accompanied by the amount 

of net income attributable to such excess contribution. 

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

in the gross income of the individual for the taxable year 

in which it is received. 

(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘‘excess contribution’’ means any contribution (other than a rollover contribution) which is neither excludable from gross income under section 106(b) nor 

deductible under this section. 

(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR QUALIFIED MEDICAL EXPENSES.— 

(A) IN GENERAL.—The tax imposed by this chapter on 

the account holder for any taxable year in which there is 

a payment or distribution from an Archer MSA of such 

holder which is includible in gross income under paragraph (2) shall be increased by 20 percent of the amount 

which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution is 

made after the account holder becomes disabled within the 

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

(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account 

holder attains the age specified in section 1811 of the Social Security Act. 

(5) ROLLOVER CONTRIBUTION.—An amount is described in 

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B). 

(A) IN GENERAL.—Paragraph (2) shall not apply to any 

amount paid or distributed from an Archer MSA to the account holder to the extent the amount received is paid into 

an Archer MSA or a health savings account (as defined in 

section 223(d)) for the benefit of such holder not later than 

the 60th day after the day on which the holder receives 

the payment or distribution. 

(B) LIMITATION.—This paragraph shall not apply to any 

amount described in subparagraph (A) received by an individual from an Archer MSA if, at any time during the 1- 

year period ending on the day of such receipt, such individual received any other amount described in subparagraph (A) from an Archer MSA which was not includible 


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in the individual’s gross income because of the application 

of this paragraph. 

(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—For 

purposes of determining the amount of the deduction under 

section 213, any payment or distribution out of an Archer MSA 

for qualified medical expenses shall not be treated as an expense paid for medical care. 

(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The transfer of an individual’s interest in an Archer MSA to an individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2) 

shall not be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and 

such interest shall, after such transfer, be treated as an Archer 

MSA with respect to which such spouse is the account holder. 

(8) TREATMENT AFTER DEATH OF ACCOUNT HOLDER.— 

(A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE.— 

If the account holder’s surviving spouse acquires such 

holder’s interest in an Archer MSA by reason of being the 

designated beneficiary of such account at the death of the 

account holder, such Archer MSA shall be treated as if the 

spouse were the account holder. 

(B) OTHER CASES.— (i) IN GENERAL.—If, by reason of the death of the account holder, any person acquires the account holder’s 

interest in an Archer MSA in a case to which subparagraph (A) does not apply— 

(I) such account shall cease to be an Archer 

MSA as of the date of death, and 

(II) an amount equal to the fair market value of 

the assets in such account on such date shall be 

includible if such person is not the estate of such 

holder, in such person’s gross income for the taxable year which includes such date, or if such person is the estate of such holder, in such holder’s 

gross income for the last taxable year of such 

holder. 

(ii) SPECIAL RULES.— (I) REDUCTION OF INCLUSION FOR PRE-DEATH EX- PENSES.—The amount includible in gross income 

under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified 

medical expenses which were incurred by the decedent before the date of the decedent’s death and 

paid by such person within 1 year after such date. 

(II) DEDUCTION FOR ESTATE TAXES.—An appropriate deduction shall be allowed under section 

691(c) to any person (other than the decedent or 

the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such 

person. 

(g) COST-OF-LIVING ADJUSTMENT.—In the case of any taxable 

year beginning in a calendar year after 1998, each dollar amount 

in subsection (c)(2) shall be increased by an amount equal to— 

(1) such dollar amount, multiplied by 


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50 

(2) the cost-of-living adjustment determined under section 

1(f)(3) for the calendar year in which such taxable year begins 

by substituting ‘‘calendar year 1997’’ for ‘‘calendar year 1992’’ 

in subparagraph (B) thereof. 

If any increase under the preceding sentence is not a multiple of 

$50, such increase shall be rounded to the nearest multiple of $50. 

(h) REPORTS.—The Secretary may require the trustee of an Archer MSA to make such reports regarding such account to the Secretary and to the account holder with respect to contributions, distributions, and such other matters as the Secretary determines appropriate. The reports required by this subsection shall be filed at 

such time and in such manner and furnished to such individuals 

at such time and in such manner as may be required by the Secretary. 

(i) LIMITATION ON NUMBER OF TAXPAYERS HAVING ARCHER

MSAS.— 

(1) IN GENERAL.—Except as provided in paragraph (5), no individual shall be treated as an eligible individual for any taxable year beginning after the cut-off year unless— 

(A) such individual was an active MSA participant for 

any taxable year ending on or before the close of the cutoff year, or 

(B) such individual first became an active MSA participant for a taxable year ending after the cut-off year by 

reason of coverage under a high deductible health plan of 

an MSA-participating employer. 

(2) CUT-OFF YEAR.—For purposes of paragraph (1), the term 

‘‘cut-off year’’ means the earlier of— 

(A) calendar year 2007, or 

(B) the first calendar year before 2007 for which the Secretary determines under subsection (j) that the numerical 

limitation for such year has been exceeded. 

(3) ACTIVE MSA PARTICIPANT.—For purposes of this subsection— 

(A) IN GENERAL.—The term ‘‘active MSA participant’’ 

means, with respect to any taxable year, any individual 

who is the account holder of any Archer MSA into which 

any contribution was made which was excludable from 

gross income under section 106(b), or allowable as a deduction under this section, for such taxable year. 

(B) SPECIAL RULE FOR CUT-OFF YEARS BEFORE 2007.—In 

the case of a cut-off year before 2007— 

(i) an individual shall not be treated as an eligible 

individual for any month of such year or an active 

MSA participant under paragraph (1)(A) unless such 

individual is, on or before the cut-off date, covered 

under a high deductible health plan, and 

(ii) an employer shall not be treated as an MSA-participating employer unless the employer, on or before 

the cut-off date, offered coverage under a high deductible health plan to any employee. 

(C) CUT-OFF DATE.—For purposes of subparagraph (B)— 

(i) IN GENERAL.—Except as otherwise provided in 

this subparagraph, the cut-off date is October 1 of the 

cut-off year. 


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(ii) EMPLOYEES WITH ENROLLMENT PERIODS AFTER

OCTOBER 1.—In the case of an individual described in 

subclause (I) of subsection (c)(1)(A)(iii), if the regularly 

scheduled enrollment period for health plans of the individual’s employer occurs during the last 3 months of 

the cut-off year, the cut-off date is December 31 of the 

cut-off year. 

(iii) SELF-EMPLOYED INDIVIDUALS.—In the case of an 

individual described in subclause (II) of subsection 

(c)(1)(A)(iii), the cut-off date is November 1 of the cutoff year. 

(iv) SPECIAL RULES FOR 1997.—If 1997 is a cut-off 

year by reason of subsection (j)(1)(A)— 

(I) each of the cut-off dates under clauses (i) and 

(iii) shall be 1 month earlier than the date determined without regard to this clause, and 

(II) clause (ii) shall be applied by substituting ‘‘4 

months’’ for ‘‘3 months’’. 

(4) MSA-PARTICIPATING EMPLOYER.—For purposes of this 

subsection, the term ‘‘MSA-participating employer’’ means any 

small employer if— 

(A) such employer made any contribution to the Archer 

MSA of any employee during the cut-off year or any preceding calendar year which was excludable from gross income under section 106(b), or 

(B) at least 20 percent of the employees of such employer 

who are eligible individuals for any month of the cut-off 

year by reason of coverage under a high deductible health 

plan of such employer each made a contribution of at least 

$100 to their Archer MSAs for any taxable year ending 

with or within the cut-off year which was allowable as a 

deduction under this section. 

(5) ADDITIONAL ELIGIBILITY AFTER CUT-OFF YEAR.—If the Secretary determines under subsection (j)(2)(A) that the numerical 

limit for the calendar year following a cut-off year described in 

paragraph (2)(B) has not been exceeded— 

(A) this subsection shall not apply to any otherwise eligible individual who is covered under a high deductible 

health plan during the first 6 months of the second calendar year following the cut-off year (and such individual 

shall be treated as an active MSA participant for purposes 

of this subsection if a contribution is made to any Archer 

MSA with respect to such coverage), and 

(B) any employer who offers coverage under a high deductible health plan to any employee during such 6-month 

period shall be treated as an MSA-participating employer 

for purposes of this subsection if the requirements of paragraph (4) are met with respect to such coverage. 

For purposes of this paragraph, subsection (j)(2)(A) shall be applied for 1998 by substituting ‘‘750,000’’ for ‘‘600,000’’. 

(j) DETERMINATION OF WHETHER NUMERICAL LIMITS ARE EXCEEDED.— 

(1) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1997.— 

The numerical limitation for 1997 is exceeded if, based on the 


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52 

reports required under paragraph (4), the number of Archer 

MSAs established as of— 

(A) April 30, 1997, exceeds 375,000, or 

(B) June 30, 1997, exceeds 525,000. 

(2) DETERMINATION OF WHETHER LIMIT EXCEEDED FOR 1998, 

1999, 2001, 2002, 2004, 2005, OR 2006.— 

(A) IN GENERAL.—The numerical limitation for 1998, 

1999, 2001, 2002, 2004, 2005, or 2006 is exceeded if the 

sum of— 

(i) the number of MSA returns filed on or before 

April 15 of such calendar year for taxable years ending 

with or within the preceding calendar year, plus 

(ii) the Secretary’s estimate (determined on the 

basis of the returns described in clause (i)) of the number of MSA returns for such taxable years which will 

be filed after such date, 

exceeds 750,000 (600,000 in the case of 1998). For purposes of the preceding sentence, the term ‘‘MSA return’’ 

means any return on which any exclusion is claimed under 

section 106(b) or any deduction is claimed under this section. 

(B) ALTERNATIVE COMPUTATION OF LIMITATION.—The numerical limitation for 1998, 1999, 2001, 2002, 2004, 2005, 

or 2006 is also exceeded if the sum of— 

(i) 90 percent of the sum determined under subparagraph (A) for such calendar year, plus 

(ii) the product of 2.5 and the number of Archer 

MSAs established during the portion of such year preceding July 1 (based on the reports required under 

paragraph (4)) for taxable years beginning in such 

year, 

exceeds 750,000. 

(C) NO LIMITATION FOR 2000 OR 2003.—The numerical limitation shall not apply for 2000 or 2003. 

(3) PREVIOUSLY UNINSURED INDIVIDUALS NOT INCLUDED IN

DETERMINATION.— 

(A) IN GENERAL.—The determination of whether any calendar year is a cut-off year shall be made by not counting 

the Archer MSA of any previously uninsured individual. 

(B) PREVIOUSLY UNINSURED INDIVIDUAL.—For purposes 

of this subsection, the term ‘‘previously uninsured individual’’ means, with respect to any Archer MSA, any individual who had no health plan coverage (other than coverage referred to in subsection (c)(1)(B)) at any time during 

the 6-month period before the date such individual’s coverage under the high deductible health plan commences. 

(4) REPORTING BY MSA TRUSTEES.— 

(A) IN GENERAL.—Not later than August 1 of 1997, 1998, 

1999, 2001, 2002, 2004, 2005, and 2006, each person who 

is the trustee of an Archer MSA established before July 1 

of such calendar year shall make a report to the Secretary 

(in such form and manner as the Secretary shall specify) 

which specifies— 


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53 

(i) the number of Archer MSAs established before 

such July 1 (for taxable years beginning in such calendar year) of which such person is the trustee, 

(ii) the name and TIN of the account holder of each 

such account, and 

(iii) the number of such accounts which are accounts 

of previously uninsured individuals. 

(B) ADDITIONAL REPORT FOR 1997.—Not later than June 

1, 1997, each person who is the trustee of an Archer MSA 

established before May 1, 1997, shall make an additional 

report described in subparagraph (A) but only with respect 

to accounts established before May 1, 1997. 

(C) PENALTY FOR FAILURE TO FILE REPORT.—The penalty 

provided in section 6693(a) shall apply to any report required by this paragraph, except that— 

(i) such section shall be applied by substituting 

‘‘$25’’ for ‘‘$50’’, and 

(ii) the maximum penalty imposed on any trustee 

shall not exceed $5,000. 

(D) AGGREGATION OF ACCOUNTS.—To the extent practicable, in determining the number of Archer MSAs on the 

basis of the reports under this paragraph, all Archer MSAs 

of an individual shall be treated as 1 account and all accounts of individuals who are married to each other shall 

be treated as 1 account. 

(5) DATE OF MAKING DETERMINATIONS.—Any determination 

under this subsection that a calendar year is a cut-off year 

shall be made by the Secretary and shall be published not later 

than October 1 of such year. 

* * * * * * * 

SEC. 223. HEALTH SAVINGS ACCOUNTS. 

(a) DEDUCTION ALLOWED.—In the case of an individual who is an 

eligible individual for any month during the taxable year, there 

shall be allowed as a deduction for the 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. 

(b) LIMITATIONS.— 

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

under subsection (a) to an individual for the taxable year shall 

not exceed the sum of the monthly limitations for months during such taxable year that the individual is an eligible individual. 

(2) MONTHLY LIMITATION.—The monthly limitation for any 

month is 1⁄12 of— 

(A) in the case of an eligible individual who has selfonly coverage under a high deductible health plan as of 

the first day of such month, $2,250. 

(B) in the case of an eligible individual who has family 

coverage under a high deductible health plan as of the first 

day of such month, $4,500. 

(3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55 OR

OLDER.— 


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54 

(A) IN GENERAL.—In the case of an individual who has 

attained age 55 before the close of the taxable year, the applicable limitation under subparagraphs (A) and (B) of 

paragraph (2) shall be increased by the additional contribution amount. 

(B) ADDITIONAL CONTRIBUTION AMOUNT.—For purposes 

of this section, the additional contribution amount is the 

amount determined in accordance with the following table: 

For taxable years beginning in: The additional contribution amount is: 

2004 $500

2005 $600

2006 $700

2007 $800

2008 $900

2009 and thereafter $1,000. 

(4) COORDINATION WITH OTHER CONTRIBUTIONS.—The limitation which would (but for this paragraph) apply under this 

subsection to an individual for any taxable year shall be reduced (but not below zero) by the sum of— 

(A) the aggregate amount paid for such taxable year to 

Archer MSAs of such individual, 

(B) the aggregate amount contributed to health savings 

accounts of such individual which is excludable from the 

taxpayer’s gross income for such taxable year under section 106(d) (and such amount shall not be allowed as a deduction under subsection (a)), and 

(C) the aggregate amount contributed to health savings 

accounts of such individual for such taxable year under 

section 408(d)(9) (and such amount shall not be allowed as 

a deduction under subsection (a)). 

Subparagraph (A) shall not apply with respect to any individual to whom paragraph (5) applies. 

(5) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case of 

individuals who are married to each other, if either spouse has 

family coverage— 

(A) both spouses shall be treated as having only such 

family coverage (and if such spouses each have family coverage under different plans, as having the family coverage 

with the lowest annual deductible), and 

(B) the limitation under paragraph (1) (after the application of subparagraph (A) and without regard to any additional contribution amount under paragraph (3))— 

(i) shall be reduced by the aggregate amount paid to 

Archer MSAs of such spouses for the taxable year, and 

(ii) after such reduction, shall be divided equally between them unless they agree on a different division. 

(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction 

shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to 

another taxpayer for a taxable year beginning in the calendar 

year in which such individual’s taxable year begins. 


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55 

(7) MEDICARE ELIGIBLE INDIVIDUALS.—The limitation under 

this subsection for any month with respect to an individual 

shall be zero for the first month such individual is entitled to 

benefits under title XVIII of the Social Security Act and for 

each month thereafter. 

(8) INCREASE IN LIMIT FOR INDIVIDUALS BECOMING ELIGIBLE

INDIVIDUALS AFTER THE BEGINNING OF THE YEAR.— (A) IN GENERAL.—For purposes of computing the limitation under paragraph (1) for any taxable year, an individual who is an eligible individual during the last month 

of such taxable year shall be treated— 

(i) as having been an eligible individual during each 

of the months in such taxable year, and 

(ii) as having been enrolled, during each of the 

months such individual is treated as an eligible individual solely by reason of clause (i), in the same high 

deductible health plan in which the individual was enrolled for the last month of such taxable year. 

(B) FAILURE TO MAINTAIN HIGH DEDUCTIBLE HEALTH

PLAN COVERAGE.— 

(i) IN GENERAL.—If, at any time during the testing 

period, the individual is not an eligible individual, 

then— 

(I) gross income of the individual for the taxable 

year in which occurs the first month in the testing 

period for which such individual is not an eligible 

individual is increased by the aggregate amount of 

all contributions to the health savings account of 

the individual which could not have been made 

but for subparagraph (A), and 

(II) the tax imposed by this chapter for any taxable year on the individual shall be increased by 

10 percent of the amount of such increase. 

(ii) EXCEPTION FOR DISABILITY OR DEATH.—Subclauses (I) and (II) of clause (i) shall not apply if the 

individual ceased to be an eligible individual by reason 

of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)). 

(iii) TESTING PERIOD.—The term ‘‘testing period’’ 

means the period beginning with the last month of the 

taxable year referred to in subparagraph (A) and ending on the last day of the 12th month following such 

month. 

(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

(1) ELIGIBLE INDIVIDUAL.— 

(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 


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56 

(II) which provides coverage for any benefit 

which is covered under the high deductible health 

plan. 

(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph 

(A)(ii) shall be applied without regard to— 

(i) coverage for any benefit provided by permitted insurance, 

(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, 

or long-term care, and 

(iii) for taxable years beginning after December 31, 

2006, coverage under a health flexible spending arrangement during any period immediately following 

the end of a plan year of such arrangement during 

which unused benefits or contributions remaining at 

the end of such plan year may be paid or reimbursed 

to plan participants for qualified benefit expenses incurred during such period if— 

(I) the balance in such arrangement at the end 

of such plan year is zero, or 

(II) the individual is making a qualified HSA 

distribution (as defined in section 106(e)) in an 

amount equal to the remaining balance in such 

arrangement as of the end of such plan year, in 

accordance with rules prescribed by the Secretary. 

(C) SPECIAL RULE FOR INDIVIDUALS ELIGIBLE FOR CER- TAIN VETERANS BENEFITS.—An individual shall not fail to 

be treated as an eligible individual for any period merely 

because the individual receives hospital care or medical 

services under any law administered by the Secretary of 

Veterans Affairs for a service-connected disability (within 

the meaning of section 101(16) of title 38, United States 

Code). 

(2) HIGH DEDUCTIBLE HEALTH PLAN.— 

(A) IN GENERAL.—The term ‘‘high deductible health 

plan’’ means a health plan— 

(i) which has an annual deductible which is not less 

than— 

(I) $1,000 for self-only coverage, and 

(II) twice the dollar amount in subclause (I) for 

family coverage, and 

(ii) the sum of the annual deductible and the other 

annual out-of-pocket expenses required to be paid 

under the plan (other than for premiums) for covered 

benefits does not exceed— 

(I) $5,000 for self-only coverage, and 

(II) twice the dollar amount in subclause (I) for 

family coverage. 

(B) EXCLUSION OF CERTAIN PLANS.—Such term does not 

include a health plan if substantially all of its coverage is 

coverage described in paragraph (1)(B). 

(C) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE DE- DUCTIBLE.—A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section 


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57 

1871 of the Social Security Act, except as otherwise provided by the Secretary). 

(D) SPECIAL RULES FOR NETWORK PLANS.—In the case of 

a plan using a network of providers— 

(i) ANNUAL OUT-OF-POCKET LIMITATION.—Such plan 

shall not fail to be treated as a high deductible health 

plan by reason of having an out-of-pocket limitation 

for services provided outside of such network which 

exceeds the applicable limitation under subparagraph 

(A)(ii). 

(ii) ANNUAL DEDUCTIBLE.—Such plan’s annual deductible for services provided outside of such network 

shall not be taken into account for purposes of subsection (b)(2). 

(3) PERMITTED INSURANCE.—The term ‘‘permitted insurance’’ 

means— 

(A) insurance if substantially all of the coverage provided under such insurance relates to— 

(i) liabilities incurred under workers’ compensation 

laws, 

(ii) tort liabilities, 

(iii) liabilities relating to ownership or use of property, or 

(iv) such other similar liabilities as the Secretary 

may specify by regulations, 

(B) insurance for a specified disease or illness, and 

(C) insurance paying a fixed amount per day (or other 

period) of hospitalization. 

(4) FAMILY COVERAGE.—The term ‘‘family coverage’’ means 

any coverage other than self-only coverage. 

(5) ARCHER MSA.—The term ‘‘Archer MSA’’ has the meaning 

given such term in section 220(d). 

(d) HEALTH SAVINGS ACCOUNT.—For purposes of this section— 

(1) IN GENERAL.—The term ‘‘health savings account’’ means 

a trust created or organized in the United States as a health 

savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if the 

written governing instrument creating the trust meets the following requirements: 

(A) Except in the case of a rollover contribution described in subsection (f)(5) or section 220(f)(5), no contribution will be accepted— 

(i) unless it is in cash, or 

(ii) to the extent such contribution, when added to 

previous contributions to the trust for the calendar 

year, exceeds the sum of— 

(I) the dollar amount in effect under subsection 

(b)(2)(B), and 

(II) the dollar amount in effect under subsection 

(b)(3)(B). 

(B) The trustee is a bank (as defined in section 408(n)), 

an insurance company (as defined in section 816), or another person who demonstrates to the satisfaction of the 

Secretary that the manner in which such person will adVerDate Sep 11 2014 06:16 Oct 27, 2015 Jkt 059006 PO 00000 Frm 00057 Fmt 6659 Sfmt 6602 E:\HR\OC\HR308.XXX HR308

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58 

minister the trust will be consistent with the requirements 

of this section. 

(C) No part of the trust assets will be invested in life insurance contracts. 

(D) The assets of the trust will not be commingled with 

other property except in a common trust fund or common 

investment fund. 

(E) The interest of an individual in the balance in his account is nonforfeitable. 

(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. øSuch term shall include an amount paid for 

medicine or a drug only if such medicine or drug is a prescribed drug (determined without regard to whether such 

drug is available without a prescription) or is insulin.¿ 

(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.—Subparagraph (A) shall not apply to any payment for insurance. 

(C) EXCEPTIONS.—Subparagraph (B) shall not apply to 

any expense for coverage under— 

(i) a health plan during any period of continuation 

coverage required under any Federal law, 

(ii) a qualified long-term care insurance contract (as 

defined in section 7702B(b)), 

(iii) a health plan during a period in which the individual is receiving unemployment compensation under 

any Federal or State law, or 

(iv) in the case of an account beneficiary who has attained the age specified in section 1811 of the Social 

Security Act, any health insurance other than a medicare supplemental policy (as defined in section 1882 of 

the Social Security Act). 

(3) ACCOUNT BENEFICIARY.—The term ‘‘account beneficiary’’ 

means the individual on whose behalf the health savings account was established. 

(4) CERTAIN RULES TO APPLY.—Rules similar to the following 

rules shall apply for purposes of this section: 

(A) Section 219(d)(2) (relating to no deduction for rollovers). 

(B) Section 219(f)(3) (relating to time when contributions 

deemed made). 

(C) Except as provided in section 106(d), section 219(f)(5) 

(relating to employer payments). 

(D) Section 408(g) (relating to community property laws). 

(E) Section 408(h) (relating to custodial accounts). 

(e) TAX TREATMENT OF ACCOUNTS.— 

(1) IN GENERAL.—A health savings account is exempt from 

taxation under this subtitle unless such account has ceased to 


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59 

be a health savings account. 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) ACCOUNT TERMINATIONS.—Rules similar to the rules of 

paragraphs (2) and (4) of section 408(e) shall apply to health 

savings accounts, and any amount treated as distributed under 

such rules shall be treated as not used to pay qualified medical 

expenses. 

(f) TAX TREATMENT OF DISTRIBUTIONS.— (1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—Any 

amount paid or distributed out of a health savings account 

which is used exclusively to pay qualified medical expenses of 

any account beneficiary shall not be includible in gross income. 

(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDICAL EXPENSES.—Any amount paid or distributed out of a 

health savings account which is not used exclusively to pay the 

qualified medical expenses of the account beneficiary shall be 

included in the gross income of such beneficiary. 

(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE OF

RETURN.— 

(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any health savings account of an 

individual, paragraph (2) shall not apply to distributions 

from the health savings accounts of such individual (to the 

extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual 

for such year) if— 

(i) such distribution is received by the individual on 

or before the last day prescribed by law (including extensions of time) for filing such individual’s return for 

such taxable year, and 

(ii) such distribution is accompanied by the amount 

of net income attributable to such excess contribution. 

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

in the gross income of the individual for the taxable year 

in which it is received. 

(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘‘excess contribution’’ means any contribution (other than a rollover contribution described in 

paragraph (5) or section 220(f)(5)) which is neither excludable from gross income under section 106(d) nor deductible 

under this section. 

(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR QUALIFIED MEDICAL EXPENSES.— 

(A) IN GENERAL.—The tax imposed by this chapter on 

the account beneficiary for any taxable year in which there 

is a payment or distribution from a health savings account 

of such beneficiary which is includible in gross income 

under paragraph (2) shall be increased by 20 percent of 

the amount which is so includible. 

(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution is 

made after the account beneficiary becomes disabled within the meaning of section 72(m)(7) or dies. 


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60 

(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE ELI- GIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account 

beneficiary attains the age specified in section 1811 of the 

Social Security Act. 

(5) ROLLOVER CONTRIBUTION.—An amount is described in 

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B). 

(A) IN GENERAL.—Paragraph (2) shall not apply to any 

amount paid or distributed from a health savings account 

to the account beneficiary to the extent the amount received is paid into a health savings account for the benefit 

of such beneficiary not later than the 60th day after the 

day on which the beneficiary receives the payment or distribution. 

(B) LIMITATION.—This paragraph shall not apply to any 

amount described in subparagraph (A) received by an individual from a health savings account if, at any time during 

the 1-year period ending on the day of such receipt, such 

individual received any other amount described in subparagraph (A) from a health savings account which was 

not includible in the individual’s gross income because of 

the application of this paragraph. 

(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—For 

purposes of determining the amount of the deduction under 

section 213, any payment or distribution out of a health savings account for qualified medical expenses shall not be treated 

as an expense paid for medical care. 

(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The transfer of an individual’s interest in a health savings account to an 

individual’s spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 

71(b)(2) shall not be considered a taxable transfer made by 

such individual notwithstanding any other provision of this 

subtitle, and such interest shall, after such transfer, be treated 

as a health savings account with respect to which such spouse 

is the account beneficiary. 

(8) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY.— (A) TREATMENT IF DESIGNATED BENEFICIARY IS SPOUSE.— If the account beneficiary’s surviving spouse acquires such 

beneficiary’s interest in a health savings account by reason 

of being the designated beneficiary of such account at the 

death of the account beneficiary, such health savings account shall be treated as if the spouse were the account 

beneficiary. 

(B) OTHER CASES.— 

(i) IN GENERAL.—If, by reason of the death of the account beneficiary, any person acquires the account 

beneficiary’s interest in a health savings account in a 

case to which subparagraph (A) does not apply— 

(I) such account shall cease to be a health savings account as of the date of death, and 

(II) an amount equal to the fair market value of 

the assets in such account on such date shall be 

includible if such person is not the estate of such 


SSpencer on DSK4SPTVN1PROD with REPORTS
61 

beneficiary, in such person’s gross income for the 

taxable year which includes such date, or if such 

person is the estate of such beneficiary, in such 

beneficiary’s gross income for the last taxable year 

of such beneficiary. 

(ii) SPECIAL RULES.— (I) REDUCTION OF INCLUSION FOR PREDEATH EX- PENSES.—The amount includible in gross income 

under clause (i) by any person (other than the estate) shall be reduced by the amount of qualified 

medical expenses which were incurred by the decedent before the date of the decedent’s death and 

paid by such person within 1 year after such date. 

(II) DEDUCTION FOR ESTATE TAXES.—An appropriate deduction shall be allowed under section 

691(c) to any person (other than the decedent or 

the decedent’s spouse) with respect to amounts included in gross income under clause (i) by such 

person. 

(g) COST-OF-LIVING ADJUSTMENT.— (1) IN GENERAL.—Each dollar amount in subsections (b)(2) 

and (c)(2)(A) shall be increased by an amount equal to— 

(A) such dollar amount, multiplied by 

(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 for ‘‘calendar year 

1992’’ in subparagraph (B) thereof— 

(i) except as provided in clause (ii), ‘‘calendar year 

1997’’, and 

(ii) in the case of each dollar amount in subsection 

(c)(2)(A), ‘‘calendar year 2003’’. 

In the case of adjustments made for any taxable year beginning after 2007, section 1(f)(4) shall be applied for purposes of 

this paragraph by substituting ‘‘March 31’’ for ‘‘August 31’’, 

and the Secretary shall publish the adjusted amounts under 

subsections (b)(2) and (c)(2)(A) for taxable years beginning in 

any calendar year no later than June 1 of the preceding calendar year. 

(2) ROUNDING.—If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest 

multiple of $50. 

(h) REPORTS.—The Secretary may require— 

(1) the trustee of a health savings account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, 

the return of excess contributions, and such other matters as 

the Secretary determines appropriate, and 

(2) any person who provides an individual with a high deductible health plan to make such reports to the Secretary and 

to the account beneficiary with respect to such plan as the Secretary determines appropriate. 

The reports required by this subsection shall be filed at such time 

and in such manner and furnished to such individuals at such time 

and in such manner as may be required by the Secretary. 

* * * * * * * 


SSpencer on DSK4SPTVN1PROD with REPORTS
(62) 

VII. ADDITIONAL VIEWS 

I am concerned about H.R. 1270—the Restoring Access to Medication Act of 2015—because it costs $6.6 billion in lost tax revenue 

and this revenue loss is not offset. When combined with the other 

bills under consideration at the committee’s markup, the total cost 

of lost revenue is over $400 billion over the next ten years—and 

the Majority did not set forth any options to pay for this cost. Not 

one cost offset option was offered by the Majority at the markup. 

It is unacceptable in this time of fiscal austerity to not pay the cost 

of these bills. It is irresponsible to add over $400 billion in lost revenue to the deficit. 

This bill also continues the Majority’s attempts to repeal the Affordable Care Act (ACA) without offering a replacement. H.R. 1270 

would repeal a cost offset that helps pay for the ACA—our landmark health reform legislation that was both fully paid for and is 

now delivering affordable, comprehensive health insurance coverage to millions of Americans. While the Majority continues to attack the ACA, they have yet to offer replacement health reform legislation that would extend affordable, comprehensive coverage to 

the uninsured. 

Sincerely, 

SANDER M. LEVIN. 

Æ 


SSpencer on DSK4SPTVN1PROD with REPORTS