Item

Present Law

1757(Mitchell)
S. 1775(Moynihan)

S. 1579 (Breaux)

S. 1770 (Chafee)

S. 1743 (Nickles)

7. Medical savings accounts

No provision. However,
present law provides
taxpayers with some ability to
pay for unreimbursed medical
expenses on a tax-favored
basis through flexible
spending arrangements
(FSAs) and individual
retirement arrangements
(IRAs).

FSAs are reimbursement
accounts or similar
arrangements under which an
employee can be reimbursed
for health care expenses not
covered by insurance.
Amounts remaining in an
FSA at the end of the year
must be forfeited; they cannot
be used for expenses in a
subsequent year.

Individuals can make
deductible contributions to an
TRA of up to $2,000 per year.
Amounts withdrawn from an
TRA can be used for any
purpose, including to pay
medical expenses. Amounts
withdrawn from IRAs are
includible in income and
subject to an additional 10
percent excise tax if the
withdrawal is made before
age 59-1/2. The 10-percent
additional tax does not apply
fo amounts that would be

No provision.

No provision.

Individuals covered by a
catastrophic health plan are
permitted to deduct
contributions to a medical
savings account (MSA), ‘The
maximum deductible
contribution is the excess of
(1) the applicable dollar limit
for the individual over (2)
amounts paid by or on behalf
of the individual for the
catastrophic health plan.
‘Amounts contributed to an
MSA are not taxed until
withdrawn, Withdrawals that
are used for medical care are
excluded from gross income.
Withdrawals that are not used
for medical are includible in
gross income and are subject
to additional taxes.

Individuals are permitted a
nonrefundable tax credit equal
to 25 percent of contributions
to an MSA up to certain
limits. The maximum tax
credit is 25 percent of the
sum of (1) $3,000 and (2)
$500 for each dependent
covered by the MSA.
Amounts contributed to an
MSA are not subject to tax
until withdrawn.

Withdrawals that are used for
medical care are excluded
from gross income.
Withdrawals that are not used
for medical care are
includible in gross income
and are subject to additional
taxes.


Item

Present Law

S. 1757(Mitchell)
S. 1775(Moynihan)

S. 1579 (Breaux)

S. 1770 (Chafee)

S. 1743 (Nickles)

5. Individual deduction for
‘medical expenses

6. Tax credit for health
care expenses

Individuals who itemize
deductions may deduct
amounts paid during the year
for medical care of the
taxpayer, and the taxpayer's
spouse and dependents, to the
extent the total of such
expenses exceeds 7.5 percent
of the taxpayer's adjusted
gross income.

No provision.

Retains present law.

No provision.

The bill permits individuals
to deduct from gross income
the cost of coverage under an
AHP up to the reference
premium rate for the
individual, ‘The amount
deductible is reduced by
amounts paid by any other
entity for such coverage (¢.g.,
an employer or governmental
entity). The present-law rules
continue to apply to other
medical expenses.

No provision.

‘The bill permits individuals
to deduct from gross income
the cost of coverage under a
qualified health plan up to the
applicable dollar limit for the

|. The amount
deductible is reduced by
‘amounts paid by any other
entity for such coverage. ‘The
present-law rules continue to
apply to other medical
expenses,

No provision.

‘The bill repeals the itemized
medical expense deduction.

‘The bill provides a
refundable tax credit for
persons enrolled in a federally
qualified health insurance plan
for health insurance premiums
and other medical care. The
amount of the credit is the
sum of (1) 25 percent of
expenses that do not exceed
10 percent of adjusted gross
income (AGI), (2) 50 percent
of expenses that exceed 10
but not 20 percent of AGI,
and 75 percent of expenses
that exceed 20 percent of
AGI. The credit can be
obtained on an advance basis
in a manner similar to the
way in which the earned
income tax credit is provided
on an advance basis,



SUMMARY COMPARISON OF SELECTED PROVISIONS
IN S. 1757, S. 1775, S. 1579, S. 1770, AND S. 1743

RELATING TO THE TAX TREATMENT OF HEALTH CARE

Scheduled for a Hearing
Before the
SENATE COMMITTEE ON FINANCE

on April 26, 1994

Prepared by the Staff
of the

JOINT COMMITTEE ON TAXATION

April 26, 1994

ICK-4-94



Item

Present Law

S. 1757(Mitchell)
S. 1775(Moynihan)

S, 1579 (Breaux)

S. 1770 (Chafee)

S. 1743 (Nickles)

1. Exclusion for employer-
provided health care

2, Employer deduction

3. Excise tax on employer-
provided health care

Employer-provided health
care is excluded from income
and payroll taxes. There is
no limit on the exclusion.

Businesses can deduct
employer-provided health care
as a business expense.

No provision.

‘The exclusion applies only
with respect to the
comprehensive benefit
package provided

under the bill, including
coverage of cost-sharing
amounts. Supplemental
coverage is includible in
income. Health care cannot
be provided under a cafeteria
plan.

Retains present law.

Retains present law.

‘The bill retains the
present-law exclusion for
employer-provided health
benefits and extends it to
amounts paid by a partnership
or a subchapter S corporation
for health care for its partners
or shareholder-employees.

Retains present law.

The bill imposes a 34

employers with excess health
expenses. Excess health
expenses include all health
plan expenses that are not
attributable to coverage under
an accountable health plan
(AHP). In addition, expenses
attributable to coverage under
an AHP are excess health
expenses (1) if the employer's
contribution is not uniform
for a premium class
regardless of which plan is
selected, (2) if, in the case of
an employer with 100 or few
employees, the employer
contribution is not made for
coverage through a health
plan purchasing cooperative
(HPPC), and (3) to the extent

‘The exclusion applies only
to the extent the cost of the
coverage does not exceed the
cost of the average premium
for the lowest priced one-half
of standard benefit packages
available in the health care
coverage area (the “applicable
dollar limit"). Separate limits
apply for each class of
enrollment based on the age
of the principal enrollee.

‘The employer deduction for
‘employer-provided health care
for any employee is limited to
the applicable dollar limit for
the employee.

Retains present law.

‘The exclusion for employer-

provided health care is

repealed.

Retains present law.

Retains present law.



Item

Present Law

S. 1757(Mitchell)
S. 1775(Moynihan)

S. 1579 (Breaux)

S. 1770 (Chafee)

S. 1743 (Nickles)

4, Deduction for health
insurance expenses of self-

Present law does not have a
special deduction for the
health insurance expenses of
self-employed individuals.
However, prior to January 1,
1994, self-employed
individuals could deduct 25
percent of the cost of health
insurance expenses for
themselves and their spouses
and dependents.

After the provisions of the
health care reform portions of
the bill are effective, the bill
provides a permanent
deduction for self-employed
individuals of up to 100
percent of the cost of the
comprehensive benefit
package. The deductible
percentage for self-employed
individuals who do not pay
100 percent of the weighted
average premium (as
determined under the bill) for
cach of their employees
would be reduced to the
lowest percentage paid by the
individual for the health
coverage of any of its
employees. The 25-percent
deduction continues until the
100 percent deduction
becomes effective.

the expenses for a particular
employee exceed the
employee's reference
premium rate. The reference
premium rate is the lowest
premium for a plan offered in
the HPPC area for the
individual's premium class.

‘The bill extends the 25-
percent deduction through
1994. (A drafting change
muy be needed to accomplish
this intent.) For 1995 and
subsequent years, the bill
provides a permanent
deduction for 100 percent of
the cost of coverage under an
AHP to the extent the
expenses do not exceed the
reference premium rate for
the individual.

After the health care
reform provisions of the bill
are effective, the bill provides
a permanent 100-percent
deduction for the cost of
coverage purchased from a
qualified health plan, up to
the applicable dollar limit.
‘The bill extends the 25-
percent deduction until the
100-percent deduction
becomes effective.

Retains present law. (A
drafting change may be
needed to accomplish this
intent.)