II 

109TH CONGRESS 

2D SESSION S. 3488 

To amend the Internal Revenue Code of 1986 to expand the permissible 

use of health savings accounts to include health insurance payments, 

to increase the dollar limitation for contributions to health savings accounts, to allow the rollover of unused funds from health reimbursement 

arrangements to health savings accounts, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 9, 2006 

Mr. COBURN (for himself, Mr. DEMINT, Mr. INHOFE, Mr. CORNYN, and Mr. 

VITTER) introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to expand 

the permissible use of health savings accounts to include 

health insurance payments, to increase the dollar limitation for contributions to health savings accounts, to allow 

the rollover of unused funds from health reimbursement 

arrangements to health savings accounts, and for other 

purposes. 

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


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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

2 (a) SHORT TITLE.—This Act may be cited as the 

3 ‘‘Tax-Free Healthcare Savings, Access, and Portability 

4 Act’’. 

5 (b) TABLE OF CONTENTS.—The table of contents for 

6 this Act is as follows: 

Sec. 1. Short title; table of contents. 

Sec. 2. Expansion of health savings accounts. 

Sec. 3. Exception to requirement for employers to make comparable health savings account contributions. 

Sec. 4. Deduction of premiums for high deductible health plans. 

Sec. 5. Credit for certain employment taxes paid with respect to premiums for 

high deductible health plans and contributions to health savings accounts. 

Sec. 6. HSA-qualified insurance portability. 

7 SEC. 2. EXPANSION OF HEALTH SAVINGS ACCOUNTS. 

8 (a) USE OF ACCOUNT FOR INDIVIDUAL HIGH DE9 DUCTIBLE HEALTH PLAN PREMIUMS.—Section 

10 223(d)(2)(C) of the Internal Revenue Code of 1986 (relat11 ing to exceptions) is amended by striking ‘‘or’’ at the end 

12 of clause (iii), by striking the period at the end of clause 

13 (iv) and inserting ‘‘, or’’, and by adding at the end the 

14 following new clause: 

15 ‘‘(v) a high deductible health plan, but 

16 only if— 

17 ‘‘(I) the plan is not a group 

18 health plan (as defined in section 

19 5000(b)(1) without regard to section 

20 5000(d)), and 


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1 ‘‘(II) the expenses are for cov2 erage for a month with respect to 

3 which the account beneficiary is an el4 igible individual by reason of the cov5 erage under the plan. 

6 For purposes of clause (v), an arrangement 

7 which constitutes individual health insurance 

8 shall not be treated as a group health plan, not9 withstanding that an employer or employee or10 ganization negotiates the cost of benefits of 

11 such arrangement.’’. 

12 (b) SPECIAL RULE FOR CERTAIN MEDICAL EX13 PENSES INCURRED BEFORE ESTABLISHMENT OF AC14 COUNT.—Section 223(d)(2) of the Internal Revenue Code 

15 of 1986 (relating to qualified medical expenses) is amend16 ed by adding at the end the following new subparagraph: 

17 ‘‘(D) CERTAIN MEDICAL EXPENSES IN18 CURRED BEFORE ESTABLISHMENT OF ACCOUNT

19 TREATED AS QUALIFIED.—An expense shall not 

20 fail to be treated as a qualified medical expense 

21 solely because such expense was incurred before 

22 the establishment of the health savings account 

23 if such expense was incurred— 

24 ‘‘(i) during either— 


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1 ‘‘(I) the taxable year in which the 

2 health savings account was estab3 lished, or 

4 ‘‘(II) the preceding taxable year 

5 in the case of a health savings ac6 count established after the taxable 

7 year in which such expense was in8 curred but before the time prescribed 

9 by law for filing the return for such 

10 taxable year (not including extensions 

11 thereof), and 

12 ‘‘(ii) for medical care of an individual 

13 during the period beginning on the date 

14 such individual first became an eligible in15 dividual. 

16 For purposes of clause (ii), an individual shall 

17 be treated as an eligible individual for any por18 tion of a month the individual is described in 

19 subsection (c)(1), determined without regard to 

20 whether the individual is covered under a high 

21 deductible health plan on the 1st day of such 

22 month.’’. 

23 (c) INCREASE IN MONTHLY CONTRIBUTION LIMIT.— 


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

2 223(b) of the Internal Revenue Code of 1986 (relat3 ing to limitations) is amended to read as follows: 

4 ‘‘(2) MONTHLY LIMITATION.— 

5 ‘‘(A) IN GENERAL.—In the case of an eligi6 ble individual who has coverage under a high 

7 deductible health plan, the monthly limitation 

for any month of such coverage is 1 8 ⁄12 of the 

9 lesser of— 

10 ‘‘(i) the sum of the annual deductible 

11 and the other annual out-of-pocket ex12 penses (other than for premiums) required 

13 to be paid under the plan by the eligible 

14 individual for covered benefits, or 

15 ‘‘(ii) in the case of an eligible indi16 vidual with— 

17 ‘‘(I) self-only coverage, the dollar 

18 amount in effect under subclause (I) 

19 of subsection (c)(2)(A)(ii), or 

20 ‘‘(II) family coverage, the dollar 

21 amount in effect under subclause (II) 

22 of subsection (c)(2)(A)(ii). 

23 ‘‘(B) SPECIAL RULES RELATING TO OUT24 OF-POCKET EXPENSES.— 


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1 ‘‘(i) REDUCTION FOR SEPARATE

2 PLAN.—The annual out-of-pocket expenses 

3 taken into account under subparagraph 

4 (A)(i) with respect to any eligible indi5 vidual shall be reduced by any out-of-pock6 et expense payable under a separate plan 

7 covering the individual. 

8 ‘‘(ii) SECRETARIAL AUTHORITY.—The 

9 Secretary may by regulations provide that 

10 annual out-of-pocket expenses will not be 

11 taken into account under subparagraph 

12 (A)(i) to the extent that there is only a re13 mote likelihood that such amounts will be 

14 required to be paid.’’. 

15 (2) APPLICATION OF SPECIAL RULES FOR MAR16 RIED INDIVIDUALS.—Paragraph (5) of section 

17 223(b) of such Code (relating to limitations) is 

18 amended to read as follows: 

19 ‘‘(5) SPECIAL RULES FOR MARRIED INDIVID20 UALS.— 

21 ‘‘(A) IN GENERAL.—In the case of individ22 uals who are married to each other and who are 

23 both eligible individuals, the limitation under 

24 paragraph (1) for each spouse shall be equal to 


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1 the spouse’s applicable share of the combined 

2 marital limit. 

3 ‘‘(B) COMBINED MARITAL LIMIT.—For 

4 purposes of subparagraph (A), the combined 

5 marital limit is the excess (if any) of— 

6 ‘‘(i) the lesser of— 

7 ‘‘(I) subject to subparagraph (C), 

8 the sum of the limitations computed 

9 separately under paragraph (1) for 

10 each spouse (including any additional 

11 contribution amount under paragraph 

12 (3)), or 

13 ‘‘(II) the dollar amount in effect 

14 under subsection (c)(2)(A)(ii)(II), 

15 over 

16 ‘‘(ii) the aggregate amount paid to 

17 Archer MSAs of such spouses for the tax18 able year. 

19 ‘‘(C) SPECIAL RULE WHERE BOTH

20 SPOUSES HAVE FAMILY COVERAGE UNDER

21 SAME PLAN.—For purposes of subparagraph 

22 (B)(i)(I), if either spouse has family coverage 

23 which covers both spouses, both spouses shall 

24 be treated as having only such coverage (and if 

25 both spouses each have such coverage under 


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1 different plans, shall be treated as having only 

2 family coverage with the plan with respect to 

3 which the lowest amount is determined under 

4 paragraph (2)(A)(i)). 

5 ‘‘(D) APPLICABLE SHARE.—For purposes 

6 of subparagraph (A), a spouse’s applicable 

7 share is one-half of the combined marital limit 

8 unless both spouses agree on a different divi9 sion. 

10 ‘‘(E) COUPLES NOT MARRIED ENTIRE

11 YEAR.—The Secretary shall prescribe rules for 

12 the application of this paragraph in the case of 

13 any taxable year for which the individuals were 

14 not married to each other during all months in15 cluded in the taxable year, including rules 

16 which allow individuals in appropriate cases to 

17 take into account coverage prior to marriage in 

18 computing the combined marital limit for pur19 poses of this paragraph.’’. 

20 (3) SELF-ONLY COVERAGE.—Paragraph (4) of 

21 section 223(c) of such Code (relating to definitions 

22 and special rules) is amended to read as follows: 

23 ‘‘(4) COVERAGE.— 


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1 ‘‘(A) FAMILY COVERAGE.—The term ‘fam2 ily coverage’ means any coverage other than 

3 self-only coverage. 

4 ‘‘(B) SELF-ONLY COVERAGE.—If more 

5 than 1 individual is covered by a high deduct6 ible health plan but only 1 of the individuals is 

7 an eligible individual, the coverage shall be 

8 treated as self-only coverage.’’. 

9 (4) CONFORMING AMENDMENTS.— 

10 (A) Section 223(b)(3)(A) of such Code is 

11 amended by striking ‘‘subparagraphs (A) and 

12 (B) of’’. 

13 (B) Section 223(d)(1)(A)(ii)(I) of such 

14 Code is amended by striking ‘‘subsection 

15 (b)(2)(B)(ii)’’ and inserting ‘‘subsection 

16 (c)(2)(A)(ii)(II)’’. 

17 (C) Clause (ii) of section 223(c)(2)(D) of 

18 such Code is amended to read as follows: 

19 ‘‘(ii) CERTAIN ITEMS DISREGARDED

20 IN COMPUTING MONTHLY LIMITATION.— 

21 Such plan’s annual deductible, and such 

22 plan’s annual out-of-pocket limitation, for 

23 services provided outside of such network 

24 shall not be taken into account for pur25 poses of subsection (b)(2).’’ 


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1 (D) Paragraph (1) of section 223(g) of 

2 such Code is amended to read as follows: 

3 ‘‘(1) IN GENERAL.—Each dollar amount in sub4 section (c)(2)(A) shall be increased by an amount 

5 equal to— 

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

7 ‘‘(B) the cost-of-living adjustment deter8 mined under section 1(f)(3) for the calendar 

9 year in which such taxable year begins deter10 mined by substituting ‘calendar year 1997’ for 

11 ‘calendar year 1992’ in subparagraph (B) 

12 thereof.’’. 

13 (d) CERTAIN HEALTH REIMBURSEMENT ARRANGE14 MENT ROLLOVERS PERMITTED.— 

15 (1) ROLLOVER FROM HEALTH REIMBURSEMENT

16 ARRANGEMENT PERMITTED.—For purposes of the 

17 Internal Revenue Code of 1986, a health reimburse18 ment arrangement (as defined by rulings in effect on 

19 the date of the enactment of this Act) shall not fail 

20 to be treated as such an arrangement if such ar21 rangement allows for the distribution within 1 year 

22 after the last day of the taxable year in which such 

23 date of enactment occurs of the remaining balance 

24 (determined as of such last day) of the amount to 

25 be received in reimbursements under such arrangeVerDate Aug 31 2005 02:26 Jun 10, 2006 Jkt 049200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3488.IS S3488

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1 ment into a health savings account established pur2 suant to section 223 of such Code for the benefit of 

3 the beneficiary of such arrangement. 

4 (2) ROLLOVER TO HEALTH SAVINGS ACCOUNT

5 PERMITTED.—Section 223(f) of the Internal Rev6 enue Code of 1986 (relating to tax treatment of dis7 tributions) is amended by adding at the end the fol8 lowing new paragraph: 

9 ‘‘(9) HEALTH REIMBURSEMENT ARRANGEMENT

10 ROLLOVER CONTRIBUTION.— 

11 ‘‘(A) IN GENERAL.—An amount is de12 scribed in this paragraph as a rollover contribu13 tion if such amount is described in section 

14 2(c)(1) of the Tax-Free Healthcare Savings, 

15 Access, and Portability Act and is paid or dis16 tributed from a health reimbursement arrange17 ment established for the benefit of the account 

18 beneficiary to a health savings account of such 

19 account beneficiary. Any rollover contribution 

20 described in the preceding sentence shall not be 

21 considered an employer contribution for pur22 poses of section 4980G. 

23 ‘‘(B) TAX TREATMENT RELATING TO CON24 TRIBUTIONS.—For purposes of this title— 


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1 ‘‘(i) INCOME TAX.—Gross income 

2 shall not include the amount of any con3 tribution under this paragraph. 

4 ‘‘(ii) EMPLOYMENT TAXES.—Amounts 

5 contributed under this paragraph shall be 

6 treated as a payment described in section 

7 106(d). 

8 ‘‘(iii) COMPARABILITY EXCISE TAX.— 

9 Section 4980G shall not apply to contribu10 tions made under this paragraph.’’. 

11 (3) CONFORMING AMENDMENTS.— 

12 (A) Section 223(d)(1)(A) of such Code is 

13 amended by inserting ‘‘or (f)(9)’’ after ‘‘(f)(5)’’. 

14 (B) Section 223(f)(3)(B) of such Code is 

15 amended by inserting ‘‘or (9)’’ after ‘‘para16 graph (5)’’. 

17 (e) EFFECTIVE DATE.—The provisions of, and 

18 amendments made by, this section shall apply to taxable 

19 years beginning after December 31, 2006. 

20 SEC. 3. EXCEPTION TO REQUIREMENT FOR EMPLOYERS TO 

21 MAKE COMPARABLE HEALTH SAVINGS AC22 COUNT CONTRIBUTIONS. 

23 (a) GREATER EMPLOYER-PROVIDED CONTRIBU24 TIONS TO HSAS FOR ACUTELY OR CHRONICALLY ILL EM25 PLOYEES TREATED AS MEETING COMPARABILITY REVerDate Aug 31 2005 02:26 Jun 10, 2006 Jkt 049200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S3488.IS S3488

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1 QUIREMENTS.—Subsection (b) of section 4980G of the In2 ternal Revenue Code of 1986 (relating to failure of em3 ployer to make comparable health savings account con4 tributions) is amended to read as follows: 

5 ‘‘(b) RULES AND REQUIREMENTS.— 

6 ‘‘(1) IN GENERAL.—Except as provided in para7 graph (2), rules and requirements similar to the 

8 rules and requirements of section 4980E shall apply 

9 for purposes of this section. 

10 ‘‘(2) TREATMENT OF EMPLOYER-PROVIDED

11 CONTRIBUTIONS TO HSAS FOR ACUTELY OR CHRON12 ICALLY ILL EMPLOYEES.—For purposes of this sec13 tion— 

14 ‘‘(A) IN GENERAL.—Any contribution by 

15 an employer to a health savings account of an 

16 employee who is (or the spouse or any depend17 ent of the employee who is) an acutely or 

18 chronically ill individual in an amount which is 

19 greater than a contribution to a health savings 

20 account of a comparable participating employee 

21 who is not an acutely or chronically ill indi22 vidual shall not fail to be considered a com23 parable contribution. 

24 ‘‘(B) NONDISCRIMINATION REQUIRE25 MENT.—Subparagraph (A) shall not apply unVerDate Aug 31 2005 02:26 Jun 10, 2006 Jkt 049200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S3488.IS S3488

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1 less the excess employer contributions described 

2 in subparagraph (A) are the same for all acute3 ly or chronically ill individuals who are similarly 

4 situated. 

5 ‘‘(C) ACUTELY OR CHRONICALLY ILL INDI6 VIDUAL.—For purposes of this paragraph, the 

7 term ‘acutely or chronically ill individual’ means 

8 any individual whose qualified medical expenses 

9 for any taxable year (based on age and health 

10 status) are more than 50 percent greater than 

11 the average qualified medical expenses of all 

12 employees of the employer for such year.’’. 

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

14 this section shall apply to taxable years beginning after 

15 December 31, 2006. 

16 SEC. 4. DEDUCTION OF PREMIUMS FOR HIGH DEDUCTIBLE 

17 HEALTH PLANS. 

18 (a) IN GENERAL.—Part VII of subchapter B of chap19 ter 1 of the Internal Revenue Code of 1986 (relating to 

20 additional itemized deductions for individuals) is amended 

21 by redesignating section 224 as section 225 and by insert22 ing after section 223 the following new section: 


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1 ‘‘SEC. 224. PREMIUMS FOR HIGH DEDUCTIBLE HEALTH 

2 PLANS. 

3 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi4 vidual, there shall be allowed as a deduction for the tax5 able year the aggregate amount paid by such individual 

6 as premiums under a high deductible health plan with re7 spect to months during such year for which such indi8 vidual is an eligible individual with respect to such health 

9 plan. 

10 ‘‘(b) DEFINITIONS.—For purposes of this section— 

11 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible 

12 individual’ has the meaning given such term by sec13 tion 223(c)(1). 

14 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—The 

15 term ‘high deductible health plan’ has the meaning 

16 given such term by section 223(c)(2). 

17 ‘‘(c) SPECIAL RULES.— 

18 ‘‘(1) DEDUCTION LIMITS.— 

19 ‘‘(A) DEDUCTION ALLOWABLE FOR ONLY 1

20 PLAN.—For purposes of this section, in the 

21 case of an individual covered by more than 1 

22 high deductible health plan for any month, the 

23 individual may only take into account amounts 

24 paid for such month for the plan with the low25 est premium. 


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1 ‘‘(B) PLANS COVERING INELIGIBLE INDI2 VIDUALS.—If 2 or more individuals are covered 

3 by a high deductible health plan for any month 

4 but only 1 of such individuals is an eligible indi5 vidual for such month, only 50 percent of the 

6 aggregate amount paid by such eligible indi7 vidual as premiums under the plan with respect 

8 to such month shall be taken into account for 

9 purposes of this section. 

10 ‘‘(2) GROUP HEALTH PLAN COVERAGE.— 

11 ‘‘(A) IN GENERAL.—No deduction shall be 

12 allowed to an individual under subsection (a) 

13 for any amount paid for coverage under a high 

14 deductible health plan for a month if that indi15 vidual participates in any coverage under a 

16 group health plan (within the meaning of sec17 tion 5000 without regard to section 5000(d)). 

18 ‘‘(B) EXCEPTION FOR PLANS ONLY PRO19 VIDING CONTRIBUTIONS TO HEALTH SAVINGS

20 ACCOUNTS.—Subparagraph (A) shall not apply 

21 to an individual if the individual’s only coverage 

22 under a group health plan for a month consists 

23 of contributions by an employer to a health sav24 ings account with respect to which the indi25 vidual is the account beneficiary. 


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1 ‘‘(C) EXCEPTION FOR CERTAIN PER2 MITTED COVERAGE.—Subparagraph (A) shall 

3 not apply to an individual if the individual’s 

4 only coverage under a group health plan for a 

5 month is coverage described in clause (i) or (ii) 

6 of section 223(c)(1)(B). 

7 ‘‘(3) MEDICAL AND HEALTH SAVINGS AC8 COUNTS.—Subsection (a) shall not apply with re9 spect to any amount which is paid or distributed out 

10 of an Archer MSA or a health savings account which 

11 is not included in gross income under section 220(f) 

12 or 223(f), as the case may be. 

13 ‘‘(4) COORDINATION WITH DEDUCTION FOR

14 HEALTH INSURANCE OF SELF-EMPLOYED INDIVID15 UALS.—Any amount taken into account by the tax16 payer in computing the deduction under section 

17 162(l) shall not be taken into account under this 

18 section. 

19 ‘‘(5) COORDINATION WITH MEDICAL EXPENSE

20 DEDUCTION.—Any amount taken into account by 

21 the taxpayer in computing the deduction under this 

22 section shall not be taken into account under section 

23 213.’’. 

24 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI25 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Section 62(a) 


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1 of the Internal Revenue Code of 1986 (defining adjusted 

2 gross income) is amended by inserting before the last sen3 tence at the end the following new paragraph: 

4 ‘‘(21) PREMIUMS FOR HIGH DEDUCTIBLE

5 HEALTH PLANS.—The deduction allowed by section 

6 224.’’. 

7 (c) COORDINATION WITH SECTION 35 HEALTH IN8 SURANCE COSTS CREDIT.—Section 35(g)(2) of the Inter9 nal Revenue Code of 1986 (relating to coordination with 

10 other deductions) is amended by striking ‘‘or 213’’ and 

11 inserting ‘‘, 213, or 224’’. 

12 (d) CLERICAL AMENDMENT.—The table of sections 

13 for part VII of subchapter B of chapter 1 of the Internal 

14 Revenue Code of 1986 is amended by redesignating the 

15 item relating to section 224 as an item relating to section 

16 225 and by inserting before such item the following new 

17 item: 

‘‘Sec. 224. Premiums for high deductible health plans.’’. 

18 (e) EFFECTIVE DATE.—The amendments made by 

19 this section shall apply to taxable years beginning after 

20 December 31, 2006. 


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1 SEC. 5. CREDIT FOR CERTAIN EMPLOYMENT TAXES PAID 

2 WITH RESPECT TO PREMIUMS FOR HIGH DE3 DUCTIBLE HEALTH PLANS AND CONTRIBU4 TIONS TO HEALTH SAVINGS ACCOUNTS. 

5 (a) ALLOWANCE OF CREDIT.—Subpart C of part IV 

6 of subchapter A of chapter 1 of the Internal Revenue Code 

7 of 1986 (relating to refundable credits) is amended by re8 designating section 36 as section 37 and by inserting after 

9 section 35 the following new section: 

10 ‘‘SEC. 36. EMPLOYMENT TAXES PAID WITH RESPECT TO 

11 PREMIUMS FOR HIGH DEDUCTIBLE HEALTH 

12 PLANS AND CONTRIBUTIONS TO HEALTH 

13 SAVINGS ACCOUNTS. 

14 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in15 dividual, there shall be allowed as a credit against the tax 

16 imposed by this subtitle for the taxable year an amount 

17 equal to the product of— 

18 ‘‘(1) the sum of the rates of tax in effect under 

19 sections 3101(a), 3101(b), 3111(a), and 3111(b) for 

20 the calendar year in which the taxable year begins, 

21 multiplied by 

22 ‘‘(2) the sum of— 

23 ‘‘(A) the aggregate amount paid by such 

24 individual as premiums under a high deductible 

25 health plan which is allowed as a deduction 

26 under section 224 for the taxable year, and 


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1 ‘‘(B) the aggregate amount paid to a 

2 health savings account of such individual which 

3 is allowed as a deduction under section 223 for 

4 the taxable year. 

5 ‘‘(b) CREDIT LIMITED TO CERTAIN EMPLOYMENT

6 TAXES.— 

7 ‘‘(1) IN GENERAL.—The credit allowed under 

8 subsection (a) with respect to any individual for any 

9 taxable year shall not exceed the specified employ10 ment taxes with respect to such individual for such 

11 taxable year. 

12 ‘‘(2) SPECIFIED EMPLOYMENT TAXES.—For 

13 purposes of this subsection, the term ‘specified em14 ployment taxes’ means, with respect to any indi15 vidual for any taxable year, the sum of— 

16 ‘‘(A) the taxes imposed under sections 

17 3101(a), 3101(b), 3111(a), 3111(b), 3201(a), 

18 3211(a), and 3221(a) (taking into account any 

19 adjustments or refunds under section 6413) 

20 with respect to wages and compensation re21 ceived by such individual during the calendar 

22 year in which such taxable year begins, and 

23 ‘‘(B) the taxes imposed under subsections 

24 (a) and (b) of section 1401 with respect to the 


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1 self-employment income of such individual for 

2 such taxable year. 

3 ‘‘(c) SPECIAL RULE FOR EMPLOYMENT COMPENSA4 TION IN EXCESS OF SOCIAL SECURITY CONTRIBUTION

5 BASE.— 

6 ‘‘(1) IN GENERAL.—If the aggregate amount of 

7 employment compensation received by any individual 

8 during the calendar year in which the taxable year 

9 begins exceeds the contribution and benefit base (as 

10 determined under section 230 of the Social Security 

11 Act), the amount of the credit determined under 

12 subsection (a) (determined before application of sub13 section (b)) shall be equal to the sum of— 

14 ‘‘(A) the amount determined under sub15 section (a) by only taking into account so much 

16 of the amount determined under subsection 

17 (a)(2) as does not exceed such excess and by 

18 only taking into account the rates of tax in ef19 fect under section 3101(b) and 3111(b), and 

20 ‘‘(B) the amount determined under sub21 section (a) by only taking into account so much 

22 of the amount determined under subsection 

23 (a)(2) as is not taken into account under sub24 paragraph (A) and by taking into account each 


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1 of the rates of tax referred to in subsection 

2 (a)(1). 

3 ‘‘(2) EMPLOYMENT COMPENSATION.—For pur4 poses of this subsection, the term ‘employment com5 pensation’ means, with respect to any individual for 

6 any taxable year, the sum of— 

7 ‘‘(A) the wages (as defined in section 

8 3121(a)) and compensation (as defined in sec9 tion 3231(e)) received by such individual during 

10 the calendar year in which such taxable year 

11 begins, and 

12 ‘‘(B) the self-employment income (as de13 fined in section 1402(b)) of such individual for 

14 such taxable year. 

15 ‘‘(d) COORDINATION WITH OTHER DEDUCTIONS.— 

16 Amounts taken into account under this section shall not 

17 be taken into account in determining any deduction al18 lowed under section 162(l), 223, or 224.’’. 

19 (b) CONFORMING AMENDMENTS.— 

20 (1) Paragraph (2) of section 1324(b) of title 

21 31, United States Code, is amended by inserting ‘‘or 

22 section 36’’ after ‘‘section 35’’. 

23 (2) The table of sections for subpart C of part 

24 IV of subchapter A of chapter 1 of the Internal Rev25 enue Code of 1986 is amended by striking the item 


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1 relating to section 36 and by inserting after the item 

2 relating to section 35 the following new items: 

‘‘Sec. 36. Employment taxes paid with respect to premiums for high deductible 

health plans and contributions to health savings accounts. 

‘‘Sec. 37. Overpayments of tax.’’. 

3 (c) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to taxable years beginning after 

5 December 31, 2006. 

6 SEC. 6. HSA-QUALIFIED INSURANCE PORTABILITY. 

7 (a) DEDUCTIBILITY OF FUTURE CONVERSION PRE8 MIUMS.—Section 213(d)(1)(D) of the Internal Revenue 

9 Code of 1986 (defining medical care) is amended by in10 serting ‘‘and also including amounts paid to an insurer 

11 for the right to the future purchase of insurance under 

12 certain terms agreed to at the time of the payment’’ after 

13 ‘‘for the aged’’. 

14 (b) ALLOWANCE OF TAXABLE EMPLOYER CONTRIBU15 TIONS TO INDIVIDUAL MARKET HSA-QUALIFIED

16 HEALTH INSURANCE FOR EMPLOYEES.— 

17 (1) HIPAA.—Section 9832(a) of the Internal 

18 Revenue Code of 1986 (defining group health plan) 

19 is amended by adding at the end the following new 

20 sentence: ‘‘For purposes of the preceding sentence, 

21 an arrangement shall not constitute a group health 

22 plan to the extent that it is a high deductible health 

23 plan within the meaning of section 223 (or is a pay24 ment by an employer or employee organization with 


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1 respect to such plan), if the plan constitutes indi2 vidual health insurance, as determined by regula3 tions issued by the Secretary, notwithstanding that 

4 an employer or employee organization negotiates the 

5 cost or benefits of the plan.’’. 

6 (2) COBRA.—Section 4980B(g)(2) of such 

7 Code is amended by inserting ‘‘and such term shall 

8 not include an arrangement to the extent that it is 

9 a high deductible health plan within the meaning of 

10 section 223 (or is a payment by an employer or em11 ployee organization with respect to such plan), if the 

12 plan constitutes individual health insurance, as de13 termined by regulations issued by the Secretary, not14 withstanding that an employer or employee organiza15 tion negotiates the cost or benefits of the plan’’ after 

16 ‘‘section 7702B(c))’’. 

17 (3) ERISA.—Section 4 of the Employee Retire18 ment Income Security Act of 1974 is amended— 

19 (A) by striking ‘‘subsection (b) or (c)’’ in 

20 subsection (a) and inserting ‘‘subsection (b), 

21 (c), or (d)’’, and 

22 (B) by adding at the end the following new 

23 subsection: 

24 ‘‘(d) The provisions of this title shall not apply to— 


jcorcoran on PROD1PC62 with BILLS
25 

•S 3488 IS

1 ‘‘(1) a high deductible health plan within the 

2 meaning of section 223 of the Internal Revenue 

3 Code of 1986, or any payment by an employer or 

4 employee organization with respect to such plan, if 

5 the plan constitutes individual health insurance, as 

6 determined by regulations issued by the Secretary of 

7 the Treasury, and notwithstanding that an employer 

8 or employee organization negotiates the cost or bene9 fits of the plan; or 

10 ‘‘(2) any health savings account within the 

11 meaning of section 223 of the Internal Revenue 

12 Code of 1986.’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2006. 

Æ 


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