I 

108TH CONGRESS 

1ST SESSION H. R. 2596

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

individuals for amounts contributed to health savings security accounts 

and health savings accounts, to provide for the disposition of unused 

health benefits in cafeteria plans and flexible spending arrangements, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 25, 2003

Mr. THOMAS introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to allow a 

deduction to individuals for amounts contributed to 

health savings security accounts and health savings accounts, to provide for the disposition of unused health 

benefits in cafeteria plans and flexible spending arrangements, 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,

3 SECTION 1. SHORT TITLE. 

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

5 Affordability Act of 2003’’. 
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1 SEC. 2. HEALTH SAVINGS SECURITY ACCOUNTS AND 

2 HEALTH SAVINGS ACCOUNTS. 

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 (relating to 

5 additional itemized deductions for individuals) is amended 

6 by redesignating section 223 as section 225 and by insert7 ing after section 222 the following new sections: 

8 ‘‘SEC. 223. HEALTH SAVINGS SECURITY ACCOUNTS. 

9 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi10 vidual who is an eligible individual for any month during 

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

12 the taxable year an amount equal to the aggregate amount 

13 paid in cash during such taxable year by such individual 

14 to a health savings security account of such individual. 

15 ‘‘(b) LIMITATIONS.—

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

17 deduction under subsection (a) to an individual for 

18 the taxable year shall not exceed the sum of the 

19 monthly limitations for months during such taxable 

20 year that the individual is an eligible individual. 

21 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is 1 22 ⁄12 of—

23 ‘‘(A) $2,000, in the case of an eligible indi24 vidual who—
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1 ‘‘(i) has self-only coverage under a 

2 minimum deductible plan as of the first 

3 day of such month, or 

4 ‘‘(ii) is uninsured as of the first day 

5 of such month and is not described in sub6 paragraph (B)(ii) with respect to the tax7 able year which includes such month, 

8 ‘‘(B) $4,000, in the case of an eligible indi9 vidual who—

10 ‘‘(i) has family coverage under a min11 imum deductible plan as of the first day of 

12 such month, or 

13 ‘‘(ii) is uninsured as of the first day 

14 of such month and, with respect to the tax15 able year which includes such month— 

16 ‘‘(I) is entitled to a deduction for 

17 a dependent under section 151(c) (or 

18 would be so entitled but for paragraph 

19 (2) or (4) of section 152(e)), or 

20 ‘‘(II) files a joint return, and 

21 ‘‘(C) zero in any other case. 

22 ‘‘(3) ADDITIONAL CONTRIBUTIONS FOR INDI23 VIDUALS 55 OR OLDER.—

24 ‘‘(A) IN GENERAL.—In the case of an indi25 vidual who has attained the age of 55 before 
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1 the close of the taxable year, paragraph (2) 

2 shall be applied by increasing the $2,000 

3 amount in paragraph (2)(A) and the $4,000 

4 amount in paragraph (2)(B) by the additional 

5 contribution amount. 

6 ‘‘(B) ADDITIONAL CONTRIBUTION

7 AMOUNT.—For purposes of this section, the ad8 ditional contribution amount is the amount de9 termined in accordance with the following table:

‘‘For taxable years The additional 

beginning in: contribution amount is: 

2004 ......................................................................................... $500

2005 ......................................................................................... $600

2006 ......................................................................................... $700

2007 ......................................................................................... $800

2008 ......................................................................................... $900

2009 and thereafter ................................................................. $1,000.

10 ‘‘(4) LIMITATION BASED ON ADJUSTED GROSS

11 INCOME.—

12 ‘‘(A) SELF-ONLY COVERAGE.—The dollar 

13 amount in paragraph (2)(A) (as increased 

14 under paragraph (3)) shall be reduced (but not 

15 below zero) by an amount which bears the same 

16 ratio to such dollar amount as—

17 ‘‘(i) the amount (if any) by which the 

18 taxpayer’s adjusted gross income for such 

19 taxable year exceeds $75,000 ($150,000 in 

20 the case of a joint return), bears to 
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1 ‘‘(ii) $10,000 ($20,000 in the case of 

2 a joint return). 

3 ‘‘(B) FAMILY COVERAGE.—The dollar 

4 amount in paragraph (2)(B) (as increased 

5 under paragraph (3)) shall be reduced (but not 

6 below zero) by an amount which bears the same 

7 ratio to such dollar amount as—

8 ‘‘(i) the amount (if any) by which the 

9 taxpayer’s adjusted gross income for such 

10 taxable year exceeds $150,000, bears to 

11 ‘‘(ii) $20,000. 

12 ‘‘(C) NO REDUCTION BELOW $200 UNTIL

13 COMPLETE PHASE-OUT.—No dollar amount 

14 shall be reduced below $200 under subpara15 graph (A) or (B) unless (without regard to this 

16 subparagraph) such limitation is reduced to 

17 zero. 

18 ‘‘(D) ROUNDING.—Any amount deter19 mined under this paragraph which is not a mul20 tiple of $10 shall be rounded to the next lowest 

21 $10. 

22 ‘‘(E) ADJUSTED GROSS INCOME.—For pur23 poses of this paragraph, adjusted gross income 

24 shall be determined—
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1 ‘‘(i) without regard to this section or 

2 section 911, and 

3 ‘‘(ii) after application of sections 86, 

4 135, 137, 219, 221, 222, and 469. 

5 ‘‘(5) COORDINATION WITH OTHER CONTRIBU6 TIONS.—The limitation which would (but for this 

7 paragraph) apply under this subsection to the tax8 payer for any taxable year shall be reduced (but not 

9 below zero) by the sum of— 

10 ‘‘(A) the aggregate amount paid during 

11 such taxable year to Archer MSAs of such indi12 vidual, 

13 ‘‘(B) the aggregate amount paid during 

14 such taxable year to health savings accounts of 

15 such individual, and 

16 ‘‘(C) the aggregate amount paid during 

17 such taxable year to health savings security ac18 counts of such individual by persons other than 

19 such individual. 

20 ‘‘(6) SPECIAL RULES FOR MARRIED INDIVID21 UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI22 VIDUALS.—Rules similar to the rules of paragraphs 

23 (3), (6), and (7) of section 220(b) shall apply for 

24 purposes of this section. 

25 ‘‘(c) DEFINITIONS.—For purposes of this section— 
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1 ‘‘(1) ELIGIBLE INDIVIDUAL.— 

2 ‘‘(A) IN GENERAL.—The term ‘eligible in3 dividual’ means, with respect to any month, any 

4 individual unless such individual is covered, as 

5 of the first day of such month, under any 

6 health plan which is not a minimum deductible 

7 plan. 

8 ‘‘(B) CERTAIN COVERAGE DIS9 REGARDED.—Subparagraph (A) shall be ap10 plied without regard to— 

11 ‘‘(i) coverage for any benefit provided 

12 by permitted insurance, and 

13 ‘‘(ii) coverage (whether through insur14 ance or otherwise) for accidents, disability, 

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

16 ‘‘(2) MINIMUM DEDUCTIBLE PLAN.—

17 ‘‘(A) IN GENERAL.—The term ‘minimum 

18 deductible plan’ means a health plan— 

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

20 which has an annual deductible which is 

21 not less than $500, and 

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

23 which has an annual deductible which is 

24 not less than twice the dollar amount in 
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1 clause (i) (as increased under subpara2 graph (B)). 

3 ‘‘(B) COST-OF-LIVING ADJUSTMENT FOR

4 ANNUAL DEDUCTIBLES.—

5 ‘‘(i) IN GENERAL.—In the case of any 

6 taxable year beginning in a calendar year 

7 after 2004, the $500 amount in subpara8 graph (A)(i) shall be increased by an 

9 amount equal to—

10 ‘‘(I) such dollar amount, multi11 plied by 

12 ‘‘(II) the cost-of-living adjust13 ment determined under section 1(f)(3) 

14 for the calendar year in which such 

15 taxable year begins by substituting 

16 ‘calendar year 2003’ for ‘calendar 

17 year 1992’ in subparagraph (B) there18 of. 

19 ‘‘(ii) ROUNDING.—If any increase 

20 under clause (i) is not a multiple of $50, 

21 such increase shall be rounded to the near22 est multiple of $50. 

23 ‘‘(C) SPECIAL RULES.— 

24 ‘‘(i) EXCLUSION OF CERTAIN

25 PLANS.—Such term does not include a 
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1 health plan if substantially all of its cov2 erage is coverage described in paragraph 

3 (1)(B). 

4 ‘‘(ii) SAFE HARBOR FOR ABSENCE OF

5 PREVENTIVE CARE DEDUCTIBLE.—A plan 

6 shall not fail to be treated as a minimum 

7 deductible plan by reason of failing to have 

8 a deductible for preventive care. 

9 ‘‘(3) UNINSURED.—An individual shall be treat10 ed as uninsured if such individual is not covered by 

11 insurance which constitutes medical care. The pre12 ceding sentence shall be applied without regard to 

13 the coverage described in paragraph (1)(B). 

14 ‘‘(4) PERMITTED INSURANCE.—The term ‘per15 mitted insurance’ has the meaning given such term 

16 in section 220(c)(3). 

17 ‘‘(5) FAMILY COVERAGE.—The term ‘family 

18 coverage’ has the meaning given such term in sec19 tion 220(c)(5). 

20 ‘‘(6) ARCHER MSA.—The term ‘Archer MSA’ 

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

22 ‘‘(7) HEALTH SAVINGS ACCOUNT.—The term 

23 ‘health savings account’ has the meaning given such 

24 term in section 224(d). 
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1 ‘‘(d) HEALTH SAVINGS SECURITY ACCOUNT.—For 

2 purposes of this section—

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

4 security account’ means a trust created or organized 

5 in the United States as a health savings security ac6 count exclusively for the purpose of paying the quali7 fied medical expenses of the account beneficiary, but 

8 only if the written governing instrument creating the 

9 trust meets the following requirements: 

10 ‘‘(A) Except in the case of a rollover con11 tribution from an Archer MSA, or a health sav12 ings security account, which is not includible in 

13 gross income, no contribution will be accepted— 

14 ‘‘(i) unless it is in cash and is contrib15 uted by—

16 ‘‘(I) the account beneficiary, 

17 ‘‘(II) a member of the family of 

18 the account beneficiary, or 

19 ‘‘(III) an employer of the account 

20 beneficiary, and 

21 ‘‘(ii) to the extent such contribution, 

22 when added to previous contributions to 

23 the trust for the calendar year, exceeds the 

24 highest annual limitation which could 

25 apply to an individual under subsection (b) 
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1 for a taxable year beginning in such cal2 endar year. 

3 ‘‘(B) The trustee is a bank (as defined in 

4 section 408(n)), an insurance company (as de5 fined in section 816), or another person who 

6 demonstrates to the satisfaction of the Sec7 retary that the manner in which such person 

8 will administer the trust will be consistent with 

9 the requirements of this section. 

10 ‘‘(C) No part of the trust assets will be in11 vested in life insurance contracts. 

12 ‘‘(D) The assets of the trust will not be 

13 commingled with other property except in a 

14 common trust fund or common investment 

15 fund. 

16 ‘‘(E) The interest of an individual in the 

17 balance in his account is nonforfeitable. 

18 ‘‘(2) MEMBER OF THE FAMILY.—The term 

19 ‘member of the family’ has the meaning given such 

20 term in section 2032A(e)(2). 

21 ‘‘(3) QUALIFIED MEDICAL EXPENSES.—The 

22 term ‘qualified medical expenses’ has the meaning 

23 given such term in section 220(d)(2), except that—

24 ‘‘(A) subparagraph (B)(i) thereof shall not 

25 apply to—
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1 ‘‘(i) insurance which constitutes a 

2 minimum deductible plan if no portion of 

3 the cost of such insurance is paid by an 

4 employer or former employer of the ac5 count beneficiary or the spouse of such 

6 beneficiary, and 

7 ‘‘(ii) any health insurance (other than 

8 health insurance substantially all of its 

9 coverage is coverage described in sub10 section (c)(1)(B)) if the account bene11 ficiary has attained age 65, and 

12 ‘‘(B) subparagraph (C) thereof shall not 

13 apply for purposes of this section. 

14 ‘‘(4) ACCOUNT BENEFICIARY.—The term ‘ac15 count beneficiary’ means the individual on whose be16 half the health savings security account was estab17 lished. 

18 ‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 

19 to the following rules shall apply for purposes of this 

20 section: 

21 ‘‘(A) Section 219(d)(2) (relating to no de22 duction for rollovers). 

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

24 when contributions deemed made). 
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1 ‘‘(C) Except as provided in section 106(d), 

2 section 219(f)(5) (relating to employer pay3 ments). 

4 ‘‘(D) Section 408(g) (relating to commu5 nity property laws). 

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

7 accounts). 

8 ‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND9 ING ACCOUNTS TREATED AS MADE BY THE EM10 PLOYER.—Any contribution from a flexible spending 

11 account to a health savings security account which 

12 is not includible in the gross income of the employee 

13 by reason of section 125(h) shall be treated as a 

14 contribution made by the employer for purposes of 

15 this section. 

16 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

17 ‘‘(1) IN GENERAL.—A health savings security 

18 account is exempt from taxation under this subtitle 

19 unless such account has ceased to be a health sav20 ings security account. Notwithstanding the preceding 

21 sentence, any such account is subject to the taxes 

22 imposed by section 511 (relating to imposition of tax 

23 on unrelated business income of charitable, etc. or24 ganizations). 
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1 ‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 

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

3 408(e) shall apply to health savings security ac4 counts, and any amount treated as distributed under 

5 such similar rules shall be treated as not used to pay 

6 qualified medical expenses. 

7 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

8 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

9 EXPENSES.—Any amount paid or distributed out of 

10 a health savings security account which is used ex11 clusively to pay qualified medical expenses of any ac12 count beneficiary shall not be includible in gross in13 come. 

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

15 QUALIFIED MEDICAL EXPENSES.—

16 ‘‘(A) IN GENERAL.—Any amount paid or 

17 distributed out of a health savings security ac18 count which is not used exclusively to pay the 

19 qualified medical expenses of the account bene20 ficiary shall be included in the gross income of 

21 such beneficiary in the manner provided under 

22 section 72. 

23 ‘‘(B) SPECIAL RULES FOR APPLYING SEC24 TION 72.—For purposes of applying section 72 

25 to any amount described in subparagraph (A)—
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1 ‘‘(i) all health savings security ac2 counts shall be treated as 1 contract, 

3 ‘‘(ii) all distributions during any tax4 able year shall be treated as 1 distribution, 

5 ‘‘(iii) the value of the contract, income 

6 on the contract, and investment in the con7 tract shall be computed as of the close of 

8 the calendar year in which the taxable year 

9 begins, and 

10 ‘‘(iv) such distributions shall be treat11 ed as made from contributions from mem12 bers of the family of the account bene13 ficiary to the extent that such distribution, 

14 when added to all previous distributions 

15 from the health savings security account 

16 taken into account under this clause, do 

17 not exceed the aggregate contributions 

18 from members of such family. 

19 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE20 FORE DUE DATE OF RETURN.— 

21 ‘‘(A) IN GENERAL.—If any excess con22 tribution is contributed for a taxable year to 

23 any health savings security account of an indi24 vidual, paragraph (2) shall not apply to dis25 tributions from the health savings security ac-
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1 counts of such individual (to the extent such 

2 distributions do not exceed the aggregate excess 

3 contributions to all such accounts of such indi4 vidual for such year) if—

5 ‘‘(i) such distribution is made on or 

6 before the last day prescribed by law (in7 cluding extensions of time) for filing the 

8 account beneficiary’s return for such tax9 able year, 

10 ‘‘(ii) no deduction is allowed under 

11 this section with respect to such contribu12 tion, 

13 ‘‘(iii) such distribution is accompanied 

14 by the amount of net income attributable 

15 to such excess contribution, and 

16 ‘‘(iv) such distribution satisfies the re17 quirements of subparagraph (B). 

18 ‘‘(B) RULES RELATED TO ORDERING.—

19 ‘‘(i) DISTRIBUTIONS LIMITED TO CON20 TRIBUTIONS.—Subparagraph (A) shall 

21 apply to distributions to a person only to 

22 the extent of the contributions of such per23 son to such accounts during such taxable 

24 year. 
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1 ‘‘(ii) CLASSES OF CONTRIBUTORS.—

2 Subparagraph (A) shall apply only to dis3 tributions of such contributions which are 

4 made in the following order: 

5 ‘‘(I) first, to members of the fam6 ily of the account beneficiary, 

7 ‘‘(II) second, to the account ben8 eficiary, 

9 ‘‘(III) third, to employers of the 

10 account beneficiary with respect to 

11 contributions under section 125(h), 

12 and 

13 ‘‘(IV) fourth, to employers of the 

14 account beneficiary with respect to 

15 contributions under section 106(d). 

16 ‘‘(iii) LAST-IN FIRST-OUT.—If dis17 tributions could be made to more than one 

18 person under any subclause of clause (ii), 

19 subparagraph (A) shall not apply to any 

20 such distribution unless such distribution 

21 is of the most recent excess contribution 

22 which has not been distributed to the con23 tributor. 

24 ‘‘(C) TREATMENT OF NET INCOME.—Any 

25 net income described in subparagraph (A)(iii) 
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1 shall be included in the gross income of the per2 son receiving the distribution for the taxable 

3 year in which received. 

4 ‘‘(D) EXCESS CONTRIBUTION.—For pur5 poses of subparagraph (A), the term ‘excess 

6 contribution’ means any contribution (other 

7 than a rollover contribution from another health 

8 savings security account, or from an Archer 

9 MSA, which is not includible in gross income) 

10 to the extent such contribution results in the 

11 aggregate contributions to health savings secu12 rity accounts of the account beneficiary for the 

13 taxable year to be in excess of the limitation 

14 under subsection (b) (determined without re15 gard to paragraph (5)(C) thereof) which applies 

16 to such beneficiary for such year. 

17 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

18 USED FOR QUALIFIED MEDICAL EXPENSES.— 

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

20 this chapter on the account beneficiary for any 

21 taxable year in which there is a payment or dis22 tribution from a health savings security account 

23 of such beneficiary which is includible in gross 

24 income under paragraph (2) shall be increased 
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1 by 15 percent of the amount which is so includ2 ible. 

3 ‘‘(B) EXCEPTION FOR DISABILITY OR

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

5 the payment or distribution is made after the 

6 account beneficiary becomes disabled within the 

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

8 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

9 AFTER MEDICARE ELIGIBILITY.—Subparagraph 

10 (A) shall not apply to any payment or distribu11 tion after the date on which the account bene12 ficiary attains the age specified in section 1811 

13 of the Social Security Act. 

14 ‘‘(5) ROLLOVER CONTRIBUTION.—

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

16 not apply to any amount paid or distributed 

17 from a health savings security account to the 

18 account beneficiary to the extent the amount 

19 received is paid into a health savings security 

20 account, or a health savings account, for the 

21 benefit of such beneficiary not later than the 

22 60th day after the day on which the beneficiary 

23 receives the payment or distribution. 

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

25 not apply to any amount described in subpara-
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1 graph (A) received by an individual from a 

2 health savings security account if, at any time 

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

4 such receipt, such individual received any other 

5 amount described in subparagraph (A) from a 

6 health savings security account which was not 

7 includible in the individual’s gross income be8 cause of the application of this paragraph. 

9 ‘‘(6) SPECIAL RULES.—Rules similar to the 

10 rules of paragraphs (6), (7), and (8) of section 

11 220(f) shall apply for purposes of this section. 

12 ‘‘(g) REPORTS.—The Secretary may require the 

13 trustee of a health savings security account to make such 

14 reports regarding such account to the Secretary and to 

15 the account beneficiary with respect to contributions, dis16 tributions, and such other matters as the Secretary deter17 mines appropriate. The reports required by this subsection 

18 shall be filed at such time and in such manner and fur19 nished to such individuals at such time and in such man20 ner as may be required by the Secretary. 

21 ‘‘(h) REGULATIONS.—The Secretary may issue regu22 lations to carry out the purposes of this section, including 

23 regulations regarding the proper treatment of distribu24 tions described in subsection (f)(3) and nondeductible con-
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1 tributions by members of the family of the account bene2 ficiary. 

3 ‘‘SEC. 224. HEALTH SAVINGS ACCOUNTS. 

4 ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi5 vidual who is an eligible individual for any month during 

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

7 the taxable year an amount equal to the aggregate amount 

8 paid in cash during such taxable year by such individual 

9 to a health savings account of such individual. 

10 ‘‘(b) LIMITATIONS.—

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

12 deduction under subsection (a) to an individual for 

13 the taxable year shall not exceed the sum of the 

14 monthly limitations for months during such taxable 

15 year that the individual is an eligible individual. 

16 ‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any month is the amount equal to 1 17 ⁄12 of 

18 the annual deductible (as of the first day of such 

19 month) of the individual’s coverage under the high 

20 deductible health plan. 

21 ‘‘(3) COORDINATION WITH OTHER CONTRIBU22 TIONS.—The limitation which would (but for this 

23 paragraph) apply under this subsection to the tax24 payer for any taxable year shall be reduced (but not 

25 below zero) by the sum of—
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1 ‘‘(A) the aggregate amount paid during 

2 such taxable year to Archer MSAs of such indi3 vidual, 

4 ‘‘(B) the aggregate amount paid during 

5 such taxable year to health savings security ac6 counts of such individual, and 

7 ‘‘(C) the aggregate amount paid during 

8 such taxable year to health savings accounts of 

9 such individual by persons other than such indi10 vidual. 

11 ‘‘(4) SPECIAL RULES FOR MARRIED INDIVID12 UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI13 VIDUALS.—Rules similar to the rules of paragraphs 

14 (3), (6), and (7) of section 220(b) shall apply for 

15 purposes of this section. 

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

17 ‘‘(1) ELIGIBLE INDIVIDUAL.— 

18 ‘‘(A) IN GENERAL.—The term ‘eligible in19 dividual’ means, with respect to any month, any 

20 individual if—

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

22 high deductible health plan as of the 1st 

23 day of such month, and 
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1 ‘‘(ii) such individual is not, while cov2 ered under a high deductible health plan, 

3 covered under any health plan—

4 ‘‘(I) which is not a high deduct5 ible health plan, and 

6 ‘‘(II) which provides coverage for 

7 any benefit which is covered under the 

8 high deductible health plan. 

9 ‘‘(B) CERTAIN COVERAGE DIS10 REGARDED.—Subparagraph (A)(ii) shall be ap11 plied without regard to— 

12 ‘‘(i) coverage for any benefit provided 

13 by permitted insurance, and 

14 ‘‘(ii) coverage (whether through insur15 ance or otherwise) for accidents, disability, 

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

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

18 ‘‘(A) IN GENERAL.—The term ‘high de19 ductible health plan’ means a health plan— 

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

21 which has an annual deductible which is 

22 not less than $1,000 and not more than 

23 $2,250, 

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

25 which has an annual deductible which is 
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1 not less than $2,000 and not more than 

2 $4,500, and 

3 ‘‘(iii) the annual out-of-pocket ex4 penses required to be paid under the plan 

5 (other than for premiums) for covered ben6 efits does not exceed— 

7 ‘‘(I) $3,000 for self-only cov8 erage, and 

9 ‘‘(II) $5,500 for family coverage. 

10 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—

11 ‘‘(i) IN GENERAL.—In the case of any 

12 taxable year beginning in a calendar year 

13 after 1998, each dollar amount in subpara14 graph (A) shall be increased by an amount 

15 equal to—

16 ‘‘(I) such dollar amount, multi17 plied by 

18 ‘‘(II) the cost-of-living adjust19 ment determined under section 1(f)(3) 

20 for the calendar year in which such 

21 taxable year begins by substituting 

22 ‘calendar year 1997’ for ‘calendar 

23 year 1992’ in subparagraph (B) there24 of. 
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1 ‘‘(ii) SPECIAL RULES.—In the case of 

2 the $1,000 amount in subparagraph (A)(i) 

3 and the $2,000 amount in subparagraph 

4 (A)(ii), subclause (i)(II) shall be applied by 

5 substituting ‘calendar year 2002’ for ‘cal6 endar year 1997’. 

7 ‘‘(iii) ROUNDING.—If any increase 

8 under clause (i) or (ii) is not a multiple of 

9 $50, such increase shall be rounded to the 

10 nearest multiple of $50. 

11 ‘‘(C) SPECIAL RULES.— 

12 ‘‘(i) EXCLUSION OF CERTAIN

13 PLANS.—Such term does not include a 

14 health plan if substantially all of its cov15 erage is coverage described in paragraph 

16 (1)(B). 

17 ‘‘(ii) SAFE HARBOR FOR ABSENCE OF

18 PREVENTIVE CARE DEDUCTIBLE.— A plan 

19 shall not fail to be treated as a high de20 ductible health plan by reason of failing to 

21 have a deductible for preventive care. 

22 ‘‘(D) TREATMENT OF NETWORK SERV23 ICES.—

24 ‘‘(i) IN GENERAL.—In the case of a 

25 health plan which is a preferred provider 
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1 organization plan and which would (with2 out regard to services provided outside 

3 such organization’s network of providers 

4 described in clause (iii)(I)) be a high de5 ductible health plan, such plan shall not 

6 fail to be a high deductible health plan be7 cause—

8 ‘‘(I) the annual deductible for 

9 services provided outside such network 

10 exceeds the applicable maximum dol11 lar amount in clause (i) or (ii) of sub12 paragraph (A), or 

13 ‘‘(II) the annual out-of-pocket ex14 penses required to be paid for services 

15 provided outside such network exceeds 

16 the applicable dollar amount in sub17 paragraph (A)(iii). 

18 ‘‘(ii) ANNUAL DEDUCTIBLE.—The an19 nual deductible taken into account under 

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

21 which is a high deductible health plan by 

22 reason of clause (i) shall be the annual de23 ductible for services provided within such 

24 network. 
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1 ‘‘(iii) PREFERRED PROVIDER ORGANI2 ZATION PLAN DEFINED.—In this subpara3 graph, the term ‘preferred provider organi4 zation plan’ means a health plan that—

5 ‘‘(I) has a network of providers 

6 that have agreed to a contractually 

7 specified reimbursement for covered 

8 benefits with the organization offering 

9 the plan, 

10 ‘‘(II) provides for reimbursement 

11 for all covered benefits regardless of 

12 whether such benefits are provided 

13 within such network of providers, and 

14 ‘‘(III) is offered by an organiza15 tion that is not licensed or organized 

16 under State law as a health mainte17 nance organization. 

18 ‘‘(3) PERMITTED INSURANCE.—The term ‘per19 mitted insurance’ has the meaning given such term 

20 in section 220(c)(3). 

21 ‘‘(4) FAMILY COVERAGE.—The term ‘family 

22 coverage’ has the meaning given such term in sec23 tion 220(c)(5). 

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

25 has the meaning given such term in section 220(d). 
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1 ‘‘(6) HEALTH SAVINGS SECURITY ACCOUNT.—

2 The term ‘health savings security account’ has the 

3 meaning given such term in section 223(d). 

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

5 this section—

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

7 account’ means a trust created or organized in the 

8 United States as a health savings account exclusively 

9 for the purpose of paying the qualified medical ex10 penses of the account beneficiary, but only if the 

11 written governing instrument creating the trust 

12 meets the following requirements: 

13 ‘‘(A) Except in the case of a rollover con14 tribution from an Archer MSA, a health savings 

15 security account, or a health savings account, 

16 which is not includible in gross income, no con17 tribution will be accepted— 

18 ‘‘(i) unless it is in cash and is contrib19 uted by—

20 ‘‘(I) the account beneficiary, or 

21 ‘‘(II) an employer of the account 

22 beneficiary, and 

23 ‘‘(ii) to the extent such contribution, 

24 when added to previous contributions to 

25 the trust for the calendar year, exceeds the 
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•HR 2596 IH 

1 highest annual limitation which could 

2 apply to an individual under subsection (b) 

3 for a taxable year beginning in such cal4 endar year. 

5 ‘‘(B) The trustee is a bank (as defined in 

6 section 408(n)), an insurance company (as de7 fined in section 816), or another person who 

8 demonstrates to the satisfaction of the Sec9 retary that the manner in which such person 

10 will administer the trust will be consistent with 

11 the requirements of this section. 

12 ‘‘(C) No part of the trust assets will be in13 vested in life insurance contracts. 

14 ‘‘(D) The assets of the trust will not be 

15 commingled with other property except in a 

16 common trust fund or common investment 

17 fund. 

18 ‘‘(E) The interest of an individual in the 

19 balance in his account is nonforfeitable. 

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

21 term ‘qualified medical expenses’ has the meaning 

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

23 ‘‘(3) ACCOUNT BENEFICIARY.—The term ‘ac24 count beneficiary’ means the individual on whose be25 half the health savings account was established. 
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1 ‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 

2 to the following rules shall apply for purposes of this 

3 section: 

4 ‘‘(A) Section 219(d)(2) (relating to no de5 duction for rollovers). 

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

7 when contributions deemed made). 

8 ‘‘(C) Except as provided in section 106(d), 

9 section 219(f)(5) (relating to employer pay10 ments). 

11 ‘‘(D) Section 408(g) (relating to commu12 nity property laws). 

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

14 accounts). 

15 ‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND16 ING ACCOUNTS TREATED AS MADE BY THE EM17 PLOYER.—Any contribution from a flexible spending 

18 account to a health savings account which is not in19 cludible in the gross income of the employee by rea20 son of section 125(h) shall be treated as a contribu21 tion made by the employer for purposes of this sec22 tion. 

23 ‘‘(e) TAX TREATMENT OF ACCOUNTS.—

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

25 exempt from taxation under this subtitle unless such 
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1 account has ceased to be a health savings account. 

2 Notwithstanding the preceding sentence, any such 

3 account is subject to the taxes imposed by section 

4 511 (relating to imposition of tax on unrelated busi5 ness income of charitable, etc. organizations). 

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

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

8 408(e) shall apply to health savings accounts, and 

9 any amount treated as distributed under such rules 

10 shall be treated as not used to pay qualified medical 

11 expenses. 

12 ‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

13 ‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL

14 EXPENSES.—Any amount paid or distributed out of 

15 a health savings account which is used exclusively to 

16 pay qualified medical expenses of any account bene17 ficiary shall not be includible in gross income. 

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

19 QUALIFIED MEDICAL EXPENSES.—Any amount paid 

20 or distributed out of a health savings account which 

21 is not used exclusively to pay the qualified medical 

22 expenses of the account beneficiary shall be included 

23 in the gross income of such beneficiary. 

24 ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE25 FORE DUE DATE OF RETURN.— 
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1 ‘‘(A) IN GENERAL.—If any excess con2 tribution is contributed for a taxable year to 

3 any health savings account of an individual, 

4 paragraph (2) shall not apply to distributions 

5 from the health savings accounts of such indi6 vidual (to the extent such distributions do not 

7 exceed the aggregate excess contributions to all 

8 such accounts of such individual for such year) 

9 if— 

10 ‘‘(i) such distribution is made on or 

11 before the last day prescribed by law (in12 cluding extensions of time) for filing the 

13 account beneficiary’s return for such tax14 able year, 

15 ‘‘(ii) no deduction is allowed under 

16 this section with respect to such contribu17 tion, 

18 ‘‘(iii) such distribution is accompanied 

19 by the amount of net income attributable 

20 to such excess contribution, and 

21 ‘‘(iv) such distribution satisfies the re22 quirements of subparagraph (B). 

23 ‘‘(B) RULES RELATED TO ORDERING.—

24 ‘‘(i) DISTRIBUTIONS LIMITED TO CON25 TRIBUTIONS.—Subparagraph (A) shall 
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•HR 2596 IH 

1 apply to distributions to a person only to 

2 the extent of the contributions of such per3 son to such accounts during such taxable 

4 year. 

5 ‘‘(ii) CLASSES OF CONTRIBUTORS.—

6 Subparagraph (A) shall apply only to dis7 tributions of such contributions which are 

8 made in the following order: 

9 ‘‘(I) first, to the account bene10 ficiary, 

11 ‘‘(II) second, to employers of the 

12 account beneficiary with respect to 

13 contributions under section 125(h), 

14 and 

15 ‘‘(III) third, to employers of the 

16 account beneficiary with respect to 

17 contributions under section 106(d). 

18 ‘‘(iii) LAST-IN FIRST-OUT.—If dis19 tributions could be made to more than one 

20 person under any subclause of clause (ii), 

21 subparagraph (A) shall not apply to any 

22 such distribution unless such distribution 

23 is of the most recent excess contribution 

24 which has not been distributed to the con25 tributor. 
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1 ‘‘(C) TREATMENT OF NET INCOME.—Any 

2 net income described in subparagraph (A)(iii) 

3 shall be included in the gross income of the per4 son receiving the distribution for the taxable 

5 year in which received. 

6 ‘‘(D) EXCESS CONTRIBUTION.—For pur7 poses of subparagraph (A), the term ‘excess 

8 contribution’ means any contribution (other 

9 than a rollover contribution from another health 

10 savings account, from a health savings security 

11 account, or from an Archer MSA, which is not 

12 includible in gross income) to the extent such 

13 contribution results in the aggregate contribu14 tions to health savings accounts of the account 

15 beneficiary for the taxable year to be in excess 

16 of the limitation under subsection (b) (deter17 mined without regard to paragraph (3)(C) 

18 thereof) which applies to such beneficiary for 

19 such year. 

20 ‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT

21 USED FOR QUALIFIED MEDICAL EXPENSES.— 

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

23 this chapter on the account beneficiary for any 

24 taxable year in which there is a payment or dis25 tribution from a health savings account of such 
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1 beneficiary which is includible in gross income 

2 under paragraph (2) shall be increased by 15 

3 percent of the amount which is so includible. 

4 ‘‘(B) EXCEPTION FOR DISABILITY OR

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

6 the payment or distribution is made after the 

7 account beneficiary becomes disabled within the 

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

9 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

10 AFTER MEDICARE ELIGIBILITY.—Subparagraph 

11 (A) shall not apply to any payment or distribu12 tion after the date on which the account bene13 ficiary attains the age specified in section 1811 

14 of the Social Security Act. 

15 ‘‘(5) ROLLOVER CONTRIBUTION.—

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

17 not apply to any amount paid or distributed 

18 from a health savings account to the account 

19 beneficiary to the extent the amount received is 

20 paid into a health savings account for the ben21 efit of such beneficiary not later than the 60th 

22 day after the day on which the beneficiary re23 ceives the payment or distribution. 

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

25 not apply to any amount described in subpara-
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•HR 2596 IH 

1 graph (A) received by an individual from a 

2 health savings account if, at any time during 

3 the 1-year period ending on the day of such re4 ceipt, such individual received any other amount 

5 described in subparagraph (A) from a health 

6 savings account which was not includible in the 

7 individual’s gross income because of the appli8 cation of this paragraph. 

9 ‘‘(6) SPECIAL RULES.—Rules similar to the 

10 rules of paragraphs (6), (7), and (8) of section 

11 220(f) shall apply for purposes of this section. 

12 ‘‘(g) REPORTS.—The Secretary may require the 

13 trustee of a health savings account to make such reports 

14 regarding such account to the Secretary and to the ac15 count beneficiary with respect to contributions, distribu16 tions, and such other matters as the Secretary determines 

17 appropriate. The reports required by this subsection shall 

18 be filed at such time and in such manner and furnished 

19 to such individuals at such time and in such manner as 

20 may be required by the Secretary.’’. 

21 (b) DEDUCTION ALLOWED WHETHER OR NOT INDI22 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

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

24 paragraph (18) the following new paragraphs: 
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•HR 2596 IH 

1 ‘‘(19) HEALTH SAVINGS SECURITY AC2 COUNTS.—The deduction allowed by section 223. 

3 ‘‘(20) HEALTH SAVINGS ACCOUNTS.—The de4 duction allowed by section 224.’’. 

5 (c) COORDINATION WITH ARCHER MSAS.—

6 (1) ROLLOVERS FROM ARCHER MSAS PER7 MITTED.—Subparagraph (A) of section 220(f)(5) of 

8 such Code (relating to rollover contribution) is 

9 amended by inserting ‘‘, a health savings security 

10 account (as defined in section 223(d)), or a health 

11 savings account (as defined in section 224(d)),’’ 

12 after ‘‘paid into an Archer MSA’’. 

13 (2) REDUCTION IN ARCHER MSA LIMITATION

14 FOR CONTRIBUTIONS TO HEALTH SAVINGS SECURITY

15 ACCOUNTS AND HEALTH SAVINGS ACCOUNTS.—Sub16 section (b) of section 220 of such Code (relating to 

17 limitations) is amended by adding at the end the fol18 lowing new paragraph: 

19 ‘‘(8) COORDINATION WITH HEALTH SAVINGS

20 SECURITY ACCOUNTS AND HEALTH SAVINGS AC21 COUNTS.—The limitation which would (but for this 

22 paragraph) apply under this subsection to the tax23 payer for any taxable year shall be reduced (but not 

24 below zero) by the sum of—
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•HR 2596 IH 

1 ‘‘(A) the aggregate amount paid during 

2 such taxable year to health savings security ac3 counts of such individual, and 

4 ‘‘(B) the aggregate amount paid during 

5 such taxable year to health savings accounts of 

6 such individual.’’. 

7 (d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO

8 HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH

9 SAVINGS ACCOUNTS.—

10 (1) EXCLUSION FROM INCOME TAX.—Section 

11 106 of such Code (relating to contributions by em12 ployer to accident and health plans) is amended by 

13 adding at the end the following new subsections: 

14 ‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS SECU15 RITY ACCOUNTS.— 

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

17 who is an eligible individual, amounts contributed by 

18 such employee’s employer to any health savings se19 curity account of such employee shall be treated as 

20 employer-provided coverage for medical expenses 

21 under an accident or health plan to the extent such 

22 amounts do not exceed the limitation under section 

23 223(b) (determined without regard to this sub24 section) which is applicable to such employee for 

25 such taxable year. 
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1 ‘‘(2) SPECIAL RULES.—Rules similar to the 

2 rules of paragraphs (2), (3), (4), and (5) of sub3 section (b) shall apply for purposes of this sub4 section. 

5 ‘‘(3) DEFINITIONS.—For purposes of this sub6 section, the terms ‘eligible individual’ and ‘health 

7 savings security account’ have the respective mean8 ings given to such terms by section 223. 

9 ‘‘(4) CROSS REFERENCE.—

‘‘For penalty on failure by employer to make comparable contributions to the health savings security 

accounts of comparable employees, see section 

4980G.

10 ‘‘(e) CONTRIBUTIONS TO HEALTH SAVINGS AC11 COUNTS.— 

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

13 who is an eligible individual, amounts contributed by 

14 such employee’s employer to any health savings ac15 count of such employee shall be treated as employer16 provided coverage for medical expenses under an ac17 cident or health plan to the extent such amounts do 

18 not exceed the limitation under section 224(b) (de19 termined without regard to this subsection) which is 

20 applicable to such employee for such taxable year. 

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

22 rules of paragraphs (2), (3), (4), and (5) of sub-
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•HR 2596 IH 

1 section (b) shall apply for purposes of this sub2 section. 

3 ‘‘(3) DEFINITIONS.—For purposes of this sub4 section, the terms ‘eligible individual’ and ‘health 

5 savings account’ have the respective meanings given 

6 to such terms by section 224. 

7 ‘‘(4) CROSS REFERENCE.—

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

4980G.’’.

8 (2) EXCLUSION FROM EMPLOYMENT TAXES.—

9 (A) RAILROAD RETIREMENT TAX.—Sub10 section (e) of section 3231 of such Code is 

11 amended by adding at the end the following 

12 new paragraph: 

13 ‘‘(11) HEALTH SAVINGS SECURITY ACCOUNT

14 AND HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—

15 The term ‘compensation’ shall not include any pay16 ment made to or for the benefit of an employee if 

17 at the time of such payment it is reasonable to be18 lieve that the employee will be able to exclude such 

19 payment from income under subsection (d) or (e) of 

20 section 106.’’. 

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

22 of section 3306 of such Code is amended by 

23 striking ‘‘or’’ at the end of paragraph (16), by 
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1 striking the period at the end of paragraph (17) 

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

3 paragraph (17) the following new paragraph: 

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

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

6 reasonable to believe that the employee will be able 

7 to exclude such payment from income under sub8 section (d) or (e) of section 106.’’. 

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

10 of section 3401 of such Code is amended by 

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

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

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

14 paragraph (21) the following new paragraph: 

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

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

17 reasonable to believe that the employee will be able 

18 to exclude such payment from income under sub19 section (d) or (e) of section 106.’’

20 (3) EMPLOYER CONTRIBUTIONS REQUIRED TO

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

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

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

24 end of paragraph (11) and inserting a comma, and 
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•HR 2596 IH 

1 by inserting after paragraph (11) the following new 

2 paragraphs: 

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

4 savings security account (as defined in section 

5 223(d)) of such employee or such employee’s spouse, 

6 and 

7 ‘‘(13) the amount contributed to any health 

8 savings account (as defined in section 224(d)) of 

9 such employee or such employee’s spouse.’’. 

10 (4) PENALTY FOR FAILURE OF EMPLOYER TO

11 MAKE COMPARABLE HEALTH SAVINGS ACCOUNT

12 CONTRIBUTIONS.—

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

14 Code is amended by adding after section 4980F 

15 the following new section: 

16 ‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM17 PARABLE HEALTH SAVINGS ACCOUNT CON18 TRIBUTIONS. 

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

20 who makes a contribution to the health savings security 

21 account or the health savings account of any employee 

22 during a calendar year, there is hereby imposed a tax on 

23 the failure of such employer to meet the requirements of 

24 subsection (b) for such calendar year. 
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1 ‘‘(b) RULES AND REQUIREMENTS.—Rules and re2 quirements similar to the rules and requirements of sec3 tion 4980E shall apply for purposes of this section. 

4 ‘‘(c) REGULATIONS.—The Secretary shall issue regu5 lations to carry out the purposes of this section, including 

6 regulations providing special rules for employers who 

7 make contributions to more than one of the following types 

8 of accounts during the calendar year: 

9 ‘‘(1) An Archer MSA. 

10 ‘‘(2) A health savings security account. 

11 ‘‘(3) A health savings account.’’. 

12 (B) CLERICAL AMENDMENT.—The table of 

13 sections for chapter 43 of such Code is amend14 ed by adding after the item relating to section 

15 4980F the following new item:

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

contributions.’’.

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

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

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

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

20 (3) of subsection (a), 

21 (2) by inserting after paragraph (4) of sub22 section (a) the following new paragraphs: 

23 ‘‘(5) a health savings security account (within 

24 the meaning of section 223(d)), or 
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•HR 2596 IH 

1 ‘‘(6) a health savings account (within the mean2 ing of section 224(d))’’, and 

3 (4) by adding at the end the following new sub4 sections: 

5 ‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS

6 SECURITY ACCOUNTS.—For purposes of this section, in 

7 the case of health savings security accounts (within the 

8 meaning of section 223(d)), the term ‘excess contribu9 tions’ means the sum of—

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

11 taxable year to the accounts (other than a rollover 

12 contribution from another health savings security ac13 count, or from an Archer MSA, which is not includ14 ible in gross income) which is in excess of the limita15 tion under section 223(b) (determined without re16 gard to paragraph (5)(C) thereof), and 

17 ‘‘(2) the amount determined under this sub18 section for the preceding taxable year, reduced by 

19 the sum of—

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

21 which were included in gross income under sec22 tion 223(f)(2), and 

23 ‘‘(B) the excess (if any) of—

24 ‘‘(i) the sum of limitations described 

25 in paragraph (1), over 
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1 ‘‘(ii) the amount contributed to the 

2 accounts for the taxable year. 

3 For purposes of this subsection, any contribution which 

4 is distributed out of the health savings security account 

5 in a distribution to which section 223(f)(3) applies shall 

6 be treated as an amount not contributed. 

7 ‘‘(h) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS

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

9 health savings accounts (within the meaning of section 

10 224(d)), the term ‘excess contributions’ means the sum 

11 of—

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

13 taxable year to the accounts (other than a rollover 

14 contribution from another health savings account, a 

15 health savings security account, or from an Archer 

16 MSA, which is not includible in gross income) which 

17 is in excess of the limitation under section 224(b) 

18 (determined without regard to paragraph (3)(C) 

19 thereof), and 

20 ‘‘(2) the amount determined under this sub21 section for the preceding taxable year, reduced by 

22 the sum of—

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

24 which were included in gross income under sec25 tion 224(f)(2), and 
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•HR 2596 IH 

1 ‘‘(B) the excess (if any) of—

2 ‘‘(i) the sum of limitations described 

3 in paragraph (1), over 

4 ‘‘(ii) the amount contributed to the 

5 accounts for the taxable year. 

6 For purposes of this subsection, any contribution which 

7 is distributed out of the health savings account in a dis8 tribution to which section 224(f)(3) applies shall be treat9 ed as an amount not contributed.’’. 

10 (f) TAX ON PROHIBITED TRANSACTIONS.—

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

12 on prohibited transactions) is amended by adding at 

13 the end of subsection (c) the following new para14 graphs: 

15 ‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS SE16 CURITY ACCOUNTS.—An individual for whose benefit 

17 a health savings security account (within the mean18 ing of section 223(d)) is established shall be exempt 

19 from the tax imposed by this section with respect to 

20 any transaction concerning such account (which 

21 would otherwise be taxable under this section) if, 

22 with respect to such transaction, the account ceases 

23 to be a health savings security account by reason of 

24 the application of section 223(e)(2) to such account. 
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1 ‘‘(7) SPECIAL RULE FOR HEALTH SAVINGS AC2 COUNTS.—An individual for whose benefit a health 

3 savings account (within the meaning of section 

4 224(d)) is established shall be exempt from the tax 

5 imposed by this section with respect to any trans6 action concerning such account (which would other7 wise be taxable under this section) if, with respect 

8 to such transaction, the account ceases to be a 

9 health savings account by reason of the application 

10 of section 224(e)(2) to such account.’’. 

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

12 Code is amended by redesignating subparagraphs 

13 (E) and (F) as subparagraphs (G) and (H), respec14 tively, and by inserting after subparagraph (D) the 

15 following new subparagraphs: 

16 ‘‘(E) a health savings security account de17 scribed in section 223(d), 

18 ‘‘(F) a health savings account described in 

19 section 224(d),’’. 

20 (g) FAILURE TO PROVIDE REPORTS ON HEALTH

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

22 of such Code (relating to reports) is amended by redesig23 nating subparagraphs (C) and (D) as subparagraphs (E) 

24 and (F), respectively, and by inserting after subparagraph 

25 (B) the following new subparagraphs: 
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•HR 2596 IH 

1 ‘‘(C) section 223(g) (relating to health sav2 ings security accounts), 

3 ‘‘(D) section 224(g) (relating to health 

4 savings accounts),’’. 

5 (h) EXCEPTION FROM CAPITALIZATION OF POLICY

6 ACQUISITION EXPENSES.—Subparagraph (B) of section 

7 848(e)(1) of such Code (defining specified insurance con8 tract) is amended by striking ‘‘and’’ at the end of clause 

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

10 inserting a comma, and by adding at the end the following 

11 new clauses: 

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

13 savings security account (as defined in sec14 tion 223(d)), and’’. 

15 ‘‘(vi) any contract which is a health 

16 savings account (as defined in section 

17 224(d)).’’. 

18 (i) HEALTH SAVINGS SECURITY ACCOUNTS AND

19 HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER

20 CAFETERIA PLANS.—Paragraph (2) of section 125(d) (re21 lating to cafeteria plan defined) is amended by adding at 

22 the end the following new subparagraph: 

23 ‘‘(D) EXCEPTION FOR HEALTH SAVINGS

24 ACCOUNTS.—Subparagraph (A) shall not apply 

25 to a plan to the extent of amounts which a cov-
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•HR 2596 IH 

1 ered employee may elect to have the employer 

2 pay as contributions to a health savings secu3 rity account, or a health savings account, estab4 lished on behalf of the employee.’’. 

5 (j) INFORMATION REPORTING BY PROVIDERS OF

6 HEALTH INSURANCE.—Subpart B of part III of sub7 chapter A of chapter 61 of such Code is amended by add8 ing at the end the following new section: 

9 ‘‘SEC. 6050U. RETURNS RELATING TO PROVIDERS OF 

10 HEALTH INSURANCE. 

11 ‘‘(a) REQUIREMENT OF REPORTING.—Under regula12 tions prescribed by the Secretary, every person who pro13 vides any individual with coverage under a plan which con14 stitutes medical care shall, at such time as the Secretary 

15 may prescribe, make the return described in subsection (b) 

16 with respect to such individual. 

17 ‘‘(b) FORM AND MANNER OF RETURNS.—A return 

18 is described in this subsection if such return—

19 ‘‘(1) is in such form as the Secretary may pre20 scribe, and 

21 ‘‘(2) contains such information as the Secretary 

22 prescribes. 

23 ‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID24 UALS WITH RESPECT TO WHOM INFORMATION IS RE25 QUIRED.—Every person required to make a return under 
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1 subsection (a) shall furnish to each individual whose name 

2 is required to be set forth in such return a written state3 ment showing— 

4 ‘‘(1) the name and address of the person re5 quired to make such return and the phone number 

6 of the information contact for such person, and 

7 ‘‘(2) the information required to be shown on 

8 the return with respect to such individual. 

9 The written statement required under the preceding sen10 tence shall be furnished on or before January 31 of the 

11 year following the calendar year for which the return 

12 under subsection (a) is required to be made.’’. 

13 (k) CONFORMING AMENDMENTS.—

14 (1) The table of sections for part VII of sub15 chapter B of chapter 1 of such Code is amended by 

16 striking the last item and inserting the following:

‘‘Sec. 223. Health savings security accounts. 

‘‘Sec. 224. Health savings accounts. 

‘‘Sec. 225. Cross reference.’’.

17 (2)(A) Sections 86(b)(2)(A), 135(c)(4)(A), 

18 137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) 

19 are each amended by inserting ‘‘223,’’ after ‘‘222,’’. 

20 (B) Section 222(b)(2)(C)(i) is amended by in21 serting ‘‘223,’’ before ‘‘911’’. 

22 (C) Section 469(i)(3)(F)(iii) is amended by 

23 striking ‘‘and 222’’ and inserting ‘‘222, and 223’’.
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1 (l) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 December 31, 2003.

4 SEC. 3. DISPOSITION OF UNUSED HEALTH BENEFITS IN 

5 CAFETERIA PLANS AND FLEXIBLE SPENDING 

6 ARRANGEMENTS. 

7 (a) IN GENERAL.—Section 125 of the Internal Rev8 enue Code of 1986 (relating to cafeteria plans) is amended 

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

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

11 the following: 

12 ‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH

13 BENEFITS.—

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

15 a plan or other arrangement shall not fail to be 

16 treated as a cafeteria plan solely because qualified 

17 benefits under such plan include a health flexible 

18 spending arrangement under which not more than 

19 $500 of unused health benefits may be—

20 ‘‘(A) carried forward to the succeeding 

21 plan year of such health flexible spending ar22 rangement, 

23 ‘‘(B) to the extent permitted by sections 

24 223 and 224, contributed on behalf of the em25 ployee to a health savings security account (as 
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1 defined in section 223(d)), or a health savings 

2 account (as defined in section 224(d)), main3 tained for the benefit of such employee, or 

4 ‘‘(C) contributed to a qualified retirement 

5 plan (as defined in section 4974(c)), or an eligi6 ble deferred compensation plan (as defined in 

7 section 457(b)) of an eligible employer de8 scribed in section 457(e)(1)(A), but only to the 

9 extent such amount would not be allowed as a 

10 deduction under—

11 ‘‘(i) section 223 if made directly by 

12 the employee to a health savings security 

13 account of the employee (determined with14 out regard to any other contributions made 

15 by the employee), and 

16 ‘‘(ii) section 224 if made directly by 

17 the employee to a health savings account 

18 of the employee (determined without re19 gard to any other contributions made by 

20 the employee). 

21 ‘‘(2) SPECIAL RULES FOR TREATMENT OF CON22 TRIBUTIONS TO RETIREMENT PLANS.—For purposes 

23 of this title, contributions under paragraph (1)(C)—

24 ‘‘(A) shall be treated as elective deferrals 

25 (as defined in section 402(g)(3)) in the case of 
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1 contributions to a qualified cash or deferred ar2 rangement (as defined in section 401(k)) or to 

3 an annuity contract described in section 403(b), 

4 ‘‘(B) shall be treated as employer contribu5 tions to which the employee has a nonforfeitable 

6 right in the case of a plan (other than a plan 

7 described in subparagraph (A)) which is de8 scribed in section 401(a) which includes a trust 

9 exempt from tax under section 501(a), 

10 ‘‘(C) shall be treated as deferred com11 pensation in the case of contributions to an eli12 gible deferred compensation plan (as defined in 

13 section 457(b)), and 

14 ‘‘(D) shall be treated in the manner des15 ignated for purposes of section 408 or 408A in 

16 the case of contributions to an individual retire17 ment plan. 

18 ‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE19 MENT.—For purposes of this subsection, the term 

20 ‘health flexible spending arrangement’ means a flexi21 ble spending arrangement (as defined in section 

22 106(c)) that is a qualified benefit and only permits 

23 reimbursement for expenses for medical care (as de24 fined in section 213(d)(1) (without regard to sub25 paragraphs (C) and (D) thereof). 
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1 ‘‘(4) UNUSED HEALTH BENEFITS.—For pur2 poses of this subsection, with respect to an em3 ployee, the term ‘unused health benefits’ means the 

4 excess of—

5 ‘‘(A) the maximum amount of reimburse6 ment allowable to the employee during a plan 

7 year under a health flexible spending arrange8 ment, taking into account any election by the 

9 employee, over 

10 ‘‘(B) the actual amount of reimbursement 

11 during such year under such arrangement.’’. 

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

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

14 December 31, 2003. 

15 SEC. 4. EXCEPTION TO INFORMATION REPORTING RE16 QUIREMENTS RELATED TO CERTAIN HEALTH 

17 ARRANGEMENTS. 

18 (a) IN GENERAL.—Section 6041 (relating to infor19 mation at source) is amended by adding at the end the 

20 following new subsection: 

21 ‘‘(f) SECTION DOES NOT APPLY TO CERTAIN

22 HEALTH ARRANGEMENTS.—This section shall not apply 

23 to any payment for medical care (as defined in section 

24 213(d)) made under—
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1 ‘‘(1) a flexible spending arrangement (as de2 fined in section 106(c)(2)), or 

3 ‘‘(2) a health reimbursement arrangement 

4 which is treated as employer-provided coverage 

5 under an accident or health plan for purposes of sec6 tion 106.’’. 

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

8 this section shall apply to payments made after December 

9 31, 2002.

Æ