```

[House Report 115-850]
[From the U.S. Government Publishing Office]

115th Congress     }                                          {   Report
                           HOUSE OF REPRESENTATIVES
 2d Session        }                                          {  115-850

======================================================================

           THE ``RESTORING ACCESS TO MEDICATION ACT OF 2018''

                                _______
                                

 July 19, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 6199]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6199) to amend the Internal Revenue Code of 1986 to 
include certain over-the-counter medical products as qualified 
medical expenses, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

115th Congress    }                                          {   Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                          {  115-850

======================================================================

 
               RESTORING ACCESS TO MEDICATION ACT OF 2018

                                _______
                                

 July 19, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 6199]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6199) to amend the Internal Revenue Code of 1986 to 
include certain over-the-counter medical products as qualified 
medical expenses, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
 I. SUMMARY AND BACKGROUND............................................3
II. EXPLANATION OF THE BILL...........................................4
        A. Inclusion of Certain Over-the-Counter Medical Products 
            As Qualified Medical Expenses........................     4
III.VOTES OF THE COMMITTEE............................................7

IV. BUDGET EFFECTS OF THE BILL........................................8
        A. Committee Estimate of Budgetary Effects...............     8
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................    10
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    10
 V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......10
        A. Committee Oversight Findings and Recommendations......    10
        B. Statement of General Performance Goals and Objectives.    10
        C. Information Relating to Unfunded Mandates.............    10
        D. Applicability of House Rule XXI 5(b)..................    11
        E. Tax Complexity Analysis...............................    11
        F. Congressional Earmarks, Limited Tax Benefits, and 
            Limited Tariff Benefits..............................    11
        G. Duplication of Federal Programs.......................    12
        H. Disclosure of Directed Rule Makings...................    12
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............12
        B. Changes in Existing Law Proposed by the Bill, as 
            Reported.............................................    12

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Restoring Access to Medication Act of 
2018''.

SEC. 2. INCLUSION OF CERTAIN OVER-THE-COUNTER MEDICAL PRODUCTS AS 
                    QUALIFIED MEDICAL EXPENSES.

  (a) HSAs.--Section 223(d)(2) of the Internal Revenue Code of 1986 is 
amended--
          (1) by striking the last sentence of subparagraph (A) and 
        inserting the following: ``For purposes of this subparagraph, 
        amounts paid for menstrual care products shall be treated as 
        paid for medical care.'', and
          (2) by adding at the end the following new subparagraph:
                  ``(D) Menstrual care product.--For purposes of this 
                paragraph, the term `menstrual care product' means a 
                tampon, pad, liner, cup, sponge, or similar product 
                used by women with respect to menstruation or other 
                genital-tract secretions.''.
  (b) Archer MSAs.--Section 220(d)(2)(A) of such Code is amended by 
striking the last sentence and inserting the following: ``For purposes 
of this subparagraph, amounts paid for menstrual care products (as 
defined in section 223(d)(2)(D)) shall be treated as paid for medical 
care.''.
  (c) Health Flexible Spending Arrangements and Health Reimbursement 
Arrangements.--Section 106 of such Code is amended by striking 
subsection (f) and inserting the following new subsection:
  ``(f) Reimbursements for Menstrual Care Products.--For purposes of 
this section and section 105, expenses incurred for menstrual care 
products (as defined in section 223(d)(2)(D)) shall be treated as 
incurred for medical care.''.
  (d) Effective Dates.--
          (1) Distributions from health savings accounts.--The 
        amendments made by subsections (a) and (b) shall apply to 
        amounts paid after December 31, 2018.
          (2) Reimbursements.--The amendment made by subsection (c) 
        shall apply to expenses incurred after December 31, 2018.

                       I. SUMMARY AND BACKGROUND

                         A. Purpose and Summary

    The bill H.R. 6199, as reported by the Committee on Ways 
and Means, allows all tax-favored health accounts to be used to 
purchase over-the-counter (OTC) medical products and adds 
feminine or ``menstrual care'' products to the list of 
qualified medical expenses for the purposes of these tax-
favored health accounts.

                 B. Background and Need for Legislation

    The This tax, also known as the ``Medicine Cabinet Tax'' 
was created under the Affordable Care Act (ACA) in order to 
raise revenue to help pay for the law's new, entitlement 
spending. The treatment of OTC drugs in ACA has left these 
consumers with three options: (1) seek an unnecessary 
appointment with a doctor to obtain a prescription--saddling 
physician offices with needless appointments and resulting in 
longer wait times for other patients; (2) purchase OTC medicine 
out-of-pocket, which significantly increases the cost to the 
consumer because it is after-tax; or (3) forego treatment 
entirely and suffer from the symptoms of the condition. All 
three options increase costs to the consumer and to the health 
care system.
    Millions of Americans would benefit from the ability to use 
tax-favored accounts for the purchase of over-the-counter 
products. According to a survey by America's Health Insurance 
Plans (AHIP), 21.8 million people were covered by a high-
deductible plan (HDHP) with an HSA as of January 2017. In 
addition, another survey found that 44 percent of all civilian 
workers had access to a health FSA offered under a cafeteria 
plan in 2017. A separate annual survey of employer benefits 
found that among firms offering health benefits, 9 percent 
offer an HDHP with an HRA.

                         C. Legislative History

Background

    H.R. 6199 was introduced on June 22, 2018, and was referred 
to the Committee on Ways and Means.

Committee action

    The Committee on Ways and Means marked up H.R. 6199, the 
``Restoring Access to Medication Act of 2018,'' on July 12, 
2018, and ordered the bill, as amended, favorably reported 
(with a quorum being present).

Committee hearings

    The policy issues associated with Health Savings Accounts 
(HSAs) and need for legislative response were discussed at the 
following Ways and Means hearings during the 114th and 115th 
Congress:
           Full Committee Hearing on the Tax Treatment 
        of Health Care (April 14, 2016)
           Subcommittee on Health Member Day Hearing on 
        Tax-Related Proposals to Improve Health Care (May 17, 
        2016)
           Subcommittee on Health Hearing on Rising 
        Health Insurance Premiums Under the Affordable Care Act 
        (July 12, 2016)
           Subcommittee on Health Hearing on Lowering 
        Costs and Expanding Access to Health Care through 
        Consumer-Directed Health Plans (June 6, 2018)

                      II. EXPLANATION OF THE BILL

A. Inclusion of Certain Over-the-Counter Medical Products As Qualified 
                            Medical Expenses

                              PRESENT LAW

Individual deduction for medical expenses

    Expenses for medical care, not compensated for by insurance 
or otherwise, are deductible by an individual under the rules 
relating to itemized deductions to the extent the expenses 
exceed 7.5 percent (for 2017 and 2018) of adjusted gross income 
(``AGI'').\1\ Medical care generally is defined broadly as 
amounts paid for diagnoses, cure, mitigation, treatment or 
prevention of disease, or for the purpose of affecting any 
structure of the body.\2\
---------------------------------------------------------------------------
    \1\Sec. 213(a). The 7.5 percent of AGI threshold increases to 10 
percent for taxable years beginning after December 31, 2018 under 
section 9013 of the Affordable Care Act. However, this increase in the 
percentage does not apply until taxable years beginning after December 
31, 2016 with respect to any taxpayer if the taxpayer or the taxpayer's 
spouse has attained age 65 before the close of the taxable year.
    \2\Sec. 213(d). There are certain limitations on the general 
definition including a rule that cosmetic surgery or similar procedures 
are generally not medical care.
---------------------------------------------------------------------------
    Under an explicit limitation in the Code, any amount paid 
during a taxable year for medicine or drugs is deductible as a 
medical expense only if the medicine or drug is a prescribed 
drug or insulin.\3\ The term prescribed drug means a drug or 
biological which requires a prescription of a physician for its 
use by an individual.\4\ Thus, any amount paid for medicine 
available without a prescription (``over-the-counter 
medicine'') is not deductible as a medical expense, including 
any medicine prescribed or recommended by a physician.\5\
---------------------------------------------------------------------------
    \3\Sec. 213(b).
    \4\Sec. 213(d)(3).
    \5\Rev. Rul. 2003-58, 2003-1 CB 959.
---------------------------------------------------------------------------

Exclusion for employer-provided health care

    The Code generally provides that employees are not taxed on 
(that is, may exclude from gross income) the value of employer-
provided health coverage under an accident or health plan.\6\ 
In addition, any reimbursements under an accident or health 
plan for medical care expenses for employees, their spouses, 
and their dependents generally are excluded from gross 
income.\7\ An employer may agree to reimburse expenses for 
medical care of its employees (and their spouses and 
dependents), not covered by a health insurance plan, through a 
flexible spending account (``FSA'') which allows reimbursement 
not in excess of a specified dollar amount. Such dollar amount 
is either elected by an employee under a cafeteria plan 
(``Health FSA'') or otherwise specified by the employer under a 
health reimbursement account (``HRA''). Reimbursements under 
these arrangements are also excludible from gross income as 
reimbursements for medical care under employer-provided health 
coverage.
---------------------------------------------------------------------------
    \6\Sec 106.
    \7\Sec. 105(b).
---------------------------------------------------------------------------

Health savings accounts

    Present law provides that individuals with a high 
deductible health plan (and generally no other health plan) 
purchased either through the individual market or through an 
employer may establish and make tax-deductible contributions to 
a health savings account (``HSA'').\8\ Subject to certain 
limitations,\9\ contributions made to an HSA by an employer, 
including contributions made through a cafeteria plan through 
salary reduction, are excluded from income (and from wages for 
payroll tax purposes). Contributions made by individuals are 
deductible for income tax purposes, regardless of whether the 
individuals itemize. Distributions from an HSA that are used 
for qualified medical expenses are excludible from gross 
income. Distributions from an HSA that are not used for 
qualified medical expenses are includible in gross income and 
are subject to an additional tax of 20 percent. The 20-percent 
additional tax does not apply if the distribution is made after 
death, disability, or the individual attains the age of 
Medicare eligibility (i.e., age 65). Similar rules apply for 
another type of medical savings arrangement called an Archer 
MSA.\10\
---------------------------------------------------------------------------
    \8\Sec. 223.
    \9\For 2018, the basic limit on annual contributions that can be 
made to an HSA is $3,450 in the case of self-only coverage and $6,900 
in the case of family coverage. (The 2018 limitation for family 
coverage was revised by the IRS to permit taxpayers to disregard the 
$6,850 limitation under the modified inflation adjustment of Pub. L. 
No. 115-97. Rev. Rul. 2018-27, 2018-20 I.R.B. 591, May 14, 2018.) The 
basic annual contributions limits are increased by $1,000 for 
individuals who have attained age 55 by the end of the taxable year 
(referred to as ``catch-up'' contributions).
    \10\Sec. 220.
---------------------------------------------------------------------------

Medical care for excludible reimbursements

    For purposes of the exclusion for reimbursements under 
employer-provided accident and health plans (including under 
Health FSAs and HRAs), and for distributions from HSAs and 
Archer MSAs used for qualified medical expenses, the definition 
of medical care is generally the same as the definition that 
applies for the itemized deduction for the cost of medical 
care. However, prior to the enactment of the Patient Protection 
and Affordable Care Act (referred to as the ``Affordable Care 
Act''),\11\ the limitation (applicable to the itemized 
deduction) that only prescription medicines or drugs and 
insulin are taken into account did not apply. Thus, for 
example, amounts paid from a Health FSA or HRA, or funds 
distributed from an HSA to reimburse a taxpayer for 
nonprescription drugs, such as nonprescription aspirin, allergy 
medicine, antacids, or pain relievers, were excludable from 
income even though, if the taxpayer paid for such amounts 
directly (without such reimbursement), the expenses could not 
be taken into account in determining the itemized deduction for 
medical expenses.\12\ For years beginning after December 31, 
2010, the Affordable Care Act changed the definition of medical 
care for purposes of the exclusion for reimbursements for 
medical care under employer-provided accident and health plans 
and for distributions from HSAs and Archer MSAs used for 
qualified medical expenses to require that over-the-counter 
medicine (other than insulin) be prescribed by a physician in 
order for the medicine to be medical care for these 
purposes.\13\ Thus, under present law, a Health FSA or an HRA 
is only permitted to reimburse an employee for the cost of 
over-the-counter medicine if the medicine is prescribed by a 
physician and distributions from an HSA or an Archer MSA used 
to purchase over-the-counter medicine is not a qualified 
medical expense unless the medicine is prescribed by a 
physician.
---------------------------------------------------------------------------
    \11\Patient Protection and Affordable Care Act, Pub. L. No 111-148. 
Various provisions of the Affordable Care Act are amended by the Health 
Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152.
    \12\Rev. Rul. 2003-102, 2993-2 C.B. 559, now obsoleted by Rev. Rul. 
2010-23, 2010-39 I.R.B. 388, September 3, 2010.
    \13\Sec. 9003 of the Affordable Care Act. Notice 2010-59, 2010-39 
I.R.B. 388, provides guidance on this change to the definition of 
medical care for these purposes.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee observes that the requirement that over-the-
counter medicine requires a prescription in order to be an 
eligible expense for individuals and families covered by a 
health FSA, HSA, HRA, or Archer MSA has left consumers with 
three options: (1) seek an unnecessary appointment with a 
doctor to obtain a prescription; (2) purchase the over-the-
counter medicine out-of-pocket, which increases the after-tax 
cost to the consumer; or (3) forego treatment entirely. The 
Committee notes that all three options increase costs to the 
consumer and to our healthcare system. The Committee also 
believes that amounts paid for menstrual care products should 
be treated as qualified medical expenses.
    The Committee therefore believes that the provision of the 
Affordable Care Act that disqualified expenses for all over-
the-counter medicine (unless obtained with a prescription) from 
being medical expenses under health FSAs, HRAs, HSAs, and 
Archer MSAs should be modified. In addition, the Committee 
believes that amounts paid for menstrual care products should 
be treated as qualified medical expenses.

                        EXPLANATION OF PROVISION

    Under the proposal, amounts paid from HSAs and MSAs that 
are qualified medical expenses are no longer limited only to 
those medicines and drugs which are prescribed, and include 
amounts paid for menstrual care products, such as tampons, 
pads, liners, cups, sponges, or similar products used by women 
with respect to menstruation or other genital-tract secretions.
    Similarly, the proposal amends the definition of qualified 
medical expense for health FSAs and HRAs. Qualified medical 
expenses are no longer limited only to those medicines and 
drugs which are prescribed, and include expenses incurred for 
menstrual care products as described above.

                             EFFECTIVE DATE

    The proposal for amendments to amounts paid from HSAs and 
MSAs is effective for amounts paid after December 31, 2018.
    The proposal for amendments to health FSAs and HRAs is 
effective for expenses incurred after December 31, 2018.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, the following statement is made concerning the 
vote of the Committee on Ways and Means during the markup 
consideration of H.R. 6199, the ``Restoring Access to 
Medication Act of 2018,'' on July 12, 2018.
    H.R. 6199 was ordered favorably reported to the House of 
Representatives as amended by an amendment in the nature of a 
substitute offered by Mr. Roskam by a roll call vote of 24 yeas 
to 10 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady......................  ........  ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Nunes......................        X   ........  .........  Mr. Lewis........  ........        X   .........
Mr. Reichert...................        X   ........  .........  Mr. Doggett......  ........  ........  .........
Mr. Roskam.....................        X   ........  .........  Mr. Thompson.....  ........        X   .........
Mr. Buchanan...................        X   ........  .........  Mr. Larson.......  ........        X   .........
Mr. Smith (NE).................        X   ........  .........  Mr. Blumenauer...  ........  ........  .........
Ms. Jenkins....................        X   ........  .........  Mr. Kind.........        X   ........  .........
Mr. Paulsen....................        X   ........  .........  Mr. Pascrell.....        X   ........  .........
Mr. Marchant...................        X   ........  .........  Mr. Crowley......  ........  ........  .........
Ms. Black......................  ........  ........  .........  Mr. Davis........  ........        X   .........
Mr. Reed.......................        X   ........  .........  Ms. Sanchez......  ........  ........  .........
Mr. Kelly......................        X   ........  .........  Mr. Higgins......  ........        X   .........
Mr. Renacci....................        X   ........  .........  Ms. Sewell.......  ........        X   .........
Ms. Noem.......................        X   ........  .........  Ms. DelBene......  ........        X   .........
Mr. Holding....................        X   ........  .........  Ms. Chu..........  ........        X   .........
Mr. Smith (MO).................        X   ........  .........
Mr. Rice.......................        X   ........  .........
Mr. Schweikert.................        X   ........  .........
Ms. Walorski...................        X   ........  .........
Mr. Curbelo....................        X   ........  .........
Mr. Bishop.....................        X   ........  .........
Mr. LaHood.....................        X   ........  .........
Mr. Wenstrup...................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 6199, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2019-2028:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               FISCAL YEARS [Millions of Dollars]
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                            Item                                 2019       2020       2021       2022       2023       2024       2025       2026       2027       2028     2019-23    2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Include Certain Over-The-Counter Medical Expenses as               -279       -538       -618       -645       -674       -703       -734       -799       -848       -887     -2,753     -6,723
 Qualified Medical Expenses\1\..............................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 2019       2020       2021       2022       2023       2024       2025       2026       2027       2028     2019-23    2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Estimate includes the following off-budget effects.......        -86       -165       -189       -198       -207       -216       -225       -235       -246       -257       -846     -2,026
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    Pursuant to clause 8 of rule XIII of the Rules of the House 
of Representatives, the following statement is made by the 
Joint Committee on Taxation with respect to the provisions of 
the bill amending the Internal Revenue Code of 1986: The gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

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

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue-reducing tax 
provision involves a new tax expenditure. See Part IV.A., 
above.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 6138, as 
reported. As of the filing of this report, the Committee had 
not received an estimate prepared by the Congressional Budget 
Office (CBO).

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated into 
the description portions of this report.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    The following statement is made pursuant to clause 3(h)(1) 
of rule XIII of the Rules of the House of Representatives. 
Section 4022(b) of the Internal Revenue Service Restructuring 
and Reform Act of 1998 requires the staff of the Joint 
Committee on Taxation (in consultation with the Internal 
Revenue Service and the Treasury Department) to provide a tax 
complexity analysis. The complexity analysis is required for 
all legislation reported by the Senate Committee on Finance, 
the House Committee on Ways and Means, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation a summary description of the provision is 
provided along with an estimate of the number and type of 
affected taxpayers, and a discussion regarding the relevant 
complexity and administrative issues.

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

            Summary description of the provisions
    The provision changes the definition of medical care for 
purposes of the exclusion for reimbursements for medical care 
under employer-provided accident and health plans (which 
include health FSAs and HRAs) and for distributions from HSAs 
or Archer MSAs used for qualified medical expenses to include 
over-the-counter medicine not prescribed by a physician, 
including menstrual care products.
            Number of affected taxpayers
    It is estimated that the provision will affect over ten 
percent of individual tax returns.
            Discussion
    Taxpayers voluntarily claiming reimbursement for over-the-
counter medicines may have an increased burden in record 
keeping and claim submissions.

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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program, (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139, or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to section 6104 of 
title 31, United States Code.

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee advises that the bill requires no 
directed rule makings within the meaning of such section.

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

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

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed by the bill, as reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *
Subtitle A--Income Taxes

           *       *       *       *       *       *       *

CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *

Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *

PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *

SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH PLANS.

  (a) General rule.--Except as otherwise provided in this 
section, gross income of an employee does not include employer-
provided coverage under an accident or health plan.
  (b) Contributions to Archer MSAs.--
          (1) In general.--In the case of an employee who is an 
        eligible individual, amounts contributed by such 
        employee's employer to any Archer MSA of such employee 
        shall be treated as employer-provided coverage for 
        medical expenses under an accident or health plan to 
        the extent such amounts do not exceed the limitation 
        under section 220(b)(1) (determined without regard to 
        this subsection) which is applicable to such employee 
        for such taxable year.
          (2) No constructive receipt.--No amount shall be 
        included in the gross income of any employee solely 
        because the employee may choose between the 
        contributions referred to in paragraph (1) and employer 
        contributions to another health plan of the employer.
          (3) Special rule for deduction of employer 
        contributions.--Any employer contribution to an Archer 
        MSA, if otherwise allowable as a deduction under this 
        chapter, shall be allowed only for the taxable year in 
        which paid.
          (4) Employer MSA contributions required to be shown 
        on return.--Every individual required to file a return 
        under section 6012 for the taxable year shall include 
        on such return the aggregate amount contributed by 
        employers to the Archer MSAs of such individual or such 
        individual's spouse for such taxable year.
          (5) MSA contributions not part of COBRA coverage.--
        Paragraph (1) shall not apply for purposes of section 
        4980B.
          (6) Definitions.--For purposes of this subsection, 
        the terms ``eligible individual'' and ``Archer MSA'' 
        have the respective meanings given to such terms by 
        section 220.
          (7) Cross reference.--For penalty on failure by 
        employer to make comparable contributions to the Archer 
        MSAs of comparable employees, see section 4980E.
  (c) Inclusion of long-term care benefits provided through 
flexible spending arrangements.--
          (1) In general.--Gross income of an employee shall 
        include employer-provided coverage for qualified long-
        term care services (as defined in section 7702B(c)) to 
        the extent that such coverage is provided through a 
        flexible spending or similar arrangement.
          (2) Flexible spending arrangement.--For purposes of 
        this subsection, a flexible spending arrangement is a 
        benefit program which provides employees with coverage 
        under which--
                  (A) specified incurred expenses may be 
                reimbursed (subject to reimbursement maximums 
                and other reasonable conditions), and
                  (B) the maximum amount of reimbursement which 
                is reasonably available to a participant for 
                such coverage is less than 500 percent of the 
                value of such coverage.
        In the case of an insured plan, the maximum amount 
        reasonably available shall be determined on the basis 
        of the underlying coverage.
  (d) Contributions to health savings accounts.--
          (1) In general.--In the case of an employee who is an 
        eligible individual (as defined in section 223(c)(1)), 
        amounts contributed by such employee's employer to any 
        health savings account (as defined in section 223(d)) 
        of such employee shall be treated as employer-provided 
        coverage for medical expenses under an accident or 
        health plan to the extent such amounts do not exceed 
        the limitation under section 223(b) (determined without 
        regard to this subsection) which is applicable to such 
        employee for such taxable year.
          (2) Special rules.--Rules similar to the rules of 
        paragraphs (2), (3), (4), and (5) of subsection (b) 
        shall apply for purposes of this subsection.
          (3) Cross reference.--For penalty on failure by 
        employer to make comparable contributions to the health 
        savings accounts of comparable employees, see section 
        4980G.
  (e) FSA and HRA Terminations to Fund HSAs.--
          (1) In general.--A plan shall not fail to be treated 
        as a health flexible spending arrangement or health 
        reimbursement arrangement under this section or section 
        105 merely because such plan provides for a qualified 
        HSA distribution.
          (2) Qualified HSA distribution.--The term ``qualified 
        HSA distribution'' means a distribution from a health 
        flexible spending arrangement or health reimbursement 
        arrangement to the extent that such distribution--
                  (A) does not exceed the lesser of the balance 
                in such arrangement on September 21, 2006, or 
                as of the date of such distribution, and
                  (B) is contributed by the employer directly 
                to the health savings account of the employee 
                before January 1, 2012.
        Such term shall not include more than 1 distribution 
        with respect to any arrangement.
          (3) Additional tax for failure to maintain high 
        deductible health plan coverage.--
                  (A) In general.--If, at any time during the 
                testing period, the employee is not an eligible 
                individual, then the amount of the qualified 
                HSA distribution--
                          (i) shall be includible in the gross 
                        income of the employee for the taxable 
                        year in which occurs the first month in 
                        the testing period for which such 
                        employee is not an eligible individual, 
                        and
                          (ii) the tax imposed by this chapter 
                        for such taxable year on the employee 
                        shall be increased by 10 percent of the 
                        amount which is so includible.
                  (B) Exception for disability or death.--
                Clauses (i) and (ii) of subparagraph (A) shall 
                not apply if the employee ceases to be an 
                eligible individual by reason of the death of 
                the employee or the employee becoming disabled 
                (within the meaning of section 72(m)(7)).
          (4) Definitions and special rules.--For purposes of 
        this subsection--
                  (A) Testing period.--The term ``testing 
                period'' means the period beginning with the 
                month in which the qualified HSA distribution 
                is contributed to the health savings account 
                and ending on the last day of the 12th month 
                following such month.
                  (B) Eligible individual.--The term ``eligible 
                individual'' has the meaning given such term by 
                section 223(c)(1).
                  (C) Treatment as rollover contribution.--A 
                qualified HSA distribution shall be treated as 
                a rollover contribution described in section 
                223(f)(5).
          (5) Tax treatment relating to distributions.--For 
        purposes of this title--
                  (A) In general.--A qualified HSA distribution 
                shall be treated as a payment described in 
                subsection (d).
                  (B) Comparability excise tax.--
                          (i) In general.--Except as provided 
                        in clause (ii), section 4980G shall not 
                        apply to qualified HSA distributions.
                          (ii) Failure to offer to all 
                        employees.--In the case of a qualified 
                        HSA distribution to any employee, the 
                        failure to offer such distribution to 
                        any eligible individual covered under a 
                        high deductible health plan of the 
                        employer shall (notwithstanding section 
                        4980G(d)) be treated for purposes of 
                        section 4980G as a failure to meet the 
                        requirements of section 4980G(b).
  [(f) Reimbursements for medicine restricted to prescribed 
drugs and insulin.--For purposes of this section and section 
105, reimbursement for expenses incurred for a medicine or a 
drug shall be treated as a reimbursement for medical expenses 
only if such medicine or drug is a prescribed drug (determined 
without regard to whether such drug is available without a 
prescription) or is insulin.]
  (f) Reimbursements for Menstrual Care Products.--For purposes 
of this section and section 105, expenses incurred for 
menstrual care products (as defined in section 223(d)(2)(D)) 
shall be treated as incurred for medical care.
  (g) Qualified small employer health reimbursement 
arrangement.--For purposes of this section and section 105, 
payments or reimbursements from a qualified small employer 
health reimbursement arrangement (as defined in section 
9831(d)) of an individual for medical care (as defined in 
section 213(d)) shall not be treated as paid or reimbursed 
under employer-provided coverage for medical expenses under an 
accident or health plan if for the month in which such medical 
care is provided the individual does not have minimum essential 
coverage (within the meaning of section 5000A(f)).

           *       *       *       *       *       *       *

PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *

SEC. 220. ARCHER MSAS.

  (a) Deduction allowed.--In the case of an individual who is 
an eligible individual for any month during the taxable year, 
there shall be allowed as a deduction for the taxable year an 
amount equal to the aggregate amount paid in cash during such 
taxable year by such individual to an Archer MSA of such 
individual.
  (b) Limitations.--
          (1) In general.--The amount allowable as a deduction 
        under subsection (a) to an individual for the taxable 
        year shall not exceed the sum of the monthly 
        limitations for months during such taxable year that 
        the individual is an eligible individual.
          (2) Monthly limitation.--The monthly limitation for 
        any month is the amount equal to 1/12 of--
                  (A) in the case of an individual who has 
                self-only coverage under the high deductible 
                health plan as of the first day of such month, 
                65 percent of the annual deductible under such 
                coverage, and
                  (B) in the case of an individual who has 
                family coverage under the high deductible 
                health plan as of the first day of such month, 
                75 percent of the annual deductible under such 
                coverage.
          (3) Special rule for married individuals.--In the 
        case of individuals who are married to each other, if 
        either spouse has family coverage--
                  (A) both spouses shall be treated as having 
                only such family coverage (and if such spouses 
                each have family coverage under different 
                plans, as having the family coverage with the 
                lowest annual deductible), and
                  (B) the limitation under paragraph (1) (after 
                the application of subparagraph (A) of this 
                paragraph) shall be divided equally between 
                them unless they agree on a different division.
          (4) Deduction not to exceed compensation.--
                  (A) Employees.--The deduction allowed under 
                subsection (a) for contributions as an eligible 
                individual described in subclause (I) of 
                subsection (c)(1)(A)(iii) shall not exceed such 
                individual's wages, salaries, tips, and other 
                employee compensation which are attributable to 
                such individual's employment by the employer 
                referred to in such subclause.
                  (B) Self-employed individuals.--The deduction 
                allowed under subsection (a) for contributions 
                as an eligible individual described in 
                subclause (II) of subsection (c)(1)(A)(iii) 
                shall not exceed such individual's earned 
                income (as defined in section 401(c)(1)) 
                derived by the taxpayer from the trade or 
                business with respect to which the high 
                deductible health plan is established.
                  (C) Community property laws not to apply.--
                The limitations under this paragraph shall be 
                determined without regard to community property 
                laws.
          (5) Coordination with exclusion for employer 
        contributions.--No deduction shall be allowed under 
        this section for any amount paid for any taxable year 
        to an Archer MSA of an individual if--
                  (A) any amount is contributed to any Archer 
                MSA of such individual for such year which is 
                excludable from gross income under section 
                106(b), or
                  (B) if such individual's spouse is covered 
                under the high deductible health plan covering 
                such individual, any amount is contributed for 
                such year to any Archer MSA of such spouse 
                which is so excludable.
          (6) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section to any individual 
        with respect to whom a deduction under section 151 is 
        allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such 
        individual's taxable year begins.
          (7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month thereafter.
  (c) Definitions.--For purposes of this section--
          (1) Eligible individual.--
                  (A) In general.--The term ``eligible 
                individual'' means, with respect to any month, 
                any individual if--
                          (i) such individual is covered under 
                        a high deductible health plan as of the 
                        1st day of such month,
                          (ii) such individual is not, while 
                        covered under a high deductible health 
                        plan, covered under any health plan--
                                  (I) which is not a high 
                                deductible health plan, and
                                  (II) which provides coverage 
                                for any benefit which is 
                                covered under the high 
                                deductible health plan, and
                          (iii)(I) the high deductible health 
                        plan covering such individual is 
                        established and maintained by the 
                        employer of such individual or of the 
                        spouse of such individual and such 
                        employer is a small employer, or
                                  (II) such individual is an 
                                employee (within the meaning of 
                                section 401(c)(1)) or the 
                                spouse of such an employee and 
                                the high deductible health plan 
                                covering such individual is not 
                                established or maintained by 
                                any employer of such individual 
                                or spouse.
                  (B) Certain coverage disregarded.--
                Subparagraph (A)(ii) shall be applied without 
                regard to--
                          (i) coverage for any benefit provided 
                        by permitted insurance, and
                          (ii) coverage (whether through 
                        insurance or otherwise) for accidents, 
                        disability, dental care, vision care, 
                        or long-term care.
                  (C) Continued eligibility of employee and 
                spouse establishing Archer MSAs.--If, while an 
                employer is a small employer--
                          (i) any amount is contributed to an 
                        Archer MSA of an individual who is an 
                        employee of such employer or the spouse 
                        of such an employee, and
                          (ii) such amount is excludable from 
                        gross income under section 106(b) or 
                        allowable as a deduction under this 
                        section,
                such individual shall not cease to meet the 
                requirement of subparagraph (A)(iii)(I) by 
                reason of such employer ceasing to be a small 
                employer so long as such employee continues to 
                be an employee of such employer.
                  (D) Limitations on eligibility.--For 
                limitations on number of taxpayers who are 
                eligible to have Archer MSAs, see subsection 
                (i).
          (2) High deductible health plan.--
                  (A) In general.--The term ``high deductible 
                health plan'' means a health plan--
                          (i) in the case of self-only 
                        coverage, which has an annual 
                        deductible which is not less than 
                        $1,500 and not more than $2,250,
                          (ii) in the case of family coverage, 
                        which has an annual deductible which is 
                        not less than $3,000 and not more than 
                        $4,500, and
                          (iii) the annual out-of-pocket 
                        expenses required to be paid under the 
                        plan (other than for premiums) for 
                        covered benefits does not exceed--
                                  (I) $3,000 for self-only 
                                coverage, and
                                  (II) $5,500 for family 
                                coverage.
                  (B) Special rules.--
                          (i) Exclusion of certain plans.--Such 
                        term does not include a health plan if 
                        substantially all of its coverage is 
                        coverage described in paragraph (1)(B).
                          (ii) Safe harbor for absence of 
                        preventive care deductible.--A plan 
                        shall not fail to be treated as a high 
                        deductible health plan by reason of 
                        failing to have a deductible for 
                        preventive care if the absence of a 
                        deductible for such care is required by 
                        State law.
          (3) Permitted insurance.--The term ``permitted 
        insurance'' means--
                  (A) insurance if substantially all of the 
                coverage provided under such insurance relates 
                to--
                          (i) liabilities incurred under 
                        workers' compensation laws,
                          (ii) tort liabilities,
                          (iii) liabilities relating to 
                        ownership or use of property, or
                          (iv) such other similar liabilities 
                        as the Secretary may specify by 
                        regulations,
                  (B) insurance for a specified disease or 
                illness, and
                  (C) insurance paying a fixed amount per day 
                (or other period) of hospitalization.
          (4) Small employer.--
                  (A) In general.--The term ``small employer'' 
                means, with respect to any calendar year, any 
                employer if such employer employed an average 
                of 50 or fewer employees on business days 
                during either of the 2 preceding calendar 
                years. For purposes of the preceding sentence, 
                a preceding calendar year may be taken into 
                account only if the employer was in existence 
                throughout such year.
                  (B) Employers not in existence in preceding 
                year.--In the case of an employer which was not 
                in existence throughout the 1st preceding 
                calendar year, the determination under 
                subparagraph (A) shall be based on the average 
                number of employees that it is reasonably 
                expected such employer will employ on business 
                days in the current calendar year.
                  (C) Certain growing employers retain 
                treatment as small employer.--The term ``small 
                employer'' includes, with respect to any 
                calendar year, any employer if--
                          (i) such employer met the requirement 
                        of subparagraph (A) (determined without 
                        regard to subparagraph (B)) for any 
                        preceding calendar year after 1996,
                          (ii) any amount was contributed to 
                        the Archer MSA of any employee of such 
                        employer with respect to coverage of 
                        such employee under a high deductible 
                        health plan of such employer during 
                        such preceding calendar year and such 
                        amount was excludable from gross income 
                        under section 106(b) or allowable as a 
                        deduction under this section, and
                          (iii) such employer employed an 
                        average of 200 or fewer employees on 
                        business days during each preceding 
                        calendar year after 1996.
                  (D) Special rules.--
                          (i) Controlled groups.--For purposes 
                        of this paragraph, all persons treated 
                        as a single employer under subsection 
                        (b), (c), (m), or (o) of section 414 
                        shall be treated as 1 employer.
                          (ii) Predecessors.--Any reference in 
                        this paragraph to an employer shall 
                        include a reference to any predecessor 
                        of such employer.
          (5) Family coverage.--The term ``family coverage'' 
        means any coverage other than self-only coverage.
  (d) Archer MSA.--For purposes of this section--
          (1) Archer MSA.--The term ``Archer MSA'' means a 
        trust created or organized in the United States as a 
        medical savings account exclusively for the purpose of 
        paying the qualified medical expenses of the account 
        holder, but only if the written governing instrument 
        creating the trust meets the following requirements:
                  (A) Except in the case of a rollover 
                contribution described in subsection (f)(5), no 
                contribution will be accepted--
                          (i) unless it is in cash, or
                          (ii) to the extent such contribution, 
                        when added to previous contributions to 
                        the trust for the calendar year, 
                        exceeds 75 percent of the highest 
                        annual limit deductible permitted under 
                        subsection (c)(2)(A)(ii) for such 
                        calendar year.
                  (B) The trustee is a bank (as defined in 
                section 408(n)), an insurance company (as 
                defined in section 816), or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                  (C) No part of the trust assets will be 
                invested in life insurance contracts.
                  (D) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                  (E) The interest of an individual in the 
                balance in his account is nonforfeitable.
          (2) Qualified medical expenses.--
                  (A) In general.--The term ``qualified medical 
                expenses'' means, with respect to an account 
                holder, amounts paid by such holder for medical 
                care (as defined in section 213(d)) for such 
                individual, the spouse of such individual, and 
                any dependent (as defined in section 152, 
                determined without regard to subsections 
                (b)(1), (b)(2), and (d)(1)(B) thereof) of such 
                individual, but only to the extent such amounts 
                are not compensated for by insurance or 
                otherwise. [Such term shall include an amount 
                paid for medicine or a drug only if such 
                medicine or drug is a prescribed drug 
                (determined without regard to whether such drug 
                is available without a prescription) or is 
                insulin.] For purposes of this subparagraph, 
                amounts paid for menstrual care products (as 
                defined in section 223(d)(2)(D)) shall be 
                treated as paid for medical care.
                  (B) Health insurance may not be purchased 
                from account.--
                          (i) In general.--Subparagraph (A) 
                        shall not apply to any payment for 
                        insurance.
                          (ii) Exceptions.--Clause (i) shall 
                        not apply to any expense for coverage 
                        under--
                                  (I) a health plan during any 
                                period of continuation coverage 
                                required under any Federal law,
                                  (II) a qualified long-term 
                                care insurance contract (as 
                                defined in section 7702B(b)), 
                                or
                                  (III) a health plan during a 
                                period in which the individual 
                                is receiving unemployment 
                                compensation under any Federal 
                                or State law.
                  (C) Medical expenses of individuals who are 
                not eligible individuals.--Subparagraph (A) 
                shall apply to an amount paid by an account 
                holder for medical care of an individual who is 
                not described in clauses (i) and (ii) of 
                subsection (c)(1)(A)for the month in which the 
                expense for such care is incurred only if no 
                amount is contributed (other than a rollover 
                contribution) to any Archer MSA of such account 
                holder for the taxable year which includes such 
                month. This subparagraph shall not apply to any 
                expense for coverage described in subclause (I) 
                or (III) of subparagraph (B)(ii).
          (3) Account holder.--The term ``account holder'' 
        means the individual on whose behalf the Archer MSA was 
        established.
          (4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                  (A) Section 219(d)(2) (relating to no 
                deduction for rollovers).
                  (B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                  (C) Except as provided in section 106(b), 
                section 219(f)(5) (relating to employer 
                payments).
                  (D) Section 408(g) (relating to community 
                property laws).
                  (E) Section 408(h) (relating to custodial 
                accounts).
  (e) Tax treatment of accounts.--
          (1) In general.--An Archer MSA is exempt from 
        taxation under this subtitle unless such account has 
        ceased to be an Archer MSA. Notwithstanding the 
        preceding sentence, any such account is subject to the 
        taxes imposed by section 511 (relating to imposition of 
        tax on unrelated business income of charitable, etc. 
        organizations).
          (2) Account terminations.--Rules similar to the rules 
        of paragraphs (2) and (4) of section 408(e) shall apply 
        to Archer MSAs, and any amount treated as distributed 
        under such rules shall be treated as not used to pay 
        qualified medical expenses.
  (f) Tax Treatment of distributions.--
          (1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of an Archer MSA which 
        is used exclusively to pay qualified medical expenses 
        of any account holder shall not be includible in gross 
        income.
          (2) Inclusion of amounts not used for qualified 
        medical expenses.--Any amount paid or distributed out 
        of an Archer MSA which is not used exclusively to pay 
        the qualified medical expenses of the account holder 
        shall be included in the gross income of such holder.
          (3) Excess contributions returned before due date of 
        return.--
                  (A) In general.--If any excess contribution 
                is contributed for a taxable year to any Archer 
                MSA of an individual, paragraph (2) shall not 
                apply to distributions from the Archer MSAs of 
                such individual (to the extent such 
                distributions do not exceed the aggregate 
                excess contributions to all such accounts of 
                such individual for such year) if--
                          (i) such distribution is received by 
                        the individual on or before the last 
                        day prescribed by law (including 
                        extensions of time) for filing such 
                        individual's return for such taxable 
                        year, and
                          (ii) such distribution is accompanied 
                        by the amount of net income 
                        attributable to such excess 
                        contribution.
                Any net income described in clause (ii) shall 
                be included in the gross income of the 
                individual for the taxable year in which it is 
                received.
                  (B) Excess contribution.--For purposes of 
                subparagraph (A), the term ``excess 
                contribution'' means any contribution (other 
                than a rollover contribution) which is neither 
                excludable from gross income under section 
                106(b) nor deductible under this section.
          (4) Additional tax on distributions not used for 
        qualified medical expenses.--
                  (A) In general.--The tax imposed by this 
                chapter on the account holder for any taxable 
                year in which there is a payment or 
                distribution from an Archer MSA of such holder 
                which is includible in gross income under 
                paragraph (2) shall be increased by 20 percent 
                of the amount which is so includible.
                  (B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment 
                or distribution is made after the account 
                holder becomes disabled within the meaning of 
                section 72(m)(7) or dies.
                  (C) Exception for distributions after 
                medicare eligibility.--Subparagraph (A) shall 
                not apply to any payment or distribution after 
                the date on which the account holder attains 
                the age specified in section 1811 of the Social 
                Security Act.
          (5) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets 
        the requirements of subparagraphs (A) and (B).
                  (A) In general.--Paragraph (2) shall not 
                apply to any amount paid or distributed from an 
                Archer MSA to the account holder to the extent 
                the amount received is paid into an Archer MSA 
                or a health savings account (as defined in 
                section 223(d)) for the benefit of such holder 
                not later than the 60th day after the day on 
                which the holder receives the payment or 
                distribution.
                  (B) Limitation.--This paragraph shall not 
                apply to any amount described in subparagraph 
                (A) received by an individual from an Archer 
                MSA if, at any time during the 1-year period 
                ending on the day of such receipt, such 
                individual received any other amount described 
                in subparagraph (A) from an Archer MSA which 
                was not includible in the individual's gross 
                income because of the application of this 
                paragraph.
          (6) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction 
        under section 213, any payment or distribution out of 
        an Archer MSA for qualified medical expenses shall not 
        be treated as an expense paid for medical care.
          (7) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in an Archer MSA 
        to an individual's spouse or former spouse under a 
        divorce or separation instrument described in clause 
        (i) of section 121(d)(3)(C) shall not be considered a 
        taxable transfer made by such individual 
        notwithstanding any other provision of this subtitle, 
        and such interest shall, after such transfer, be 
        treated as an Archer MSA with respect to which such 
        spouse is the account holder.
          (8) Treatment after death of account holder.--
                  (A) Treatment if designated beneficiary is 
                spouse.--If the account holder's surviving 
                spouse acquires such holder's interest in an 
                Archer MSA by reason of being the designated 
                beneficiary of such account at the death of the 
                account holder, such Archer MSA shall be 
                treated as if the spouse were the account 
                holder.
                  (B) Other cases.--
                          (i) In general.--If, by reason of the 
                        death of the account holder, any person 
                        acquires the account holder's interest 
                        in an Archer MSA in a case to which 
                        subparagraph (A) does not apply--
                                  (I) such account shall cease 
                                to be an Archer MSA as of the 
                                date of death, and
                                  (II) an amount equal to the 
                                fair market value of the assets 
                                in such account on such date 
                                shall be includible if such 
                                person is not the estate of 
                                such holder, in such person's 
                                gross income for the taxable 
                                year which includes such date, 
                                or if such person is the estate 
                                of such holder, in such 
                                holder's gross income for the 
                                last taxable year of such 
                                holder.
                          (ii) Special rules.--
                                  (I) Reduction of inclusion 
                                for pre-death expenses.--The 
                                amount includible in gross 
                                income under clause (i) by any 
                                person (other than the estate) 
                                shall be reduced by the amount 
                                of qualified medical expenses 
                                which were incurred by the 
                                decedent before the date of the 
                                decedent's death and paid by 
                                such person within 1 year after 
                                such date.
                                  (II) Deduction for estate 
                                taxes.--An appropriate 
                                deduction shall be allowed 
                                under section 691(c) to any 
                                person (other than the decedent 
                                or the decedent's spouse) with 
                                respect to amounts included in 
                                gross income under clause (i) 
                                by such person.
  (g) Cost-of-living adjustment.--In the case of any taxable 
year beginning in a calendar year after 1998, each dollar 
amount in subsection (c)(2) shall be increased by an amount 
equal to--
          (1) such dollar amount, multiplied by
          (2) the cost-of-living adjustment determined under 
        section 1(f)(3) for the calendar year in which such 
        taxable year begins by substituting ``calendar year 
        1997'' for ``calendar year 2016'' in subparagraph 
        (A)(ii) thereof.
If any increase under the preceding sentence is not a multiple 
of $50, such increase shall be rounded to the nearest multiple 
of $50.
  (h) Reports.--The Secretary may require the trustee of an 
Archer MSA to make such reports regarding such account to the 
Secretary and to the account holder with respect to 
contributions, distributions, and such other matters as the 
Secretary determines appropriate. The reports required by this 
subsection shall be filed at such time and in such manner and 
furnished to such individuals at such time and in such manner 
as may be required by the Secretary.
  (i) Limitation on number of taxpayers having Archer MSAs.--
          (1) In general.--Except as provided in paragraph (5), 
        no individual shall be treated as an eligible 
        individual for any taxable year beginning after the 
        cut-off year unless--
                  (A) such individual was an active MSA 
                participant for any taxable year ending on or 
                before the close of the cut-off year, or
                  (B) such individual first became an active 
                MSA participant for a taxable year ending after 
                the cut-off year by reason of coverage under a 
                high deductible health plan of an MSA-
                participating employer.
          (2) Cut-off year.--For purposes of paragraph (1), the 
        term ``cut-off year'' means the earlier of--
                  (A) calendar year 2007, or
                  (B) the first calendar year before 2007 for 
                which the Secretary determines under subsection 
                (j) that the numerical limitation for such year 
                has been exceeded.
          (3) Active MSA participant.--For purposes of this 
        subsection--
                  (A) In general.--The term ``active MSA 
                participant'' means, with respect to any 
                taxable year, any individual who is the account 
                holder of any Archer MSA into which any 
                contribution was made which was excludable from 
                gross income under section 106(b), or allowable 
                as a deduction under this section, for such 
                taxable year.
                  (B) Special rule for cut-off years before 
                2007.--In the case of a cut-off year before 
                2007--
                          (i) an individual shall not be 
                        treated as an eligible individual for 
                        any month of such year or an active MSA 
                        participant under paragraph (1)(A) 
                        unless such individual is, on or before 
                        the cut-off date, covered under a high 
                        deductible health plan, and
                          (ii) an employer shall not be treated 
                        as an MSA-participating employer unless 
                        the employer, on or before the cut-off 
                        date, offered coverage under a high 
                        deductible health plan to any employee.
                  (C) Cut-off date.--For purposes of 
                subparagraph (B)--
                          (i) In general.--Except as otherwise 
                        provided in this subparagraph, the cut-
                        off date is October 1 of the cut-off 
                        year.
                          (ii) Employees with enrollment 
                        periods after October 1.--In the case 
                        of an individual described in subclause 
                        (I) of subsection (c)(1)(A)(iii), if 
                        the regularly scheduled enrollment 
                        period for health plans of the 
                        individual's employer occurs during the 
                        last 3 months of the cut-off year, the 
                        cut-off date is December 31 of the cut-
                        off year.
                          (iii) Self-employed individuals.--In 
                        the case of an individual described in 
                        subclause (II) of subsection 
                        (c)(1)(A)(iii), the cut-off date is 
                        November 1 of the cut-off year.
                          (iv) Special rules for 1997.--If 1997 
                        is a cut-off year by reason of 
                        subsection (j)(1)(A)--
                                  (I) each of the cut-off dates 
                                under clauses (i) and (iii) 
                                shall be 1 month earlier than 
                                the date determined without 
                                regard to this clause, and
                                  (II) clause (ii) shall be 
                                applied by substituting ``4 
                                months'' for ``3 months''.
          (4) MSA-participating employer.--For purposes of this 
        subsection, the term ``MSA-participating employer'' 
        means any small employer if--
                  (A) such employer made any contribution to 
                the Archer MSA of any employee during the cut-
                off year or any preceding calendar year which 
                was excludable from gross income under section 
                106(b), or
                  (B) at least 20 percent of the employees of 
                such employer who are eligible individuals for 
                any month of the cut-off year by reason of 
                coverage under a high deductible health plan of 
                such employer each made a contribution of at 
                least $100 to their Archer MSAs for any taxable 
                year ending with or within the cut-off year 
                which was allowable as a deduction under this 
                section.
          (5) Additional eligibility after cut-off year.--If 
        the Secretary determines under subsection (j)(2)(A) 
        that the numerical limit for the calendar year 
        following a cut-off year described in paragraph (2)(B) 
        has not been exceeded--
                  (A) this subsection shall not apply to any 
                otherwise eligible individual who is covered 
                under a high deductible health plan during the 
                first 6 months of the second calendar year 
                following the cut-off year (and such individual 
                shall be treated as an active MSA participant 
                for purposes of this subsection if a 
                contribution is made to any Archer MSA with 
                respect to such coverage), and
                  (B) any employer who offers coverage under a 
                high deductible health plan to any employee 
                during such 6-month period shall be treated as 
                an MSA-participating employer for purposes of 
                this subsection if the requirements of 
                paragraph (4) are met with respect to such 
                coverage.
        For purposes of this paragraph, subsection (j)(2)(A) 
        shall be applied for 1998 by substituting ``750,000'' 
        for ``600,000''.
  (j) Determination of whether numerical limits are exceeded.--
          (1) Determination of whether limit exceeded for 
        1997.--The numerical limitation for 1997 is exceeded 
        if, based on the reports required under paragraph (4), 
        the number of Archer MSAs established as of--
                  (A) April 30, 1997, exceeds 375,000, or
                  (B) June 30, 1997, exceeds 525,000.
          (2) Determination of whether limit exceeded for 1998, 
        1999, 2001, 2002, 2004, 2005, or 2006.--
                  (A) In general.--The numerical limitation for 
                1998, 1999, 2001, 2002, 2004, 2005, or 2006 is 
                exceeded if the sum of--
                          (i) the number of MSA returns filed 
                        on or before April 15 of such calendar 
                        year for taxable years ending with or 
                        within the preceding calendar year, 
                        plus
                          (ii) the Secretary's estimate 
                        (determined on the basis of the returns 
                        described in clause (i)) of the number 
                        of MSA returns for such taxable years 
                        which will be filed after such date,
                exceeds 750,000 (600,000 in the case of 1998). 
                For purposes of the preceding sentence, the 
                term ``MSA return'' means any return on which 
                any exclusion is claimed under section 106(b) 
                or any deduction is claimed under this section.
                  (B) Alternative computation of limitation.--
                The numerical limitation for 1998, 1999, 2001, 
                2002, 2004, 2005, or 2006 is also exceeded if 
                the sum of--
                          (i) 90 percent of the sum determined 
                        under subparagraph (A) for such 
                        calendar year, plus
                          (ii) the product of 2.5 and the 
                        number of Archer MSAs established 
                        during the portion of such year 
                        preceding July 1 (based on the reports 
                        required under paragraph (4)) for 
                        taxable years beginning in such year,
                exceeds 750,000.
                  (C) No limitation for 2000 or 2003.--The 
                numerical limitation shall not apply for 2000 
                or 2003.
          (3) Previously uninsured individuals not included in 
        determination.--
                  (A) In general.--The determination of whether 
                any calendar year is a cut-off year shall be 
                made by not counting the Archer MSA of any 
                previously uninsured individual.
                  (B) Previously uninsured individual.--For 
                purposes of this subsection, the term 
                ``previously uninsured individual'' means, with 
                respect to any Archer MSA, any individual who 
                had no health plan coverage (other than 
                coverage referred to in subsection (c)(1)(B)) 
                at any time during the 6-month period before 
                the date such individual's coverage under the 
                high deductible health plan commences.
          (4) Reporting by MSA trustees.--
                  (A) In general.--Not later than August 1 of 
                1997, 1998, 1999, 2001, 2002, 2004, 2005, and 
                2006, each person who is the trustee of an 
                Archer MSA established before July 1 of such 
                calendar year shall make a report to the 
                Secretary (in such form and manner as the 
                Secretary shall specify) which specifies--
                          (i) the number of Archer MSAs 
                        established before such July 1 (for 
                        taxable years beginning in such 
                        calendar year) of which such person is 
                        the trustee,
                          (ii) the name and TIN of the account 
                        holder of each such account, and
                          (iii) the number of such accounts 
                        which are accounts of previously 
                        uninsured individuals.
                  (B) Additional report for 1997.--Not later 
                than June 1, 1997, each person who is the 
                trustee of an Archer MSA established before May 
                1, 1997, shall make an additional report 
                described in subparagraph (A) but only with 
                respect to accounts established before May 1, 
                1997.
                  (C) Penalty for failure to file report.--The 
                penalty provided in section 6693(a) shall apply 
                to any report required by this paragraph, 
                except that--
                          (i) such section shall be applied by 
                        substituting ``$25'' for ``$50'', and
                          (ii) the maximum penalty imposed on 
                        any trustee shall not exceed $5,000.
                  (D) Aggregation of accounts.--To the extent 
                practicable, in determining the number of 
                Archer MSAs on the basis of the reports under 
                this paragraph, all Archer MSAs of an 
                individual shall be treated as 1 account and 
                all accounts of individuals who are married to 
                each other shall be treated as 1 account.
          (5) Date of making determinations.--Any determination 
        under this subsection that a calendar year is a cut-off 
        year shall be made by the Secretary and shall be 
        published not later than October 1 of such year.

           *       *       *       *       *       *       *

SEC. 223. HEALTH SAVINGS ACCOUNTS.

  (a) Deduction allowed.--In the case of an individual who is 
an eligible individual for any month during the taxable year, 
there shall be allowed as a deduction for the taxable year an 
amount equal to the aggregate amount paid in cash during such 
taxable year by or on behalf of such individual to a health 
savings account of such individual.
  (b) Limitations.--
          (1) In general.--The amount allowable as a deduction 
        under subsection (a) to an individual for the taxable 
        year shall not exceed the sum of the monthly 
        limitations for months during such taxable year that 
        the individual is an eligible individual.
          (2) Monthly limitation.--The monthly limitation for 
        any month is \1/12\ of--
                  (A) in the case of an eligible individual who 
                has self- only coverage under a high deductible 
                health plan as of the first day of such month, 
                $2,250.
                  (B) in the case of an eligible individual who 
                has family coverage under a high deductible 
                health plan as of the first day of such month, 
                $4,500.
          (3) Additional contributions for individuals 55 or 
        older.--
                  (A) In general.--In the case of an individual 
                who has attained age 55 before the close of the 
                taxable year, the applicable limitation under 
                subparagraphs (A) and (B) of paragraph (2) 
                shall be increased by the additional 
                contribution amount.
                  (B) Additional contribution amount.--For 
                purposes of this section, the additional 
                contribution amount is the amount determined in 
                accordance with the following table:

 
------------------------------------------------------------------------
                                     The additional contribution amount
  For taxable years beginning in:                    is:
------------------------------------------------------------------------
2004                                $500
2005                                $600
2006                                $700
2007                                $800
2008                                $900
2009 and thereafter                 $1,000.
------------------------------------------------------------------------

          (4) Coordination with other contributions.--The 
        limitation which would (but for this paragraph) apply 
        under this subsection to an individual for any taxable 
        year shall be reduced (but not below zero) by the sum 
        of--
                  (A) the aggregate amount paid for such 
                taxable year to Archer MSAs of such individual,
                  (B) the aggregate amount contributed to 
                health savings accounts of such individual 
                which is excludable from the taxpayer's gross 
                income for such taxable year under section 
                106(d) (and such amount shall not be allowed as 
                a deduction under subsection (a)), and
                  (C) the aggregate amount contributed to 
                health savings accounts of such individual for 
                such taxable year under section 408(d)(9) (and 
                such amount shall not be allowed as a deduction 
                under subsection (a)).
        Subparagraph (A) shall not apply with respect to any 
        individual to whom paragraph (5) applies.
          (5) Special rule for married individuals.--In the 
        case of individuals who are married to each other, if 
        either spouse has family coverage--
                  (A) both spouses shall be treated as having 
                only such family coverage (and if such spouses 
                each have family coverage under different 
                plans, as having the family coverage with the 
                lowest annual deductible), and
                  (B) the limitation under paragraph (1) (after 
                the application of subparagraph (A) and without 
                regard to any additional contribution amount 
                under paragraph (3))--
                          (i) shall be reduced by the aggregate 
                        amount paid to Archer MSAs of such 
                        spouses for the taxable year, and
                          (ii) after such reduction, shall be 
                        divided equally between them unless 
                        they agree on a different division.
          (6) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section to any individual 
        with respect to whom a deduction under section 151 is 
        allowable to another taxpayer for a taxable year 
        beginning in the calendar year in which such 
        individual's taxable year begins.
          (7) Medicare eligible individuals.--The limitation 
        under this subsection for any month with respect to an 
        individual shall be zero for the first month such 
        individual is entitled to benefits under title XVIII of 
        the Social Security Act and for each month thereafter.
          (8) Increase in limit for individuals becoming 
        eligible individuals after the beginning of the year.--
                  (A) In general.--For purposes of computing 
                the limitation under paragraph (1) for any 
                taxable year, an individual who is an eligible 
                individual during the last month of such 
                taxable year shall be treated--
                          (i) as having been an eligible 
                        individual during each of the months in 
                        such taxable year, and
                          (ii) as having been enrolled, during 
                        each of the months such individual is 
                        treated as an eligible individual 
                        solely by reason of clause (i), in the 
                        same high deductible health plan in 
                        which the individual was enrolled for 
                        the last month of such taxable year.
                  (B) Failure to maintain high deductible 
                health plan coverage.--
                          (i) In general.--If, at any time 
                        during the testing period, the 
                        individual is not an eligible 
                        individual, then--
                                  (I) gross income of the 
                                individual for the taxable year 
                                in which occurs the first month 
                                in the testing period for which 
                                such individual is not an 
                                eligible individual is 
                                increased by the aggregate 
                                amount of all contributions to 
                                the health savings account of 
                                the individual which could not 
                                have been made but for 
                                subparagraph (A), and
                                  (II) the tax imposed by this 
                                chapter for any taxable year on 
                                the individual shall be 
                                increased by 10 percent of the 
                                amount of such increase.
                          (ii) Exception for disability or 
                        death.--Subclauses (I) and (II) of 
                        clause (i) shall not apply if the 
                        individual ceased to be an eligible 
                        individual by reason of the death of 
                        the individual or the individual 
                        becoming disabled (within the meaning 
                        of section 72(m)(7)).
                          (iii) Testing period.--The term 
                        ``testing period'' means the period 
                        beginning with the last month of the 
                        taxable year referred to in 
                        subparagraph (A) and ending on the last 
                        day of the 12th month following such 
                        month.
  (c) Definitions and special rules.--For purposes of this 
section--
          (1) Eligible individual.--
                  (A) In general.--The term ``eligible 
                individual'' means, with respect to any month, 
                any individual if--
                          (i) such individual is covered under 
                        a high deductible health plan as of the 
                        1st day of such month, and
                          (ii) such individual is not, while 
                        covered under a high deductible health 
                        plan, covered under any health plan--
                                  (I) which is not a high 
                                deductible health plan, and
                                  (II) which provides coverage 
                                for any benefit which is 
                                covered under the high 
                                deductible health plan.
                  (B) Certain coverage disregarded.--
                Subparagraph (A)(ii) shall be applied without 
                regard to--
                          (i) coverage for any benefit provided 
                        by permitted insurance,
                          (ii) coverage (whether through 
                        insurance or otherwise) for accidents, 
                        disability, dental care, vision care, 
                        or long-term care, and
                          (iii) for taxable years beginning 
                        after December 31, 2006, coverage under 
                        a health flexible spending arrangement 
                        during any period immediately following 
                        the end of a plan year of such 
                        arrangement during which unused 
                        benefits or contributions remaining at 
                        the end of such plan year may be paid 
                        or reimbursed to plan participants for 
                        qualified benefit expenses incurred 
                        during such period if--
                                  (I) the balance in such 
                                arrangement at the end of such 
                                plan year is zero, or
                                  (II) the individual is making 
                                a qualified HSA distribution 
                                (as defined in section 106(e)) 
                                in an amount equal to the 
                                remaining balance in such 
                                arrangement as of the end of 
                                such plan year, in accordance 
                                with rules prescribed by the 
                                Secretary.
                  (C) Special rule for individuals eligible for 
                certain veterans benefits.--An individual shall 
                not fail to be treated as an eligible 
                individual for any period merely because the 
                individual receives hospital care or medical 
                services under any law administered by the 
                Secretary of Veterans Affairs for a service-
                connected disability (within the meaning of 
                section 101(16) of title 38, United States 
                Code).
          (2) High deductible health plan.--
                  (A) In general.--The term ``high deductible 
                health plan'' means a health plan--
                          (i) which has an annual deductible 
                        which is not less than--
                                  (I) $1,000 for self-only 
                                coverage, and
                                  (II) twice the dollar amount 
                                in subclause (I) for family 
                                coverage, and
                          (ii) the sum of the annual deductible 
                        and the other annual out-of-pocket 
                        expenses required to be paid under the 
                        plan (other than for premiums) for 
                        covered benefits does not exceed--
                                  (I) $5,000 for self-only 
                                coverage, and
                                  (II) twice the dollar amount 
                                in subclause (I) for family 
                                coverage.
                  (B) Exclusion of certain plans.--Such term 
                does not include a health plan if substantially 
                all of its coverage is coverage described in 
                paragraph (1)(B).
                  (C) Safe harbor for absence of preventive 
                care deductible.--A plan shall not fail to be 
                treated as a high deductible health plan by 
                reason of failing to have a deductible for 
                preventive care (within the meaning of section 
                1861 of the Social Security Act, except as 
                otherwise provided by the Secretary).
                  (D) Special rules for network plans.--In the 
                case of a plan using a network of providers--
                          (i) Annual out-of-pocket 
                        limitation.--Such plan shall not fail 
                        to be treated as a high deductible 
                        health plan by reason of having an out-
                        of-pocket limitation for services 
                        provided outside of such network which 
                        exceeds the applicable limitation under 
                        subparagraph (A)(ii).
                          (ii) Annual deductible.--Such plan's 
                        annual deductible for services provided 
                        outside of such network shall not be 
                        taken into account for purposes of 
                        subsection (b)(2).
          (3) Permitted insurance.--The term ``permitted 
        insurance'' means--
                  (A) insurance if substantially all of the 
                coverage provided under such insurance relates 
                to--
                          (i) liabilities incurred under 
                        workers' compensation laws,
                          (ii) tort liabilities,
                          (iii) liabilities relating to 
                        ownership or use of property, or
                          (iv) such other similar liabilities 
                        as the Secretary may specify by 
                        regulations,
                  (B) insurance for a specified disease or 
                illness, and
                  (C) insurance paying a fixed amount per day 
                (or other period) of hospitalization.
          (4) Family coverage.--The term ``family coverage'' 
        means any coverage other than self-only coverage.
          (5) Archer MSA.--The term ``Archer MSA'' has the 
        meaning given such term in section 220(d).
  (d) Health savings account.--For purposes of this section--
          (1) In general.--The term ``health savings account'' 
        means a trust created or organized in the United States 
        as a health savings account exclusively for the purpose 
        of paying the qualified medical expenses of the account 
        beneficiary, but only if the written governing 
        instrument creating the trust meets the following 
        requirements:
                  (A) Except in the case of a rollover 
                contribution described in subsection (f)(5) or 
                section 220(f)(5), no contribution will be 
                accepted--
                          (i) unless it is in cash, or
                          (ii) to the extent such contribution, 
                        when added to previous contributions to 
                        the trust for the calendar year, 
                        exceeds the sum of--
                                  (I) the dollar amount in 
                                effect under subsection 
                                (b)(2)(B), and
                                  (II) the dollar amount in 
                                effect under subsection 
                                (b)(3)(B).
                  (B) The trustee is a bank (as defined in 
                section 408(n)), an insurance company (as 
                defined in section 816), or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                  (C) No part of the trust assets will be 
                invested in life insurance contracts.
                  (D) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                  (E) The interest of an individual in the 
                balance in his account is nonforfeitable.
          (2) Qualified medical expenses.--
                  (A) In general.--The term ``qualified medical 
                expenses'' means, with respect to an account 
                beneficiary, amounts paid by such beneficiary 
                for medical care (as defined in section 213(d)) 
                for such individual, the spouse of such 
                individual, and any dependent (as defined in 
                section 152, determined without regard to 
                subsections (b)(1), (b)(2), and (d)(1)(B) 
                thereof) of such individual, but only to the 
                extent such amounts are not compensated for by 
                insurance or otherwise. [Such term shall 
                include an amount paid for medicine or a drug 
                only if such medicine or drug is a prescribed 
                drug (determined without regard to whether such 
                drug is available without a prescription) or is 
                insulin.] For purposes of this subparagraph, 
                amounts paid for menstrual care products shall 
                be treated as paid for medical care.
                  (B) Health insurance may not be purchased 
                from account.--Subparagraph (A) shall not apply 
                to any payment for insurance.
                  (C) Exceptions.--Subparagraph (B) shall not 
                apply to any expense for coverage under--
                          (i) a health plan during any period 
                        of continuation coverage required under 
                        any Federal law,
                          (ii) a qualified long-term care 
                        insurance contract (as defined in 
                        section 7702B(b)),
                          (iii) a health plan during a period 
                        in which the individual is receiving 
                        unemployment compensation under any 
                        Federal or State law, or
                          (iv) in the case of an account 
                        beneficiary who has attained the age 
                        specified in section 1811 of the Social 
                        Security Act, any health insurance 
                        other than a medicare supplemental 
                        policy (as defined in section 1882 of 
                        the Social Security Act).
                  (D) Menstrual care product.--For purposes of 
                this paragraph, the term ``menstrual care 
                product'' means a tampon, pad, liner, cup, 
                sponge, or similar product used by women with 
                respect to menstruation or other genital-tract 
                secretions.
          (3) Account beneficiary.--The term ``account 
        beneficiary'' means the individual on whose behalf the 
        health savings account was established.
          (4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                  (A) Section 219(d)(2) (relating to no 
                deduction for rollovers).
                  (B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                  (C) Except as provided in section 106(d), 
                section 219(f)(5) (relating to employer 
                payments).
                  (D) Section 408(g) (relating to community 
                property laws).
                  (E) Section 408(h) (relating to custodial 
                accounts).
  (e) Tax treatment of accounts.--
          (1) In general.--A health savings account is exempt 
        from taxation under this subtitle unless such account 
        has ceased to be a health savings account. 
        Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business 
        income of charitable, etc. organizations).
          (2) Account terminations.--Rules similar to the rules 
        of paragraphs (2) and (4) of section 408(e) shall apply 
        to health savings accounts, and any amount treated as 
        distributed under such rules shall be treated as not 
        used to pay qualified medical expenses.
  (f) Tax treatment of distributions.--
          (1) Amounts used for qualified medical expenses.--Any 
        amount paid or distributed out of a health savings 
        account which is used exclusively to pay qualified 
        medical expenses of any account beneficiary shall not 
        be includible in gross income.
          (2) Inclusion of amounts not used for qualified 
        medical expenses.--Any amount paid or distributed out 
        of a health savings account which is not used 
        exclusively to pay the qualified medical expenses of 
        the account beneficiary shall be included in the gross 
        income of such beneficiary.
          (3) Excess contributions returned before due date of 
        return.--
                  (A) In general.--If any excess contribution 
                is contributed for a taxable year to any health 
                savings account of an individual, paragraph (2) 
                shall not apply to distributions from the 
                health savings accounts of such individual (to 
                the extent such distributions do not exceed the 
                aggregate excess contributions to all such 
                accounts of such individual for such year) if--
                          (i) such distribution is received by 
                        the individual on or before the last 
                        day prescribed by law (including 
                        extensions of time) for filing such 
                        individual's return for such taxable 
                        year, and
                          (ii) such distribution is accompanied 
                        by the amount of net income 
                        attributable to such excess 
                        contribution.
                Any net income described in clause (ii) shall 
                be included in the gross income of the 
                individual for the taxable year in which it is 
                received.
                  (B) Excess contribution.--For purposes of 
                subparagraph (A), the term ``excess 
                contribution'' means any contribution (other 
                than a rollover contribution described in 
                paragraph (5) or section 220(f)(5)) which is 
                neither excludable from gross income under 
                section 106(d) nor deductible under this 
                section.
          (4) Additional tax on distributions not used for 
        qualified medical expenses.--
                  (A) In general.--The tax imposed by this 
                chapter on the account beneficiary for any 
                taxable year in which there is a payment or 
                distribution from a health savings account of 
                such beneficiary which is includible in gross 
                income under paragraph (2) shall be increased 
                by 20 percent of the amount which is so 
                includible.
                  (B) Exception for disability or death.--
                Subparagraph (A) shall not apply if the payment 
                or distribution is made after the account 
                beneficiary becomes disabled within the meaning 
                of section 72(m)(7) or dies.
                  (C) Exception for distributions after 
                medicare eligibility.--Subparagraph (A) shall 
                not apply to any payment or distribution after 
                the date on which the account beneficiary 
                attains the age specified in section 1811 of 
                the Social Security Act.
          (5) Rollover contribution.--An amount is described in 
        this paragraph as a rollover contribution if it meets 
        the requirements of subparagraphs (A) and (B).
                  (A) In general.--Paragraph (2) shall not 
                apply to any amount paid or distributed from a 
                health savings account to the account 
                beneficiary to the extent the amount received 
                is paid into a health savings account for the 
                benefit of such beneficiary not later than the 
                60th day after the day on which the beneficiary 
                receives the payment or distribution.
                  (B) Limitation.--This paragraph shall not 
                apply to any amount described in subparagraph 
                (A) received by an individual from a health 
                savings account if, at any time during the 1-
                year period ending on the day of such receipt, 
                such individual received any other amount 
                described in subparagraph (A) from a health 
                savings account which was not includible in the 
                individual's gross income because of the 
                application of this paragraph.
          (6) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction 
        under section 213, any payment or distribution out of a 
        health savings account for qualified medical expenses 
        shall not be treated as an expense paid for medical 
        care.
          (7) Transfer of account incident to divorce.--The 
        transfer of an individual's interest in a health 
        savings account to an individual's spouse or former 
        spouse under a divorce or separation instrument 
        described in clause (i) of section 121(d)(3)(C) shall 
        not be considered a taxable transfer made by such 
        individual notwithstanding any other provision of this 
        subtitle, and such interest shall, after such transfer, 
        be treated as a health savings account with respect to 
        which such spouse is the account beneficiary.
          (8) Treatment after death of account beneficiary.--
                  (A) Treatment if designated beneficiary is 
                spouse.--If the account beneficiary's surviving 
                spouse acquires such beneficiary's interest in 
                a health savings account by reason of being the 
                designated beneficiary of such account at the 
                death of the account beneficiary, such health 
                savings account shall be treated as if the 
                spouse were the account beneficiary.
                  (B) Other cases.--
                          (i) In general.--If, by reason of the 
                        death of the account beneficiary, any 
                        person acquires the account 
                        beneficiary's interest in a health 
                        savings account in a case to which 
                        subparagraph (A) does not apply--
                                  (I) such account shall cease 
                                to be a health savings account 
                                as of the date of death, and
                                  (II) an amount equal to the 
                                fair market value of the assets 
                                in such account on such date 
                                shall be includible if such 
                                person is not the estate of 
                                such beneficiary, in such 
                                person's gross income for the 
                                taxable year which includes 
                                such date, or if such person is 
                                the estate of such beneficiary, 
                                in such beneficiary's gross 
                                income for the last taxable 
                                year of such beneficiary.
                          (ii) Special rules.--
                                  (I) Reduction of inclusion 
                                for predeath expenses.--The 
                                amount includible in gross 
                                income under clause (i) by any 
                                person (other than the estate) 
                                shall be reduced by the amount 
                                of qualified medical expenses 
                                which were incurred by the 
                                decedent before the date of the 
                                decedent's death and paid by 
                                such person within 1 year after 
                                such date.
                                  (II) Deduction for estate 
                                taxes.--An appropriate 
                                deduction shall be allowed 
                                under section 691(c) to any 
                                person (other than the decedent 
                                or the decedent's spouse) with 
                                respect to amounts included in 
                                gross income under clause (i) 
                                by such person.
  (g) Cost-of-living adjustment.--
          (1) In general.--Each dollar amount in subsections 
        (b)(2) and (c)(2)(A) shall be increased by an amount 
        equal to--
                  (A) such dollar amount, multiplied by
                  (B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in 
                which such taxable year begins determined by 
                substituting for ``calendar year 2016'' in 
                subparagraph (A)(ii) thereof--
                          (i) except as provided in clause 
                        (ii), ``calendar year 1997'', and
                          (ii) in the case of each dollar 
                        amount in subsection (c)(2)(A), 
                        ``calendar year 2003''.
        In the case of adjustments made for any taxable year 
        beginning after 2007, section 1(f)(4) shall be applied 
        for purposes of this paragraph by substituting ``March 
        31'' for ``August 31'', and the Secretary shall publish 
        the adjusted amounts under subsections (b)(2) and 
        (c)(2)(A) for taxable years beginning in any calendar 
        year no later than June 1 of the preceding calendar 
        year.
          (2) Rounding.--If any increase under paragraph (1) is 
        not a multiple of $50, such increase shall be rounded 
        to the nearest multiple of $50.
  (h) Reports.--The Secretary may require--
          (1) the trustee of a health savings account to make 
        such reports regarding such account to the Secretary 
        and to the account beneficiary with respect to 
        contributions, distributions, the return of excess 
        contributions, and such other matters as the Secretary 
        determines appropriate, and
          (2) any person who provides an individual with a high 
        deductible health plan to make such reports to the 
        Secretary and to the account beneficiary with respect 
        to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such 
time and in such manner and furnished to such individuals at 
such time and in such manner as may be required by the 
Secretary.

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                             MINORITY VIEWS

          H.R. 6199 Restoring Access to Medication Act of 2018

    H.R. 6199 (Jenkins, R-KS, Paulsen, R-MN, Kind, D-WI and 
Meng, D-NY) repeals provisions of the Internal Revenue Code 
that limit payments for medications from health savings 
accounts (HSAs), medical savings accounts, health flexible 
spending arrangements, and health reimbursement arrangements to 
only prescription drugs or insulin (allowing distributions from 
such accounts for over-the-counter drugs). The bill also allows 
the accounts to be used for menstrual care products. While the 
inclusion of menstrual care products addresses an unfair bias 
against women in the current tax code, the fact the legislation 
is unpaid for is a cause for concern and in no way addresses 
the broader discrimination women are facing in accessing health 
care under the Republican administration.
    H.R. 6199 does not undo sabotage, premium hikes, and 
benefit cuts Republicans have caused over the past 18 months. 
This bill was one in a series of 11 bills the Committee marked 
up that Republicans claim will help lower health care costs for 
consumers. This legislation does not undo the disruption and 
sabotage the Republicans have continued to inflict on the 
American health care system. This bill explicitly repeals a 
provision of the ACA that prohibited tax-free reimbursements 
for over-the-counter medications.
    Instead of focusing on expanding tax-preferred accounts 
that help only the wealthiest while continuing to undermine 
health care for millions of Americans, Democrats encourage the 
Committee to redirect its attention to legislation that could 
actually ensure that uninsured, low-income, and vulnerable 
people have real access to care. For example H.R. 5155, 
sponsored by Reps. Pallone, Neal, and Scott would protect 
people with preexisting conditions, help lower premiums for 
Americans, and improve affordability of health coverage. 
Additionally, Congress should instead consider undoing the 18 
months of Republican actions that are harming women's access to 
health care.
    The Joint Committee on Taxation (JCT) estimates the cost of 
this bill to be $6.7 billion over 10 years. Altogether the 11 
bills the Committee marked up would add another $92 billion in 
unoffset tax cuts to the deficit. With these bills, Republicans 
are adding more tax cuts and increasing the deficit. 
Republicans are using the deficit, which they keep making 
larger with cuts for the wealthy, to justify the deep cuts they 
plan to make to Medicare and Medicaid. Republicans already are 
proposing to cut Medicare and Medicaid by nearly a trillion 
dollars to try to pay for the tax cuts they have already 
enacted. This bill will only increase Republicans' call for 
further cuts to these critical programs.

                                   Richard E. Neal,
                                           Ranking Member.
```