115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–844 

THE ‘‘BIPARTISAN HSA IMPROVEMENT 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. 6305] 

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

bill (H.R. 6305) to amend the Internal Revenue Code of 1986 to improve access to health care through modernized health savings accounts, report favorably thereon with an amendment and recommend that the bill as amended do pass. 

2 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–844 

BIPARTISAN HSA IMPROVEMENT 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. 6305] 

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

bill (H.R. 6305) to amend the Internal Revenue Code of 1986 to improve access to health care through modernized health savings accounts, 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 ................................................................. 4 

II. EXPLANATION OF THE BILL ...................................................................... 6 

A. Certain Employment Related Services Not Treated as Disqualifying Coverage for Purposes of Health Savings Accounts .............. 6 

B. Contributions Permitted if Spouse Has a Health Flexible Spending 

Account ................................................................................................ 8 

C. FSA and HRA Terminations or Conversions to Fund HSAs ............ 11 

III. VOTES OF THE COMMITTEE ...................................................................... 15 

IV. BUDGET EFFECTS OF THE BILL ............................................................... 16 

A. Committee Estimate of Budgetary Effects ......................................... 16 

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority ...................................................................... 18 

C. Cost Estimate Prepared by the Congressional Budget Office ........... 18 

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

HOUSE .......................................................................................................... 18 

A. Committee Oversight Findings and Recommendations .................... 18 

B. Statement of General Performance Goals and Objectives ................ 18 

C. Information Relating to Unfunded Mandates .................................... 18 

D. Applicability of House Rule XXI 5(b) .................................................. 19 

E. Tax Complexity Analysis ..................................................................... 19 

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

Benefits ............................................................................................... 19 

G. Duplication of Federal Programs ........................................................ 19 

H. Disclosure of Directed Rule Makings ................................................. 19 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 20 

B. Changes in Existing Law Proposed by the Bill, as Reported ........... 20 

3 

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 ‘‘Bipartisan HSA Improvement Act of 2018’’. 

SEC. 2. CERTAIN EMPLOYMENT RELATED SERVICES NOT TREATED AS DISQUALIFYING COVERAGE FOR PURPOSES OF HEALTH SAVINGS ACCOUNTS. 

(a) IN GENERAL.—Section 223(c)(1) of the Internal Revenue Code of 1986 is 

amended by adding at the end the following new subparagraph: 

‘‘(D) SPECIAL RULE FOR QUALIFIED ITEMS AND SERVICES.— ‘‘(i) IN GENERAL.—An individual shall not be treated as covered under 

a health plan for purposes of subparagraph (A)(ii) merely because the 

individual, in connection with the employment of the individual or the 

individual’s spouse, receives (or is eligible to receive) qualified items 

and services at— 

‘‘(I) a healthcare facility located at a facility owned or leased by 

the employer of the individual (or of the individual’s spouse), or operated primarily for the benefit of such employer’s employees, or 

‘‘(II) a healthcare facility located within a supermarket, pharmacy, or similar retail establishment. 

‘‘(ii) QUALIFIED ITEMS AND SERVICES DEFINED.—For purposes of this 

subparagraph, the term ‘qualified items and services’ means the following: 

‘‘(I) Physical examinations. 

‘‘(II) Immunizations, including injections of antigens provided by 

employees. 

‘‘(III) Drugs other than a prescribed drug (as such term is defined in section 213(d)(3)). 

‘‘(IV) Treatment for injuries occurring in the course of employment. 

‘‘(V) Drug testing, if required as a condition of employment. 

‘‘(VI) Hearing or vision screenings. 

‘‘(VII) Other similar items and services that do not provide significant benefits in the nature of medical care. 

‘‘(iii) AGGREGATION.—For purposes of clause (i)(I), all persons treated 

as a single employer under subsection (b), (c), (m), or (o) of section 414 

shall be treated as a single employer.’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to 

months beginning after December 31, 2018, in taxable years ending after such date. 

SEC. 3. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A HEALTH FLEXIBLE SPENDING ACCOUNT. 

(a) CONTRIBUTIONS PERMITTED IF SPOUSE HAS A HEALTH FLEXIBLE SPENDING ACCOUNT.—Section 223(c)(1)(B) of the Internal Revenue Code of 1986 is amended by 

striking ‘‘and’’ at the end of clause (ii), by striking the period at the end of clause 

(iii) and inserting ‘‘, and’’, and by inserting after clause (iii) the following new 

clause: 

‘‘(iv) coverage under a health flexible spending arrangement of the 

spouse of the individual for any plan year of such arrangement if the 

aggregate reimbursements under such arrangement for such year do 

not exceed the aggregate expenses which would be eligible for reimbursement under such arrangement if such expenses were determined 

without regard to any expenses paid or incurred with respect to such 

individual.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to plan 

years beginning after December 31, 2018. 

SEC. 4. FSA AND HRA TERMINATIONS OR CONVERSIONS TO FUND HSAS. 

(a) IN GENERAL.—Section 106(e)(2) of the Internal Revenue Code of 1986 is 

amended to read as follows: 

‘‘(2) QUALIFIED HSA DISTRIBUTION.—For purposes of this subsection— 

‘‘(A) IN GENERAL.—The term ‘qualified HSA distribution’ means, with respect to any employee, a distribution from a health flexible spending arrangement or health reimbursement arrangement of such employee directly 

to a health savings account of such employee if— 

‘‘(i) such distribution is made in connection with such employee establishing coverage under a high deductible health plan (as defined in 

section 223(c)(2)) after a significant period of not having such coverage, 

and 

4 

‘‘(ii) such arrangement is described in section 223(c)(1)(B)(iii) with respect to the portion of the plan year after such distribution is made. 

‘‘(B) DOLLAR LIMITATION.—The aggregate amount of distributions from 

health flexible spending arrangements and health reimbursement arrangements of any employee which may be treated as qualified HSA distributions 

in connection with an establishment of coverage described in subparagraph 

(A)(i) shall not exceed the dollar amount in effect under section 125(i)(1) 

(twice such amount in the case of coverage which is described in section 

223(b)(2)(B)).’’. 

(b) PARTIAL REDUCTION OF LIMITATION ON DEDUCTIBLE HSA CONTRIBUTIONS.— 

Section 223(b)(4) of such Code is amended by striking ‘‘and’’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘‘, 

and’’, and by inserting after subparagraph (C) the following new subparagraph: 

‘‘(D) so much of any qualified HSA distribution (as defined in section 

106(e)(2)) made to a health savings account of such individual during the 

taxable year as does not exceed the aggregate increases in the balance of 

the arrangement from which such distribution is made which occur during 

the portion of the plan year which precedes such distribution (other than 

any balance carried over to such plan year and determined without regard 

to any decrease in such balance during such portion of the plan year).’’. 

(c) CONVERSION TO HSA-COMPATIBLE ARRANGEMENT FOR REMAINDER OF PLAN

YEAR.—Section 223(c)(1)(B)(iii) of such Code, as amended by the preceding provisions of this Act, is amended to read as follows: 

‘‘(iii) coverage under a health flexible spending arrangement or 

health reimbursement arrangement for the portion of the plan year 

after a qualified HSA distribution (as defined in section 106(e)(2) determined without regard to subparagraph (A)(ii) thereof) is made, if the 

terms of such arrangement which apply for such portion of the plan 

year are such that, if such terms applied for the entire plan year, then 

such arrangement would not be taken into account under subparagraph 

(A)(ii) of this paragraph for such plan year, and’’. 

(d) INCLUSION OF QUALIFIED HSA DISTRIBUTIONS ON W–2.— 

(1) IN GENERAL.—Section 6051(a) of such Code is amended by striking ‘‘and’’ 

at the end of paragraph (16), by striking the period at the end of paragraph 

(17) and inserting ‘‘, and’’, and by inserting after paragraph (17) the following 

new paragraph: 

‘‘(18) the amount of any qualified HSA distribution (as defined in section 

106(e)(2)) with respect to such employee.’’. 

(2) CONFORMING AMENDMENT.—Section 6051(a)(12) of such Code is amended 

by inserting ‘‘(other than any qualified HSA distribution, as defined in section 

106(e)(2))’’ before the comma at the end. 

(e) EFFECTIVE DATE.—The amendments made by this section shall apply to distributions made after December 31, 2018, in taxable years ending after such date. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill H.R. 6305, as reported by the Committee on Ways and 

Means, expands access and enhances the utility of health savings 

accounts (HSAs) through three common-sense improvements to the 

rules governing HSAs: (1) clarifying that certain employment related services (such as on-site clinics) are not treated as disqualifying coverage for purposes of HSAs; (2) allowing an eligible individual to make HSA contributions if a spouse has a Flexible Spending Arrangement (FSA), provided that FSA does not also reimburse 

for expenses of the spouse with the HSA; and (3) allowing FSA and 

Health Reimbursement Account (HRA) terminations or conversions 

to fund HSAs. 

B. BACKGROUND AND NEED FOR LEGISLATION

According to a survey of 52 health insurers conducted by America’s Health Insurance Plans (AHIP), 21.8 million people were covered by a High Deductible Health Plan (HDHP) with an HSA as 

5 

of January 2017. These plans and accounts are an increasingly 

popular option for workers and enrollment growth shows no sign 

of slowing. A survey of employer-sponsored health benefits found 

that 17 percent of all employers offered a HDHP with an HSA in 

2017 compared to 2 percent in 2005. 

HSA account holders are diverse. According to WageWorks, Inc., 

the administrator of benefits for more than 7 million people, the 

median household income for an HSA accountholder is $57,060. In 

addition, a JCT analysis found that of the tax returns that took an 

HSA deduction in 2015, 71 percent of the returns reported an income of $200,000 or less, and 28 percent reported an income of 

$75,000 or less. Account holders are also distributed across age 

groups, with nearly a third between the ages of 25–44 and another 

third of account holders between the ages 45–64. 

Most critically, research has consistently found that such coverage, which empowers individuals and families to be more engaged health care consumers, is capable of significantly reducing 

health care costs. 

In addition, FSAs are employer-established accounts to reimburse employees for qualified medical expenses. Under current law, 

FSAs can be used to reimburse expenses for the enrollee, their 

spouse, and dependents. This prohibits an FSA enrollee’s spouse 

from contributing to an HSA, even when they are covered under 

two separate health plans. 

C. LEGISLATIVE HISTORY

Background 

H.R. 6305 was introduced on July 3, 2018 and was referred to 

the Committee on Ways and Means. 

Committee action 

The Committee on Ways and Means marked up H.R. 6305, the 

‘‘Bipartisan HSA Improvement Act of 2018,’’ on July 11, 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), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs) 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 Tax Policy Member Day Hearing on Tax 

Legislation (May 12, 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) 

6 

1 An individual with other coverage in addition to a high deductible health plan is still eligible 

for an HSA if such other coverage is ‘‘permitted insurance’’ or ‘‘permitted coverage.’’ 

Permitted insurance is: (1) insurance if substantially all of the coverage provided under such 

insurance relates to (a) liabilities incurred under worker’s compensation law, (b) tort liabilities, 

(c) liabilities relating to ownership or use of property (e.g., auto insurance), or (d) such other 

similar liabilities as the Secretary may prescribe by regulations; (2) insurance for a specified 

disease or illness; and (3) insurance that provides a fixed payment for hospitalization. Also see 

Notice 2004–50, 2004–33 IRB 1, Q & A–7 and Q & A–8 (‘‘an eligible individual may be covered 

by an HDHP and also by permitted insurance for one or more specific diseases, such as cancer, 

diabetes, asthma or congestive heart failure, as long as the principal health coverage is provided 

by the HDHP’’), but such coverage must be provided through insurance contracts and not on 

a self-insured basis. 

Pursuant to Q & A–10 of Notice 2004–50, coverage under a disease management program 

does not make an individual ineligible to contribute to an HSA as long as the program does 

not provide significant benefits in the nature of medical care or treatment so that it is not considered a ‘‘health plan’’ for purposes of Code section 223(c)(1). Where a disease management program provides evidence-based information, disease specific support, case monitoring and coordination of the care and treatment provided by a health plan including monitoring laboratory or 

other test results, telephone contacts or web-based reminders of health care schedules, and providing information to minimize health risks it is not considered a ‘‘health plan.’’ 

Permitted coverage is coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. With respect to coverage for years 

beginning after December 31, 2006, certain coverage under a Health FSA is disregarded in determining eligibility for an HSA. 2Sec. 223. 

II. EXPLANATION OF THE BILL 

A. CERTAIN EMPLOYMENT RELATED SERVICES NOT TREATED AS DIS- QUALIFYING COVERAGE FOR PURPOSES OF HEALTH SAVINGS AC- COUNTS

Health Savings Accounts 

An individual with a high deductible health plan (‘‘HDHP’’) and 

no other health plan (other than a plan that provides certain permitted insurance or permitted coverage) 1 may establish a health 

savings account (‘‘HSA’’).2 Subject to limits, contributions to an 

HSA made by or on behalf of an eligible individual are deductible 

in determining adjusted gross income of the individual (that is, an 

‘‘above-the-line’’ deduction). Contributions to an HSA by an employer for an employee (including salary reduction contributions 

made through a cafeteria plan) are excludible from income and 

from wages for employment tax purposes. 

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). 

A high deductible health plan (‘‘HDHP’’) is a health plan that has an annual deductible that is at least $1,350 for self-only coverage 

or $2,700 for family coverage for 2018 and that limits the sum of 

the annual deductible and other payments that the individual must 

make with respect to covered benefits to no more than $6,650 in 

the case of self-only coverage and $13,300 in the case of family coverage for 2018. 

Qualified medical expenses generally are defined as under Code 

section 213(d) and include expenses for diagnosis, cure, mitigation, 

treatment, or prevention of disease, including prescription drugs, 

transportation primarily for and essential to such care, and qualified long-term care expenses. Qualified medical expenses do not include expenses for insurance other than for (1) certain premiums 

7 

3See Sec. 223(b)(7), as interpreted by Notice 2004–2, 2004–2 I.R.B. 269, corrected by Announcement 2004–67, 2004–36 I.R.B. 459. 4 Notice 2008–59, Q&A–10. 

paid for long-term care insurance, (2) premiums for health coverage 

during any period of continuation coverage required by Federal 

law, (3) premiums for health care coverage while an individual is 

receiving unemployment compensation under Federal or State law, 

and (4) premiums for individuals who have attained the age of 

Medicare eligibility, other than premiums for Medigap policies. 

Eligible individuals 

Eligible individuals for HSAs are individuals who are covered by 

a high deductible health plan and no other health plan that (1) is 

not a high deductible health plan and (2) provides coverage for any 

benefit which is covered under the high deductible health plan. 

After an individual has attained age 65 and becomes enrolled in 

Medicare benefits, contributions cannot be made to an HSA.3

On-Site Employee Clinics 

On-site employer-sponsored health clinics may provide a range of 

health services to employees for free or at a reduced cost. Under 

IRS guidance, an otherwise eligible individual who has access to 

free health care or health care at charges below fair market value 

from a clinic on an employer’s premises will not fail to be an eligible individual merely because of this free or reduced cost care as 

long as the clinic does not provide significant benefits in the nature 

of medical care in addition to disregarded coverage or preventive 

care. 

For example, an employer who provides the following free health 

care for employees does not provide significant benefits in the nature of medical care in addition to disregarded coverage or preventive care: (1) physicals and immunizations, (2) injecting antigens 

provided by employees, such as performing allergy injections, (3) a 

variety of aspirin and other nonprescription pain relievers, and (4) 

treatment for injuries caused by accidents at the plant. However, 

a hospital that permits its employees to receive care at its facilities 

for all their medical needs for free (when the employee does not 

have insurance) or that waives copays and deductibles (when the 

employee does have health insurance) provides significant benefits 

in the nature of medical care, and the hospital’s employees fail to 

be eligible individuals for purposes of HSA contributions.4

REASONS FOR CHANGE

The Committee believes that coverage which would otherwise 

constitute a high deductible health plan should be treated as such 

for determining eligibility to make HSA contributions, and not disqualified merely by reason of offering certain employment related 

services. The Committee believes that employers must have the 

flexibility to offer quality health care in the setting that is best for 

them, like on-site or retail clinics and that individuals with HSAs 

should not be prevented from utilizing these same services. 

8 

5 An individual with other coverage in addition to a high deductible health plan is still eligible 

for an HSA if such other coverage is ‘‘permitted insurance’’ or ‘‘permitted coverage.’’ 

Permitted insurance is: (1) insurance if substantially all of the coverage provided under such 

insurance relates to (a) liabilities incurred under worker’s compensation law, (b) tort liabilities, 

(c) liabilities relating to ownership or use of property (e.g., auto insurance), or (d) such other 

similar liabilities as the Secretary may prescribe by regulations; (2) insurance for a specified 

disease or illness; and (3) insurance that provides a fixed payment for hospitalization. Also see 

Notice 2004–50, 2004–33 IRB 1, Q & A–7 and Q & A–8 (‘‘an eligible individual may be covered 

by an HDHP and also by permitted insurance for one or more specific diseases, such as cancer, 

diabetes, asthma or congestive heart failure, as long as the principal health coverage is provided 

by the HDHP’’), but such coverage must be provided through insurance contracts and not on 

a self-insured basis. 

Pursuant to Q & A–10 of Notice 2004–50, coverage under a disease management program 

does not make an individual ineligible to contribute to an HSA as long as the program does 

not provide significant benefits in the nature of medical care or treatment so that it is not considered a ‘‘health plan’’ for purposes of Code section 223(c)(1). Where a disease management program provides evidence-based information, disease specific support, case monitoring and coordination of the care and treatment provided by a health plan including monitoring laboratory or 

other test results, telephone contacts or web-based reminders of health care schedules, and providing information to minimize health risks it is not considered a ‘‘health plan.’’ 

Permitted coverage is coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. With respect to coverage for years 

beginning after December 31, 2006, certain coverage under a Health FSA is disregarded in determining eligibility for an HSA. 6Sec. 223. 

EXPLANATION OF PROVISION

Under the proposal, certain employment related services are not 

treated as coverage under a health plan for purposes of determining eligibility for health savings accounts. An individual is 

therefore not treated as covered under a health plan, merely because the individual receives, or is eligible to receive qualified 

items and services in connection with employment at an on-site or 

retail clinic. These qualified items and services include: physical 

examinations, immunizations, drugs other than a prescribed drug, 

and treatment for injuries occurring in the course of employment, 

drug testing as a condition of employment, hearing or vision 

screenings, and other similar items and services that do not provide significant benefits in the nature of medical care. 

EFFECTIVE DATE

The provision applies for months beginning after December 31, 

2018, in taxable years ending after such date. 

B. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A HEALTH FLEXIBLE

SPENDING ACCOUNT

PRESENT LAW

Health Savings Accounts 

An individual with a high deductible health plan (‘‘HDHP’’) and 

no other health plan (other than a plan that provides certain permitted insurance or permitted coverage) 5 may establish a health 

savings account (‘‘HSA’’).6 Subject to limits, contributions to an 

HSA made by or on behalf of an eligible individual are deductible 

in determining adjusted gross income of the individual (that is, an 

‘‘above-the-line’’ deduction). Contributions to an HSA by an employer for an employee (including salary reduction contributions 

made through a cafeteria plan) are excludible from income and 

from wages for employment tax purposes. 

HSA contributions for a year are subject to basic dollar limits 

that are also adjusted annually as needed to reflect annual cost-ofVerDate Sep 11 2014 08:02 Jul 20, 2018 Jkt 079006 PO 00000 Frm 00008 Fmt 6659 Sfmt 6602 E:\HR\OC\HR844.XXX HR844
9 

7See Sec. 223(b)(7), as interpreted by Notice 2004–2, 2004–2 I.R.B. 269, corrected by Announcement 2004–67, 2004–36 I.R.B. 459. 8Sec. 223(b)(5). 

9 Notice 2004–50, 2004–2 C.B. 196, Q&A–63. 

living increases. 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 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). Contributions, including catch-up contributions, cannot be made once an individual is enrolled in Medicare. 

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). 

An HDHP is a health plan that has an annual deductible that is at least $1,350 for self-only coverage or $2,700 for family coverage for 2018 and that limits the sum of the annual deductible 

and other payments that the individual must make with respect to 

covered benefits to no more than $6,650 in the case of self-only coverage and $13,300 in the case of family coverage for 2018. 

Qualified medical expenses generally are defined as under Code 

section 213(d) and include expenses for diagnosis, cure, mitigation, 

treatment, or prevention of disease, including prescription drugs, 

transportation primarily for and essential to such care, and qualified long-term care expenses. Qualified medical expenses do not include expenses for insurance other than for (1) certain premiums 

paid for long-term care insurance, (2) premiums for health coverage 

during any period of continuation coverage required by Federal 

law, (3) premiums for health care coverage while an individual is 

receiving unemployment compensation under Federal or State law, 

and (4) premiums for individuals who have attained the age of 

Medicare eligibility, other than premiums for Medigap policies. 

Eligible individuals 

Eligible individuals for HSAs are individuals who are covered by 

an HDHP and no other health plan that (1) is not an HDHP and 

(2) provides coverage for any benefit which is covered under the 

HDHP. After an individual has attained age 65 and becomes enrolled in Medicare benefits, contributions cannot be made to an 

HSA.7

If both spouses of a married couple are eligible individuals and 

either spouse has family coverage, both spouses are treated as having only family coverage, so that the annual contribution limit for 

family coverage applies. This annual contribution limit (without regard to any catch-up contribution amounts) is reduced by any Archer MSA contributions and then divided equally between the 

spouses unless they agree on a different division.8

If both spouses of a married couple are eligible individuals, each 

may contribute to an HSA, but are not permitted a joint HSA.9

Under the rule described above, however, the spouses may divide 

10 

10 Notice 2004–50, Q&A–32. Funds from that HSA can be used to pay qualified medical expenses for either spouse on a tax-free basis. Notice 2004–50, Q&A–36. 11 Rev. Rul. 2004–45. 

their annual contribution limit by allocating the entire amount to 

one spouse to be contributed to that spouse’s HSA.10 This rule does 

not apply to catch-up contribution amounts. 

Health flexible spending accounts 

In addition to offering health insurance, employers often agree to 

reimburse medical expenses of their employees (and their spouses 

and dependents). These arrangements are commonly used by employers to pay or reimburse employees for medical expenses that 

are not covered by health insurance. These arrangements include 

health flexible spending arrangements (‘‘health FSAs’’). 

Health FSAs typically are funded on a salary reduction basis 

under a cafeteria plan, meaning that employees are given the option to reduce their current cash compensation and instead have 

the amount made available for use in reimbursing the employee for 

his or her medical expenses. If the health FSA meets certain requirements, the compensation that is forgone is not includible in 

gross income or wages for payroll tax purposes. 

Under IRS guidance, an individual who is covered by an HDHP 

and a health FSA that pays or reimburses certain medical expenses 

that are not limited to the exceptions for permitted insurance, permitted coverage, or preventive care is generally not an eligible individual for the purpose of making deductible contributions to an 

HSA. Similarly, if the individual is covered by a health FSA sponsored by the employer of the individual’s spouse, the individual is 

not an eligible individual.11

REASONS FOR CHANGE

The Committee believes that an individual should not be prevented from making HSA contributions merely because his spouse 

has a health FSA. Fixing this spousal penalty, while preventing 

double-dipping in tax benefits will ultimately help modernize 

health care delivery and give employers the freedom to innovate 

and improve their employees’ health insurance. 

EXPLANATION OF PROVISION

Under the proposal, an individual’s eligibility for HSAs is determined without regard to whether or not the spouse of the individual has coverage under a health FSA for any taxable year as 

long as the aggregate reimbursements under the arrangement for 

the year do not exceed the total expenses which would be eligible 

for reimbursement if determined without regard to the individual’s 

expenses paid or incurred. 

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 

2018. 

11 

12 An individual with other coverage in addition to a high deductible health plan is still eligible for an HSA if such other coverage is ‘‘permitted insurance’’ or ‘‘permitted coverage.’’ 

Permitted insurance is: (1) insurance if substantially all of the coverage provided under such 

insurance relates to (a) liabilities incurred under worker’s compensation law, (b) tort liabilities, 

(c) liabilities relating to ownership or use of property (e.g., auto insurance), or (d) such other 

similar liabilities as the Secretary may prescribe by regulations; (2) insurance for a specified 

disease or illness; and (3) insurance that provides a fixed payment for hospitalization. Also see 

Notice 2004–50, 2004–33 IRB 1, Q & A–7 and Q & A–8 (‘‘an eligible individual may be covered 

by an HDHP and also by permitted insurance for one or more specific diseases, such as cancer, 

diabetes, asthma or congestive heart failure, as long as the principal health coverage is provided 

by the HDHP’’), but such coverage must be provided through insurance contracts and not on 

a self-insured basis. 

Pursuant to Q & A–10 of Notice 2004–50, coverage under a disease management program 

does not make an individual ineligible to contribute to an HSA as long as the program does 

not provide significant benefits in the nature of medical care or treatment so that it is not considered a ‘‘health plan’’ for purposes of Code section 223(c)(1). Where a disease management program provides evidence-based information, disease specific support, case monitoring and coordination of the care and treatment provided by a health plan including monitoring laboratory or 

other test results, telephone contacts or web-based reminders of health care schedules, and providing information to minimize health risks it is not considered a ‘‘health plan.’’ 

Permitted coverage is coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. With respect to coverage for years 

beginning after December 31, 2006, certain coverage under a Health FSA is disregarded in determining eligibility for an HSA. 13Sec. 223. 

C. FSA AND HRA TERMINATIONS OR CONVERSIONS TO FUND HSAS

PRESENT LAW

Health savings accounts 

An individual with a high deductible health plan and no other 

health plan (other than a plan that provides certain permitted insurance or permitted coverage) 12 may establish a health savings 

account (‘‘HSA’’).13 Subject to limits, contributions to an HSA made 

by or on behalf of an eligible individual are deductible in determining adjusted gross income of the individual (that is, an ‘‘abovethe-line’’ deduction). Contributions to an HSA by an employer for 

an employee (including salary reduction contributions made 

through a cafeteria plan) are excludible from income and from 

wages for employment tax purposes. 

HSA contributions for a year are subject to basic dollar limits 

that are also adjusted annually as needed to reflect annual cost-ofliving increases. 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 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). Contributions, including catch-up contributions, cannot be made once an individual is enrolled in Medicare. 

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). 

A high deductible health plan is a health plan that has an an- nual deductible that is at least $1,350 for self-only coverage or 

$2,700 for family coverage for 2018 and that limits the sum of the 

annual deductible and other payments that the individual must 

make with respect to covered benefits to no more than $6,650 in 

12 

14See Sec. 223(b)(7), as interpreted by Notice 2004–2, 2004–2 I.R.B. 269, corrected by Announcement 2004–67, 2004–36 I.R.B. 459. 15Sec. 125(d)(2). 16 As defined in Sec. 152. 

the case of self-only coverage and $13,300 in the case of family coverage for 2018. 

Qualified medical expenses generally are defined as under Code 

section 213(d) and include expenses for diagnosis, cure, mitigation, 

treatment, or prevention of disease, including prescription drugs, 

transportation primarily for and essential to such care, and qualified long-term care expenses. Qualified medical expenses do not include expenses for insurance other than for (1) certain premiums 

paid for long-term care insurance, (2) premiums for health coverage 

during any period of continuation coverage required by Federal 

law, (3) premiums for health care coverage while an individual is 

receiving unemployment compensation under Federal or State law, 

and (4) premiums for individuals who have attained the age of 

Medicare eligibility, other than premiums for Medigap policies. 

Eligible individuals 

Eligible individuals for HSAs are individuals who are covered by 

a high deductible health plan and no other health plan that (1) is 

not a high deductible health plan and (2) provides coverage for any 

benefit which is covered under the high deductible health plan. 

After an individual has attained age 65 and becomes enrolled in 

Medicare benefits, contributions cannot be made to an HSA.14

Health flexible spending accounts and health reimbursement 

arrangements 

In addition to offering health insurance, employers often agree to 

reimburse medical expenses of their employees (and their spouses 

and dependents). These arrangements are commonly used by employers to pay or reimburse employees for medical expenses that 

are not covered by health insurance. These arrangements include 

health flexible spending arrangements (‘‘health FSAs’’) and health 

reimbursement arrangements (‘‘HRAs’’). 

Health FSAs typically are funded on a salary reduction basis 

under a cafeteria plan, meaning that employees are given the option to reduce their current cash compensation and instead have 

the amount made available for use in reimbursing the employee for 

his or her medical expenses. If the health FSA meets certain requirements, the compensation that is forgone is not includible in 

gross income or wages for payroll tax purposes. 

Health FSAs that are funded on a salary reduction basis are subject to the requirements for cafeteria plans, including a requirement that amounts remaining in a health FSA at the end of a plan 

year must be forfeited by the employee (referred to as the ‘‘use-itor-lose-it rule’’).15

Health reimbursement arrangements (‘‘HRAs’’) operate in a manner similar to health FSAs, in that they are an employer-maintained arrangement that reimburses employees and their dependents 16 for medical expenses. Some of the rules applicable to HRAs 

and health FSAs are similar (e.g., the amounts in the arrangements can only be used to reimburse medical expenses and not for 

other purposes), but the rules are not identical. In particular, 

13 

17 Guidance with respect to HRAs, including the interaction of FSAs and HRAs in the case 

of an individual covered under both, is provided in IRS Notice 2002–45, 2002–2 C.B. 93. 18 Notice 2004–23. 19Defined in Sec. 213(d). 20 Rev. Rul. 2004–45. 21 As defined in Sec. 223(c)(2)(A)(i). 22 Notice 2005–42, 2005–1, C.B. 1204. 23 ‘‘Cash basis’’ means the balance as of any date, without taking into account expenses incurred that have not been reimbursed as of that date. Thus, pending claims, claims submitted, 

claims received or claims under review that have not been paid as of a date are not taken into 

account for purposes of determining the account balance as of that date. 

HRAs cannot be funded on a salary reduction basis and the useit-or-lose-it rule does not apply. Thus, amounts remaining at the 

end of the year may be carried forward to be used to reimburse 

medical expenses in following years.17 Unlike a health FSA, an 

HRA is permitted to reimburse an employee for health insurance 

premiums. 

Interactions of health savings accounts with other health arrangements 

In general, an individual with an HDHP and no other health 

plan (other than a plan that provides certain permitted insurance, 

or permitted coverage) may establish an HSA. Permitted insurance 

is coverage under which substantially all of the coverage provided 

relates to liabilities incurred under workers’ compensation laws, 

tort liabilities, liabilities relating to ownership or use of property, 

insurance for a specified disease or illness, and insurance that pays 

a fixed amount per day (or other period) of hospitalization. Permitted coverage is coverage for accidents, disability, dental care, vision care, or long-term care.18

Under IRS guidance, a health FSA and an HRA are (with some 

exceptions) considered health plans under this definition and therefore, an individual who is covered by an HDHP and a general purpose health FSA or general purpose HRA that pays or reimburses 

qualified medical expenses,19 is not an eligible individual for the 

purpose of making contributions to an HSA.20 However, an individual does not fail to be an eligible individual for the purpose of 

making contributions to an HSA if the individual is covered under 

the following arrangements (or some combination of the following 

arrangements): (1) a limited-purpose health FSA that pays or reimburses only permitted coverage or preventive care services, (2) a 

limited-purpose HRA that pays or reimburses benefits for permitted insurance, permitted coverage or preventive care services, 

(3) a suspended HRA that does not pay or reimburse any medical 

expense incurred during the suspension period except permitted insurance, permitted coverage, or preventive care services, (4) a postdeductible health FSA or HRA, which does not pay or reimburse 

any medical expense incurred before the minimum annual deductible for a plan to be an HDHP.21

If a general purpose health FSA allows reimbursement for expenses incurred during a grace period following the end of the plan 

year, an otherwise eligible individual participating in the health 

FSA is generally not eligible to make contributions to an HSA until 

the first day of the first month following the end of the grace period.22 However, if an individual has a zero balance in a general 

purpose health FSA, as determined on a cash basis,23 on the last 

day of the health FSA plan year, the individual does not fail to be 

14 

24These requirements are: (1) effective on the first of the immediately following HRA plan 

year, the employee elects to waive participation in the HRA, or (2) effective on or before the 

first day of the following HRA plan year, the employer terminates the general purpose HRA 

with respect to all employees, or (3) effective on or before the first day of the following HRA 

plan year, with respect to all employees, the employer converts the general purpose HRA to an 

HSA-compatible HRA. See Rev. Rul. 2004–45. 25 Rev. Rul. 2004–45. 26See Rev. Rul. 2004–38, 2004–15. 27The Health Opportunity Patient Empowerment Act of 2006, included in the Tax Relief and 

Health Care Act of 2006, Pub. L. No. 109–432, sec. 302, December 20, 2006. 28The IRS provided guidance on special transition relief for amounts remaining at the end 

of 2006. See Notice 2007–22. 29The testing period is defined to be the period beginning with the month in which the qualified HSA distribution is contributed to the HSA and ending on the last day of the 12th month 

following that month. 

an eligible individual as of the first day of the immediately following health FSA plan year solely because of coverage during a 

health FSA grace period. Similarly, an individual with a zero balance in a general purpose HRA, determined on a cash basis, on the 

last day of the HRA plan year, does not fail to be an eligible individual on the first day of the immediately following HRA plan year, 

as long as certain requirements are satisfied.24

Coverage by an HSA-compatible health FSA or HRA (these include, limited-purpose health FSA or HRA, post-deductible health 

FSA or HRA, retirement HRA, or suspended HRA), does not affect 

an employee’s eligibility to contribute to an HSA, including during 

a health FSA grace period.25 In addition, IRS guidance holds that 

an individual covered by an HDHP that does not provide prescription drug coverage, along with a separate prescription drug plan or 

rider that provides benefits before the minimum annual deductible 

of the HDHP has been satisfied is not eligible to contribute to 

HSAs.26

FSA and HRA terminations to fund HSAs 

The Health Opportunity Empowerment Act of 2006 27 amended 

the Code to allow for certain amounts in a health FSA or HRA to 

be rolled over into an HSA with favorable tax treatment. To allow 

this, the plan must be amended in writing, the employee must elect 

the rollover, and the year-end balance must be frozen. In addition, 

funds must be transferred by the employer within two and a half 

months after the end of the plan year and result in a zero balance 

in the health FSA or HRA.28 The Act provides for distributions of 

an amount from a health FSA or HRA to an HSA (‘‘qualified HSA 

distribution’’) before January 1, 2012. The distribution must not exceed the lesser of the balance in the health FSA or HRA on September 21, 2006, or as of the date of distribution. 

Under these rules, a qualified HSA distribution must be contributed directly to the HSA trustee by the employer. Only one qualified health distribution is allowed with respect to each health FSA 

or HRA of an individual. Qualified HSA distributions are not taken 

into account in applying the annual limit for HSA contributions. 

Qualified HSA distributions are treated as rollovers, and thus are 

not deductible. 

If an employee fails to remain HSA-eligible for 12 months (‘‘the 

testing period’’ 29) following the distribution, the employee is not eligible directly following the distribution, and the amount of the 

rollover is included in gross income and is subject to an additional 

20 percent tax unless the individual dies or becomes disabled. FailVerDate Sep 11 2014 08:02 Jul 20, 2018 Jkt 079006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR844.XXX HR844
15 

30Sec. 125(i). 31Sec. 6051(a) 

ure to remain an eligible individual does not require the withdrawal of the qualified HSA distribution, and the amount is not an 

excess contribution. 

REASONS FOR CHANGE

The Committee believes that streamlining the conversion of other 

tax-preferred health accounts to HSAs will make it easier for individuals to establish HSAs to save for their health care costs. 

EXPLANATION OF PROVISION

The proposal defines ‘‘qualified HSA distribution’’ as a distribution from an employee’s health FSA or HRA directly to an employee’s HSA if such distribution is made in connection with the employee establishing coverage under an HDHP after a significant period of not having such coverage. 

The aggregate amount of qualified HSA distributions may not exceed the total annual limit on FSA contributions ($2,650 in 2018) 30

or twice this amount in the case of an eligible individual who has 

family coverage under an HDHP. 

The statutory annual contribution limits to an HSA are $2,250 

for an individual with single coverage or $4,500 for an individual 

with family coverage and indexed for cost-of-living adjustments. 

The contribution limits for 2018 are $3,450 for self-only HDHP coverage, and $6,900 for an individual with family coverage. The proposal allows deductible HSA contributions up to these limits for a 

given year, reduced by the amount of the qualified HSA distribution attributable to that year. 

The proposal also specifies that if a general-purpose health FSA 

or HRA is converted to an HSA-compatible FSA or HRA, coverage 

under this health FSA or HRA for the portion of the plan year after 

a qualified HSA distribution is made is disregarded in determining 

whether the individual is eligible to make deductible contributions 

to an HSA. 

Finally, the proposal provides that the amount of any qualified 

HSA distribution is to be included on the information to be reported on Form W–2.31

EFFECTIVE DATE

The proposal is effective for distributions made after December 

31, 2018, in taxable years ending after such date. 

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. 6305, the ‘Bipartisan HSA Improvement Act of 2018,’ 

on July 11, 2018. 

H.R. 6305 was ordered favorably reported to the House of Representatives as amended by an amendment in the nature of a substitute offered by Chairman Brady by a roll call vote of 26 yeas to 

13 nays. The vote was as follows: 

16 

Representative Yea Nay Present Representative Yea Nay Present 

Mr. Brady .................................. X .......... .............. Mr. Neal ................................... .......... X ..............

Mr. Johnson ............................... X .......... .............. Mr. Levin .................................. .......... X ..............

Mr. Nunes ................................. X .......... .............. Mr. Lewis .................................. .......... X ..............

Mr. Reichert .............................. X .......... .............. Mr. Doggett .............................. .......... X ..............

Mr. Roskam ............................... X .......... .............. Mr. Thompson .......................... .......... X ..............

Mr. Buchanan ........................... X .......... .............. Mr. Larson ................................ .......... X ..............

Mr. Smith (NE) .......................... X .......... .............. Mr. Blumenauer ....................... X .......... ..............

Ms. Jenkins ............................... .......... .......... .............. Mr. Kind ................................... X .......... ..............

Mr. Paulsen ............................... X .......... .............. Mr. Pascrell .............................. .......... X ..............

Mr. Marchant ............................ X .......... .............. Mr. Crowley .............................. .......... X ..............

Ms. Black .................................. X .......... .............. Mr. Davis .................................. .......... X ..............

Mr. Reed ................................... X .......... .............. Ms. Sanchez ............................. .......... X ..............

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. 6305, as reported. 

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

Federal fiscal year budget receipts for the period 2019–2028: 

17 

FISCAL YEARS 

[Millions of Dollars] 

Item 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019–23 2019–28 

Certain Employment Related Services Not treated as Disqualifying Coverage for Purposes of Health Savings Accounts 1 .............................................................................. ¥165 ¥248 ¥274 ¥310 ¥350 ¥392 ¥440 ¥518 ¥588 ¥655 ¥1,347 ¥3,939 

Contributions Permitted if Spouse has a Health Flexible 

Spending Account 1 ............................................................ ¥1 ¥2 ¥2 ¥2 ¥2 ¥2 ¥2 ¥2 ¥2 ¥2 ¥8 ¥18 

FSA and HRA Terminations or Conversions to Fund Health 

Savings Accounts 1 ............................................................ ¥11 ¥28 ¥28 ¥29 ¥30 ¥31 ¥32 ¥38 ¥38 ¥39 ¥127 ¥302 

Total ............................................................................... ¥177 ¥278 ¥304 ¥341 ¥382 ¥425 ¥474 ¥555 ¥628 ¥696 ¥1,482 ¥4,259 

NOTE: Details may not add to totals due to rounding. 1 Estimate includes the following off-budget effects: 

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019–23 2019–28 

Certain Employment Related Services Not treated as Disqualifying Coverage for Purposes of Health Savings Accounts 1 .............................................................................. ¥36 ¥49 ¥53 ¥61 ¥70 ¥80 ¥92 ¥107 ¥126 ¥149 ¥269 ¥823 

Contributions Permitted if Spouse has a Health Flexible 

Spending Account 1 ............................................................ 2 2 2 2 2 ¥1 ¥1 ¥1 ¥1 ¥1 ¥2 ¥5 

Flexible Spending Arrangement and Health Savings Account 

Terminations or Conversions to Fund Health Savings Accounts 1 .............................................................................. ¥3 ¥7 ¥8 ¥8 ¥8 ¥9 ¥9 ¥9 ¥9 ¥10 ¥34 ¥80 

2 Loss of less than $500,000. 

18 

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. 

19 

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

Section 4022(b) of the Internal Revenue Service Restructuring 

and Reform Act of 1998 (‘‘IRS Reform Act’’) 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 of 1986 and has widespread applicability to individuals or small businesses. 

Pursuant to clause 3(h)(1) of rule XIII of the Rules of the House 

of Representatives, the staff of the Joint Committee on Taxation 

has determined that a complexity analysis is not required under 

section 4022(b) of the IRS Reform Act because the bill contains no 

provisions that amend the Internal Revenue Code of 1986 and that 

have ‘‘widespread applicability’’ to individuals or small businesses, 

within the meaning of the rule. 

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. 

20 

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. 

21 

(2) NO CONSTRUCTIVE RECEIPT.—No amount shall be included 

in the gross income of any employee solely because the employee may choose between the contributions referred to in 

paragraph (1) and employer contributions to another health 

plan of the employer. 

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

(4) EMPLOYER MSA CONTRIBUTIONS REQUIRED TO BE SHOWN

ON RETURN.—Every individual required to file a return under 

section 6012 for the taxable year shall include on such return 

the aggregate amount contributed by employers to the Archer 

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

taxable year. 

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

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

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

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

meanings given to such terms by section 220. 

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

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

(c) INCLUSION OF LONG-TERM CARE BENEFITS PROVIDED THROUGH

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

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

coverage is provided through a flexible spending or similar arrangement. 

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

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

(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. 

22 

(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. 

ø(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— 

ø(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 

ø(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.¿ 

(2) QUALIFIED HSA DISTRIBUTION.—For purposes of this subsection— 

(A) IN GENERAL.—The term ‘‘qualified HSA distribution’’ 

means, with respect to any employee, a distribution from a 

health flexible spending arrangement or health reimbursement arrangement of such employee directly to a health 

savings account of such employee if— 

(i) such distribution is made in connection with such 

employee establishing coverage under a high deductible 

health plan (as defined in section 223(c)(2)) after a significant period of not having such coverage, and 

(ii) such arrangement is described in section 

223(c)(1)(B)(iii) with respect to the portion of the plan 

year after such distribution is made. 

(B) DOLLAR LIMITATION.—The aggregate amount of distributions from health flexible spending arrangements and 

health reimbursement arrangements of any employee which 

may be treated as qualified HSA distributions in connection with an establishment of coverage described in subparagraph (A)(i) shall not exceed the dollar amount in effect under section 125(i)(1) (twice such amount in the case 

of coverage which is described in section 223(b)(2)(B)). 

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

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

amount of the qualified HSA distribution— 

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

month in the testing period for which such employee 

is not an eligible individual, and 

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

year on the employee shall be increased by 10 percent 

of the amount which is so includible. 

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

and (ii) of subparagraph (A) shall not apply if the emVerDate Sep 11 2014 08:02 Jul 20, 2018 Jkt 079006 PO 00000 Frm 00022 Fmt 6659 Sfmt 6602 E:\HR\OC\HR844.XXX HR844
23 

ployee ceases to be an eligible individual by reason of the 

death of the employee or the employee becoming disabled 

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

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

subsection— 

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

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

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

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

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

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

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

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

treated as a payment described in subsection (d). 

(B) COMPARABILITY EXCISE TAX.— 

(i) IN GENERAL.—Except as provided in clause (ii), 

section 4980G shall not apply to qualified HSA distributions. 

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

case of a qualified HSA distribution to any employee, 

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

of the employer shall (notwithstanding section 

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

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

(f) REIMBURSEMENTS FOR MEDICINE RESTRICTED TO PRESCRIBED

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

reimbursement for expenses incurred for a medicine or a drug shall 

be treated as a reimbursement for medical expenses only if such 

medicine or drug is a prescribed drug (determined without regard 

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

(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 

* * * * * * * 

24 

SEC. 223. HEALTH SAVINGS ACCOUNTS. 

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

eligible individual for any month during the taxable year, there 

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

equal to the aggregate amount paid in cash during such taxable 

year by or on behalf of such individual to a health savings account 

of such individual. 

(b) LIMITATIONS.— 

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

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

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

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

month is 1⁄12 of— 

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

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

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

coverage under a high deductible health plan as of the first 

day of such month, $4,500. 

(3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55 OR

OLDER.— 

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

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

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

(B) ADDITIONAL CONTRIBUTION AMOUNT.—For purposes 

of this section, the additional contribution amount is the 

amount determined in accordance with the following table: 

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

2004 $500

2005 $600

2006 $700

2007 $800

2008 $900

2009 and thereafter $1,000. 

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

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

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

Archer MSAs of such individual, 

(B) the aggregate amount contributed to health savings 

accounts of such individual which is excludable from the 

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

(C) the aggregate amount contributed to health savings 

accounts of such individual for such taxable year under 

25 

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

a deduction under subsection (a))ø.¿, and 

(D) so much of any qualified HSA distribution (as defined in section 106(e)(2)) made to a health savings account 

of such individual during the taxable year as does not exceed the aggregate increases in the balance of the arrangement from which such distribution is made which occur 

during the portion of the plan year which precedes such 

distribution (other than any balance carried over to such 

plan year and determined without regard to any decrease 

in such balance during such portion of the plan year). 

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— 

26 

(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, øand¿ 

ø(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— 

ø(I) the balance in such arrangement at the end 

of such plan year is zero, or 

ø(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 

27 

arrangement as of the end of such plan year, in 

accordance with rules prescribed by the Secretary.¿ 

(iii) coverage under a health flexible spending arrangement or health reimbursement arrangement for 

the portion of the plan year after a qualified HSA distribution (as defined in section 106(e)(2) determined 

without regard to subparagraph (A)(ii) thereof) is 

made, if the terms of such arrangement which apply 

for such portion of the plan year are such that, if such 

terms applied for the entire plan year, then such arrangement would not be taken into account under subparagraph (A)(ii) of this paragraph for such plan year, 

and 

(iv) coverage under a health flexible spending arrangement of the spouse of the individual for any plan 

year of such arrangement if the aggregate reimbursements under such arrangement for such year do not exceed the aggregate expenses which would be eligible for 

reimbursement under such arrangement if such expenses were determined without regard to any expenses 

paid or incurred with respect to such individual. 

(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). 

(D) SPECIAL RULE FOR QUALIFIED ITEMS AND SERVICES.— 

(i) IN GENERAL.—An individual shall not be treated 

as covered under a health plan for purposes of subparagraph (A)(ii) merely because the individual, in 

connection with the employment of the individual or 

the individual’s spouse, receives (or is eligible to receive) qualified items and services at— 

(I) a healthcare facility located at a facility 

owned or leased by the employer of the individual 

(or of the individual’s spouse), or operated primarily for the benefit of such employer’s employees, 

or 

(II) a healthcare facility located within a supermarket, pharmacy, or similar retail establishment. 

(ii) QUALIFIED ITEMS AND SERVICES DEFINED.—For 

purposes of this subparagraph, the term ‘‘qualified 

items and services’’ means the following: 

(I) Physical examinations. 

(II) Immunizations, including injections of antigens provided by employees. 

(III) Drugs other than a prescribed drug (as 

such term is defined in section 213(d)(3)). 

(IV) Treatment for injuries occurring in the 

course of employment. 

28 

(V) Drug testing, if required as a condition of 

employment. 

(VI) Hearing or vision screenings. 

(VII) Other similar items and services that do 

not provide significant benefits in the nature of 

medical care. 

(iii) AGGREGATION.—For purposes of clause (i)(I), all 

persons treated as a single employer under subsection 

(b), (c), (m), or (o) of section 414 shall be treated as a 

single employer. 

(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 

29 

(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. 

30 

(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

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

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

any expense for coverage under— 

(i) a health plan during any period of continuation 

coverage required under any Federal law, 

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

defined in section 7702B(b)), 

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

any Federal or State law, or 

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

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

the Social Security Act). 

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

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

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

rules shall apply for purposes of this section: 

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

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

deemed made). 

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

(relating to employer payments). 

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

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

(e) TAX TREATMENT OF ACCOUNTS.— 

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

taxation under this subtitle unless such account has ceased to 

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.— 

31 

(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 QUALI- FIED 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 ELI- GIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account 

beneficiary attains the age specified in section 1811 of the 

Social Security Act. 

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

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

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

amount paid or distributed from a health savings account 

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

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

day on which the beneficiary receives the payment or distribution. 

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

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

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

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

32 

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.— 

33 

(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. 

* * * * * * * 

Subtitle F—Procedure and Administration 

* * * * * * * 

CHAPTER 61—INFORMATION AND RETURNS 

* * * * * * * 

Subchapter A—Returns and Records 

* * * * * * * 

PART III—INFORMATION RETURNS 

* * * * * * * 

Subpart C—Information Regarding Wages Paid Employees 

* * * * * * * 

34 

SEC. 6051. RECEIPTS FOR EMPLOYEES. 

(a) REQUIREMENT.—Every person required to deduct and withhold from an employee a tax under section 3101 or 3402, or who 

would have been required to deduct and withhold a tax under section 3402 (determined without regard to subsection (n)) if the employee had claimed no more than one withholding exemption, or 

every employer engaged in a trade or business who pays remuneration for services performed by an employee, including the cash 

value of such remuneration paid in any medium other than cash, 

shall furnish to each such employee in respect of the remuneration 

paid by such person to such employee during the calendar year, on 

or before January 31 of the succeeding year, or, if his employment 

is terminated before the close of such calendar year, within 30 days 

after the date of receipt of a written request from the employee if 

such 30-day period ends before January 31, a written statement 

showing the following: 

(1) the name of such person, 

(2) the name of the employee (and an identifying number for 

the employee if wages as defined in section 3121(a) have been 

paid), 

(3) the total amount of wages as defined in section 3401(a), 

(4) the total amount deducted and withheld as tax under section 3402, 

(5) the total amount of wages as defined in section 3121(a), 

(6) the total amount deducted and withheld as tax under section 3101, 

(8) the total amount of elective deferrals (within the meaning 

of section 402(g)(3)) and compensation deferred under section 

457, including the amount of designated Roth contributions (as 

defined in section 402A), 

(9) the total amount incurred for dependent care assistance 

with respect to such employee under a dependent care assistance program described in section 129(d), 

(10) in the case of an employee who is a member of the 

Armed Forces of the United States, such employee’s earned income as determined for purposes of section 32 (relating to 

earned income credit), 

(11) the amount contributed to any Archer MSA (as defined 

in section 220(d)) of such employee or such employee’s spouse, 

(12) the amount contributed to any health savings account 

(as defined in section 223(d)) of such employee or such employee’s spouse (other than any qualified HSA distribution, as defined in section 106(e)(2)), 

(13) the total amount of deferrals for the year under a nonqualified deferred compensation plan (within the meaning of 

section 409A(d)), 

(14) the aggregate cost (determined under rules similar to 

the rules of section 4980B(f)(4)) of applicable employer-sponsored coverage (as defined in section 4980I(d)(1)), except that 

this paragraph shall not apply to— 

(A) coverage to which paragraphs (11) and (12) apply, or 

(B) the amount of any salary reduction contributions to 

a flexible spending arrangement (within the meaning of 

section 125), 

35 

(15) the total amount of permitted benefit (as defined in section 9831(d)(3)(C)) for the year under a qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2)) with respect to the employee, 

(16) the amount includible in gross income under subparagraph (A) of section 83(i)(1) with respect to an event described 

in subparagraph (B) of such section which occurs in such calendar year, øand¿ 

(17) the aggregate amount of income which is being deferred 

pursuant to elections under section 83(i), determined as of the 

close of the calendar yearø.¿, and 

(18) the amount of any qualified HSA distribution (as defined 

in section 106(e)(2)) with respect to such employee. 

In the case of compensation paid for service as a member of a uniformed service, the statement shall show, in lieu of the amount required to be shown by paragraph (5), the total amount of wages as 

defined in section 3121(a), computed in accordance with such section and section 3121(i)(2). In the case of compensation paid for 

service as a volunteer or volunteer leader within the meaning of 

the Peace Corps Act, the statement shall show, in lieu of the 

amount required to be shown by paragraph (5), the total amount 

of wages as defined in section 3121(a), computed in accordance 

with such section and section 3121(i)(3). In the case of tips received 

by an employee in the course of his employment, the amounts required to be shown by paragraphs (3) and (5) shall include only 

such tips as are included in statements furnished to the employer 

pursuant to section 6053(a). The amounts required to be shown by 

paragraph (5) shall not include wages which are exempted pursuant to sections 3101(c) and 3111(c) from the taxes imposed by sections 3101 and 3111. In the case of the amounts required to be 

shown by paragraph (13), the Secretary may (by regulation) establish a minimum amount of deferrals below which paragraph (13) 

does not apply. 

(b) SPECIAL RULE AS TO COMPENSATION OF MEMBERS OF ARMED

FORCES.—In the case of compensation paid for service as a member 

of the Armed Forces, the statement required by subsection (a) shall 

be furnished if any tax was withheld during the calendar year 

under section 3402, or if any of the compensation paid during such 

year is includible in gross income under chapter 1, or if during the 

calendar year any amount was required to be withheld as tax 

under section 3101. In lieu of the amount required to be shown by 

paragraph (3) of subsection (a), such statement shall show as 

wages paid during the calendar year the amount of such compensation paid during the calendar year which is not excluded from gross 

income under chapter 1 (whether or not such compensation constituted wages as defined in section 3401(a)). 

(c) ADDITIONAL REQUIREMENTS.—The statements required to be 

furnished pursuant to this section in respect of any remuneration 

shall be furnished at such other times, shall contain such other information, and shall be in such form as the Secretary may by regulations prescribe. The statements required under this section shall 

also show the proportion of the total amount withheld as tax under 

section 3101 which is for financing the cost of hospital insurance 

benefits under part A of title XVIII of the Social Security Act. 

36 

(d) STATEMENTS TO CONSTITUTE INFORMATION RETURNS.—A duplicate of any statement made pursuant to this section and in accordance with regulations prescribed by the Secretary shall, when 

required by such regulations, be filed with the Secretary. 

(e) RAILROAD EMPLOYEES.— 

(1) ADDITIONAL REQUIREMENT.—Every person required to deduct and withhold tax under section 3201 from an employee 

shall include on or with the statement required to be furnished 

such employee under subsection (a) a notice concerning the 

provisions of this title with respect to the allowance of a credit 

or refund of the tax on wages imposed by section 3101(b) and 

the tax on compensation imposed by section 3201 or 3211 

which is treated as a tax on wages imposed by section 3101(b). 

(2) INFORMATION TO BE SUPPLIED TO EMPLOYEES.—Each person required to deduct and withhold tax under section 3201 

during any year from an employee who has also received wages 

during such year subject to the tax imposed by section 3101(b) 

shall, upon request of such employee, furnish to him a written 

statement showing— 

(A) the total amount of compensation with respect to 

which the tax imposed by section 3201 was deducted, 

(B) the total amount deducted as tax under section 3201, 

and 

(C) the portion of the total amount deducted as tax 

under section 3201 which is for financing the cost of hospital insurance under part A of title XVIII of the Social Security Act. 

(f) STATEMENTS REQUIRED IN CASE OF SICK PAY PAID BY THIRD

PARTIES.— 

(1) STATEMENTS REQUIRED FROM PAYOR.— 

(A) IN GENERAL.—If, during any calendar year, any person makes a payment of third-party sick pay to an employee, such person shall, on or before January 15 of the 

succeeding year, furnish a written statement to the employer in respect of whom such payment was made showing— 

(i) the name and, if there is withholding under section 3402(o), the social security number of such employee, 

(ii) the total amount of the third-party sick pay paid 

to such employee during the calendar year, and 

(iii) the total amount (if any) deducted and withheld 

from such sick pay under section 3402. 

For purposes of the preceding sentence, the term ‘‘thirdparty sick pay’’ means any sick pay (as defined in section 

3402(o)(2)(C)) which does not constitute wages for purposes 

of chapter 24 (determined without regard to section 

3402(o)(1)). 

(B) SPECIAL RULES.— 

(i) STATEMENTS ARE IN LIEU OF OTHER REPORTING

REQUIREMENTS.—The reporting requirements of subparagraph (A) with respect to any payments shall, 

with respect to such payments, be in lieu of the requirements of subsection (a) and of section 6041. 

37 

(ii) PENALTIES MADE APPLICABLE.—For purposes of 

sections 6674 and 7204, the statements required to be 

furnished by subparagraph (A) shall be treated as 

statements required under this section to be furnished 

to employees. 

(2) INFORMATION REQUIRED TO BE FURNISHED BY EM- PLOYER.—Every employer who receives a statement under 

paragraph (1)(A) with respect to sick pay paid to any employee 

during any calendar year shall, on or before January 31 of the 

succeeding year, furnish a written statement to such employee 

showing— 

(A) the information shown on the statement furnished 

under paragraph (1)(A), and 

(B) if any portion of the sick pay is excludable from gross 

income under section 104(a)(3), the portion which is not so 

excludable and the portion which is so excludable. 

To the extent practicable, the information required under the 

preceding sentence shall be furnished on or with the statement 

(if any) required under subsection (a). 

* * * * * * * 

(38) 

MINORITY VIEWS 

H.R. 6305 Bipartisan Improvements to HSAs 

H.R. 6305 (Kelly, R–PA and Blumenauer, D–OR) allows: (1) an 

individual to roll over Flexible Spending Account (FSA) and limited 

Health Reimbursement Accounts (HRAs; up to the annual Health 

Savings Account (HSA) contribution amount) at time of transition 

to an HSA-eligible High-Deductible Health Plan (HDEIP); (2) an 

individual to maintain an HSA even if his/her spouse has an FSA, 

provided each spouse is under separate health insurance plans; and 

(3) employees to participate in an HSA even if his/her employer offers an on-site health clinic. 

H.R. 6305 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. Instead of focusing on expansion of HSAs and HDHPs, 

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, lower premiums for Americans, and 

improve affordability of health coverage. 

Legislation busts the deficit to benefit the wealthy, again. Altogether the 11 bills the Committee marked up would add another 

$92 billion in unoffset tax cuts to the deficit. Attempts to expand 

HSAs (and encourage more enrollment in plans with high 

deductibles, covering very few up-front health costs) represent a 

continuation of Republicans’ platform of shifting families into 

health plans that provide fewer health benefits and higher out-ofpocket costs—while providing greater tax benefits for higher-income individuals and corporate special interests. According to 2014 

Treasury data, only five percent of families with adjusted gross income of under $100,000 held money in an HSA, and those users’ 

average account balances were $1,700. 

HDHPs and HSAs do not promote healthy behavior. It is widely 

acknowledged that HSAs and HDHPs lead consumers to delay 

care. They do not encourage individuals to make better health care 

decisions, as Republicans’ ‘‘skin in the game’’ talking points assert. 

Decades of research shows that exposure to high out-of-pocket costs 

leads consumers to delay or forgo both necessary and unnecessary 

care. Delaying care and increasing costs run counter to Democratic 

policy goals of better coordinated, high-value affordable care for 

American families. This legislation demonstrates why HDHPs in 

39 

their current format do not allow consumers to see value in their 

health insurance. 

According to the American Hospital Association, ‘‘Hospitals and 

health systems report that increased enrollment in HDHPs over 

the past several years has reduced access to care and subjected patients to costs they cannot afford. In addition, patients enrolled in 

HDHPs appear to delay care until they have reached their deductible or are in an emergency situation, which could lead to poorer 

health outcomes.’’ 

HSAs mostly benefit high-income taxpayers while doing little to 

help moderate-income families or the uninsured. High-income people can best afford to save for health care expenses and are, therefore, the most likely to contribute to HSAs. Higher income filers 

are much more likely to establish HSAs than lower income filers— 

70 percent of HSA contributions come from households with incomes over $100,000, according to the Joint Commission on Taxation (JCT)—and they are also likelier to max out their contributions. Additionally, high-income individuals receive the biggest tax 

benefit for each dollar contributed to an HSA because the value of 

a tax deduction rises with an individual’s tax bracket. More than 

44 percent of Americans cannot afford a $400 emergency visit. For 

these families, it is unlikely they have excess income to devote to 

a tax-preferred account. JCT estimates the cost of this bill to be $4.3 billion over 10 years. 

With this bill, 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 their deep cuts to 

Medicare and Medicaid. Republicans are already 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 add fuel 

to the fire. 

RICHARD E. NEAL, 

Ranking Member. 

Æ