I

103D CONGRESS

1ST SESSION H. R. 3065

To amend the Internal Revenue Code of 1986 to establish medical care

savings benefits.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 14, 1993

Mr. JACOBS (for himself, Mr. ARCHER, Mr. INHOFE, Mr. TORRICELLI, Mr.

LIPINSKI, and Mr. POSHARD) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to establish

medical care savings benefits.

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

3 SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

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

5 ‘‘Medical Cost Containment Act of 1993’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 SEC. 2.

4 Section 125A is added to the Code to read as follows:

5 ‘‘SEC. 125A. MEDICAL CARE SAVINGS BENEFITS.

6 ‘‘(a) IN GENERAL.—A medical care savings benefit

7 is a qualified benefit which consists of a Health Plan meet8 ing the requirements of this section that includes, as part

9 thereof, a Medical Care Savings Account, as set forth in

10 section 408A.

11 ‘‘(b) ESTABLISHMENT OF MEDICAL CARE SAVINGS

12 BENEFIT.—A medical care savings benefit shall be estab13 lished as a Health Plan which provides that all or part

14 of the premium differential realized by instituting a Quali15 fied Higher Deductible Health Plan is credited to a par16 ticipating employee during a plan year to pay for medical

17 care described in section 213(d) subject to the limitations

18 set forth in subsection (e) hereof. To the extent that any

19 amount remains credited to that participant at the end

20 of each plan year, such amount shall be deposited to a

21 section 408(A) medical care savings account (which may

22 also be referred to as a ‘Medical IRA’) for that partici23 pant.

24 ‘‘(c) PAYMENTS FROM ACCOUNT BALANCE.—If the

25 plan provides for level installment payments, the plan may
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1 also provide that the maximum amount of reimbursement

2 at a particular time during the period of coverage may

3 be limited to the amount of actual contributions to the

4 participant’s benefit account. A participant may be ad5 vanced, interest free, such amounts necessary to cover in6 curred medical expenses which exceed the amount then

7 credited to the participant’s benefit account, upon the par8 ticipant’s agreement to repay such advancement from fu9 ture installments or upon ceasing to be a participant.

10 ‘‘(d) REPORTING.—Employers shall cause to be is11 sued to participating employees, not less frequently than

12 quarterly, a statement setting forth amounts remaining in

13 their accounts.

14 ‘‘(e) LIMITATIONS ON MEDICAL CARE SAVINGS BEN15 EFITS.—For purposes of this section—

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

17 who has a Health Plan in existence immediately

18 prior to the adoption of the Medical Care Savings

19 Benefit, the maximum amount that may be contrib20 uted annually to a participant’s benefit account shall

21 be equal to—

22 ‘‘(A) the cost of that Health Plan for that

23 participant’s type of coverage; plus

24 ‘‘(B) a cost of living adjustment for the

25 calendar year in which the plan year begins, de-
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1 termined under section 1(f)(3) of the Code as

2 adjusted annually based on the CPI-Medical

3 cost of living component.

4 ‘‘(2) OTHER EMPLOYERS.—In the case of an

5 Employer to whom paragraph (1) does not apply,

6 the contribution limit shall be equal to the 67th per7 centile of the per employee health plan expenditures

8 (for the calendar year for which such plan begins)

9 for the type of coverage applicable to such employee

10 based on a broad representative survey using meth11 odology the same as or similar to that used by

12 States to develop an average market premium for

13 small group guarantee access legislation. Such study

14 may be no broader than each State and may be bro15 ken down into representative surveys for areas with16 in a State. The amount of such contribution shall be

17 adjusted annually in accordance with the cost of liv18 ing adjustment provided for in subsection (1)(b) of

19 this section.

20 ‘‘(3) OVERALL LIMITATION.—In no event may

21 any contribution described above exceed the deduct22 ible amount of the Qualified Higher Deductible

23 Plan.

24 ‘‘(f) HEALTH PLAN.—The term ‘Health Plan’ means

25 an employee welfare benefit plan providing medical care
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1 (as defined in section 213(d) of the Internal Revenue Code

2 of 1954) to participants or beneficiaries directly or

3 through insurance, reimbursement, or otherwise.

4 ‘‘(g) QUALIFIED HIGHER DEDUCTIBLE PLAN.—The

5 term ‘Qualified Higher Deductible Plan’ is a Health Plan

6 which provides for payment of covered benefits in excess

7 of the higher deductible, which higher deductible shall not

8 exceed $5,000 in 1993 and, adjusted annually thereafter

9 for increases in the cost of living in accordance with regu10 lations prescribed by the Secretary.

11 ‘‘(h) COORDINATION WITH HEALTH FLEXIBLE

12 SPENDING ACCOUNTS.—If, during a Plan Year, a partici13 pating employee has a Medical Care Savings Benefit in

14 effect and a health flexible spending account established

15 under section 125, coverage under the health flexible

16 spending account, for the type of medical expenses that

17 may be reimbursed under the Medical Care Savings Bene18 fit, would be limited to 100 percent of the deductible under

19 the Qualified Higher Deductible Plan, less the amount

20 credited in the current year to the Employee’s Medical

21 Care Savings Benefit Account. For purposes of section

22 125, a Medical Care Savings Benefit is not considered to

23 involve the deferral of compensation for purposes of the

24 Code.
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1 ‘‘(i) SEPARATE DETERMINATIONS FOR CATEGORIES

2 OF EMPLOYEES AND SEPARATE LINES OF BUSINESS.—

3 Contributions to Health Plans established by an Employer

4 may be separately determined on the basis of:

5 ‘‘(1) Types of coverage.

6 ‘‘(2) Reasonable classifications of employees

7 based on such classifications as hours of work per

8 week, retirement status, coverage by a collective bar9 gaining agreement.

10 ‘‘(3) Employees within separate lines of busi11 ness, within the meaning of section 414(r).

12 ‘‘(j) OTHER DEFINITIONS FOR PURPOSES OF THIS

13 SECTION.—

14 ‘‘(1) EMPLOYEE.—The term ‘employee’ means

15 any individual employed by an Employer, includ16 ing—

17 ‘‘(A) an individual who is employee within

18 the meaning of section 401(c)(1); and

19 ‘‘(B) former employees.

20 ‘‘(2) TYPES OF COVERAGE.—The types of cov21 erage are—

22 ‘‘(A) self-only coverage; and

23 ‘‘(B) coverage other than self-only cov24 erage.
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1 ‘‘(k) PREVENTATIVE HEALTH CARE.—By allowing

2 medical expenses payable from a medical care savings ben3 efit to be those permitted under section 213(d) of the In4 ternal Revenue Code, participating employees are encour5 aged to use this benefit to promote good health, to use

6 preventative medical and health procedures, and to seek

7 appropriate consultative and second opinions.

8 ‘‘(l) NONDUPLICATION OF BENEFITS.—Policies is9 sued as a part of a medical care savings benefit shall not

10 be required to duplicate expenses that may be proper ex11 penses covered by the medical care savings benefit. Addi12 tionally, the Qualified Higher Deductible Plan may pro13 vide that the deductible specified in the insurance policy

14 may be increased by the amount of any benefits payable

15 by any other health benefits program or plan.’’.

16 SEC. 3. MEDICAL CARE SAVINGS ACCOUNT.

17 (a) IN GENERAL.—Chapter 1 (relating to normal

18 taxes and surcharge) is amended by adding after section

19 408 the following new section:

20 ‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.

21 ‘‘(a) MEDICAL CARE SAVINGS ACCOUNTS.—For pur22 poses of this section, the term ‘medical care savings ac23 count’ (which may also be referred to as a ‘Medical IRA’)

24 means a trust created or organized in the United States

25 for the exclusive benefit of an individual, the individual’s
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1 dependents (as defined in section 152) or beneficiaries,

2 but only if the written instrument creating the trust meets

3 the following requirements:

4 ‘‘(1) No contribution will be accepted unless it

5 is in cash.

6 ‘‘(2) The trustee is a bank (as defined in sub7 section (d)), insurance company (as defined in sec8 tion 816), or such other person who demonstrates to

9 the satisfaction of the Secretary that the manner in

10 which such other person will administer the trust

11 will be consistent with the requirements of this sec12 tion.

13 ‘‘(3) No part of the trust funds will be invested

14 in life insurance contracts.

15 ‘‘(4) The interest of an individual in the bal16 ance of the account is nonforfeitable.

17 ‘‘(5) The assets of the trust will not be commin18 gled with other property except in a common trust

19 fund or common investment fund.

20 ‘‘(b) TAX TREATMENT OF ACCOUNTS.—

21 ‘‘(1) EXEMPTION FROM TAX.—Any medical

22 care savings account is exempt from taxation under

23 this subtitle unless such account has ceased to be a

24 medical care savings account by reason of paragraph

25 (2) or (3): Provided, however, That earnings on such
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1 account shall be taxable. Notwithstanding the pre2 ceding sentence, any such account is subject to the

3 taxes imposed by section 511 (relating to imposition

4 of tax on unrelated business income of charitable,

5 etc. organizations).

6 ‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE

7 EMPLOYEE ENGAGES IN PROHIBITED TRANS8 ACTION.—

9 ‘‘(A) IN GENERAL.—If, during any taxable

10 year of the individual for whose benefit any

11 medical care savings account is established,

12 that individual, dependent, or his beneficiary

13 engages in any transaction prohibited by section

14 4975 with respect to such account, such ac15 count ceases to be a medical care savings ac16 count as of the first day of such taxable year.

17 For purposes of this paragraph the individual

18 for whose benefit any account was established is

19 treated as the creator of such account.

20 ‘‘(B) ACCOUNT TREATED AS DISTRIBUTING

21 ALL ITS ASSETS.—In any case in which any ac22 count ceases to be a medical savings account by

23 reason of subparagraph (A) as of the first day

24 of any taxable year, section 511 shall apply as

25 if there were a distribution on such first day in
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1 an amount equal to the fair market value (on

2 such first day) of all assets in the account (on

3 such first day).

4 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU5 RITY.—If, during any taxable year of the individual

6 for whose benefit a medical care savings account is

7 established, that individual uses the account or any

8 portion thereof as security for a loan, the portion so

9 used is treated as distributed to that individual.

10 ‘‘(4) COMMINGLING MEDICAL CARE SAVINGS AC11 COUNT AMOUNTS IN CERTAIN COMMON TRUST

12 FUNDS AND COMMON INVESTMENT FUNDS.—Any

13 common trust fund or common investment fund of

14 individual medical care savings account assets which

15 is exempt from taxation under this subtitle does not

16 cease to be exempt on account of the participation

17 or inclusion of assets of a trust exempt from tax18 ation under section 501(a) which is described in sec19 tion 401(a).

20 ‘‘(c) TREATMENT OF DISTRIBUTIONS.—

21 ‘‘(1) IN GENERAL.—Except as otherwise pro22 vided in this subsection, any amount paid or distrib23 uted out of a medical savings account shall be in24 cluded in gross income by the distributee.
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1 ‘‘(2) DISTRIBUTIONS FOR MEDICAL EX2 PENSES.—Distributions from a medical care savings

3 account shall not be taxable to the distributee, for

4 amounts paid directly or indirectly for medical ex5 penses as defined in section 213(d).

6 ‘‘(3) 10 PERCENT ADDITIONAL TAX FOR EARLY

7 WITHDRAWALS.—Distributions described in para8 graph 1 and not described in paragraph 2 shall be

9 subject to an additional 10 percent tax for distributions made prior to age 591 10 ⁄2 of the distributee.

11 ‘‘(4) ROLLOVER CONTRIBUTION.—An amount is

12 described in this paragraph as a rollover contribu13 tion which shall not be included in the gross income

14 of the distributee if it meets the requirements of

15 subparagraphs (A) and (B).

16 ‘‘(A) IN GENERAL.—Paragraph (1) does

17 not apply to any amount paid or distributed out

18 of a medical care savings account to the individ19 ual for whose benefit the account is maintained

20 if the entire amount received is paid into a

21 medical care savings account for the benefit of

22 such individual not later than the sixtieth day

23 after the day on which he receives the payment

24 or distribution.
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1 ‘‘(B) LIMITATION.—This paragraph does

2 not apply to any amount described in para3 graph (A) received by an individual from a

4 medical savings account if at any time during

5 the one-year period ending on the day of such

6 receipt such individual received any other

7 amount described in that subparagraph from a

8 medical care savings account which was not in9 cludible in his gross income because of the ap10 plication of this paragraph.

11 ‘‘(C) DENIAL OF ROLLOVER TREATMENT

12 FOR INHERITED ACCOUNTS, ETC.—

13 ‘‘(i) IN GENERAL.—In the case of an

14 inherited medical savings account—

15 ‘‘(I) this paragraph shall not

16 apply to any amount received by an

17 individual from such an account (and

18 no amount transferred from such ac19 count to another medical care savings

20 account shall be excluded from gross

21 income by reason of such transfer),

22 and

23 ‘‘(II) such inherited account shall

24 not be treated as a medical care sav25 ings account for purposes of determin-
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1 ing whether any other amount is a

2 rollover contribution.

3 ‘‘(ii) INHERITED MEDICAL CARE SAV4 INGS ACCOUNT.—

5 ‘‘(I) the individual for whose ben6 efit the account is maintained ac7 quired such account by reason of the

8 death of another individual, and

9 ‘‘(II) such individual was not the

10 surviving spouse of such other individ11 ual.

12 ‘‘(d) BANK.—For purposes of subsection (a)(2), the

13 term ‘bank’ means—

14 ‘‘(1) a bank (as defined in section 581),

15 ‘‘(2) an insured credit union (within the mean16 ing of section 101(6) of the Federal Credit Union

17 Act), and

18 ‘‘(3) a corporation which, under the laws of the

19 State of its incorporation, is subject to supervision

20 and examination by the Commissioner of Banking or

21 other officer of such State in charge of the adminis22 tration of the banking laws of such State.’’.

23 SEC. 4. EFFECTIVE DATES.

24 The amendments made by this Act shall apply to

25 years beginning after December 31, 1993.
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1 SEC. 5. OVERALL EFFECT ON TAX DEDUCTIBILITY.

2 This Act is not intended to change the Code’s current

3 tax treatment of employer-provided coverage under acci4 dent and health plans.

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