I 

115TH CONGRESS 

2D SESSION H. R. 5138 

To amend the Internal Revenue Code of 1986 to improve access to health 

care through modernized health savings accounts. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 1, 2018 

Mr. KELLY of Pennsylvania (for himself, Mr. BLUMENAUER, Mr. PAULSEN, 

Mr. KIND, Ms. SEWELL of Alabama, and Mr. FITZPATRICK) 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 improve 

access to health care through modernized health savings 

accounts. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Bipartisan HSA Im5 provement Act of 2018’’. 

6 SEC. 2. EXCEPTED BENEFITS ALLOWED AS PERMITTED IN7 SURANCE. 

8 (a) IN GENERAL.—Paragraph (3) of section 223(c) 

9 of the Internal Revenue Code of 1986 is amended— 


dlhill on DSK3GLQ082PROD with BILLS
2 

•HR 5138 IH

1 (1) by redesignating subparagraphs (B) and 

2 (C) as subparagraphs (C) and (D), respectively; and 

3 (2) by inserting the following new subpara4 graph: 

5 ‘‘(B) insurance consisting of coverage for 

6 any excepted benefits described in section 

7 9832(c),’’. 

8 (b) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to taxable years after the date of 

10 the enactment of this Act. 

11 SEC. 3. ON-SITE EMPLOYEE CLINICS AND RETAIL CLINICS. 

12 (a) IN GENERAL.—Paragraph (1) of section 223(c) 

13 of the Internal Revenue Code of 1986 is amended by add14 ing at the end the following new subparagraph: 

15 ‘‘(D) SPECIAL RULE FOR QUALIFIED

16 ITEMS AND SERVICES.— 

17 ‘‘(i) IN GENERAL.—For purposes of 

18 subparagraph (A)(ii), an individual shall 

19 not be treated as covered under a health 

20 plan for purposes of subparagraph (A)(ii) 

21 merely because the individual is eligible to 

22 receive, or receives, qualified items and 

23 services at— 

24 ‘‘(I) a healthcare facility located 

25 at a facility owned or leased by the 


dlhill on DSK3GLQ082PROD with BILLS
3 

•HR 5138 IH

1 employer of the individual (or of the 

2 individual’s spouse), or operated pri3 marily for the benefit of such employ4 er’s employees, or 

5 ‘‘(II) a retail health clinic. 

6 ‘‘(ii) QUALIFIED ITEMS AND SERVICES

7 DEFINED.—For purposes of this subpara8 graph, the term ‘qualified items and serv9 ices’ means the following: 

10 ‘‘(I) Primary care including phys11 ical examination. 

12 ‘‘(II) Immunizations, including 

13 injections of antigens provided by em14 ployees. 

15 ‘‘(III) Drugs or biologicals other 

16 than a prescribed drug (as such term 

17 is defined in section 213(d)(3)). 

18 ‘‘(IV) Treatment for injuries oc19 curring in the course of employment. 

20 ‘‘(V) Tests for conditions or in21 fectious diseases. 

22 ‘‘(VI) Management of medically 

23 complex chronic conditions. 

24 ‘‘(VII) Drug testing. 


dlhill on DSK3GLQ082PROD with BILLS
4 

•HR 5138 IH

1 ‘‘(VIII) Hearing or vision 

2 screenings and related services. 

3 ‘‘(IX) Other similar items and 

4 services. 

5 ‘‘(iii) RETAIL HEALTH CLINIC DE6 FINED.—For purposes of this subpara7 graph, the term ‘retail health clinic’ means 

8 a health care facility located within a su9 permarket, pharmacy, or similar retail es10 tablishment that offers urgent care by a li11 censed healthcare provider. 

12 ‘‘(iv) AGGREGATION.—For purposes 

13 of clause (i), all persons treated as a single 

14 employer under subsection (b), (c), (m), or 

15 (o) of section 414 shall be treated as a sin16 gle employer.’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to months in taxable years begin19 ning after the date of enactment of this Act. 

20 SEC. 4. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A 

21 HEALTH FLEXIBLE SPENDING ACCOUNT. 

22 (a) CONTRIBUTIONS PERMITTED IF SPOUSE HAS A

23 HEALTH FLEXIBLE SPENDING ACCOUNT.—Subpara24 graph (B) of section 223(c)(1) of the Internal Revenue 

25 Code of 1986 is amended by striking ‘‘and’’ at the end 


dlhill on DSK3GLQ082PROD with BILLS
5 

•HR 5138 IH

1 of clause (ii), by striking the period at the end of clause 

2 (iii) and inserting ‘‘, and’’, and by inserting after clause 

3 (iii) the following: 

4 ‘‘(iv) coverage under a health flexible 

5 spending arrangement of the spouse of the 

6 individual.’’. 

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

8 this section shall apply to taxable years beginning after 

9 the date of the enactment of this Act. 

10 SEC. 5. DEPENDENTS TO INCLUDE CHILDREN UP TO AGE 

11 26. 

12 (a) IN GENERAL.—Subparagraph (A) of section 

13 223(d)(2) of the Internal Revenue Code of 1986 is amend14 ed by striking ‘‘and any dependent (as defined in section 

15 152, determined without regard to subsections (b)(1), 

16 (b)(2), and (d)(1)(B) thereof) of such individual’’ in sub17 paragraph (A) and inserting ‘‘any dependent (as defined 

18 in section 152, determined without regard to subsections 

19 (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, 

20 and any child (as defined in section 152(f)(A)) of such 

21 individual who has not attained the age of 27 before the 

22 end of such individual’s taxable year’’. 

23 (b) EFFECTIVE DATE.—The amendments made by 

24 this section shall apply with respect to qualified medical 


dlhill on DSK3GLQ082PROD with BILLS
6 

•HR 5138 IH

1 expenses incurred in taxable years beginning after the 

2 date of the enactment of this Act. 

3 SEC. 6. FSA AND HRA INTERACTION WITH HSAS. 

4 (a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 

5 PARTICIPANTS.—Subparagraph (B) of section 223(c)(1) 

6 of the Internal Revenue Code of 1986, as amended by this 

7 Act, is amended by striking ‘‘and’’ at the end of clause 

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

9 inserting ‘‘, and’’, and by inserting after clause (iv) the 

10 following new clause: 

11 ‘‘(v) coverage under a health flexible 

12 spending arrangement or a health reim13 bursement arrangement in the plan year a 

14 qualified HSA distribution as described in 

15 section 106(e) is made on behalf of the in16 dividual if, after the qualified HSA dis17 tribution is made and for the remaining 

18 duration of the plan year, the coverage 

19 provided under the arrangement is con20 verted solely to one or more of the fol21 lowing: 

22 ‘‘(I) POST-DEDUCTIBLE FSA OR

23 HRA.—A health flexible spending ar24 rangement or a health reimbursement 

25 arrangement that does not pay or reVerDate Sep 11 2014 04:23 Mar 07, 2018 Jkt 079200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H5138.IH H5138

dlhill on DSK3GLQ082PROD with BILLS
7 

•HR 5138 IH

1 imburse any medical expense incurred 

2 before the minimum annual deductible 

3 under paragraph (2)(A)(i) (prorated 

4 for the period occurring after the 

5 qualified HSA distribution is made) is 

6 satisfied. 

7 ‘‘(II) PREVENTATIVE CARE.—A 

8 health flexible spending arrangement 

9 or a health reimbursement arrange10 ment that, after the qualified HSA 

11 distribution is made, does not pay or 

12 reimburse any medical expense in13 curred after the qualified HSA dis14 tribution is made other than preven15 tive care as defined in paragraph 

16 (2)(C). 

17 ‘‘(III) LIMITED PURPOSE

18 HEALTH FSA.—A health flexible 

19 spending arrangement that, after the 

20 qualified HSA distribution is made, 

21 pays or reimburses benefits for cov22 erage described in clause (ii) (but not 

23 through insurance or for long-term 

24 care services). 


dlhill on DSK3GLQ082PROD with BILLS
8 

•HR 5138 IH

1 ‘‘(IV) LIMITED PURPOSE HRA.— 

2 A health reimbursement arrangement 

3 that, after the qualified HSA distribu4 tion is made, pays or reimburses bene5 fits for permitted insurance or cov6 erage described in clause (ii) (but not 

7 for long-term care services). 

8 ‘‘(V) RETIREMENT HRA.—A 

9 health reimbursement arrangement 

10 that, after the qualified HSA distribu11 tion is made, pays or reimburses only 

12 those medical expenses incurred after 

13 an individual’s retirement (and no ex14 penses incurred before retirement). 

15 ‘‘(VI) SUSPENDED HRA.—A 

16 health reimbursement arrangement 

17 that, after the qualified HSA distribu18 tion is made, is suspended, pursuant 

19 to an election made on or before the 

20 date the individual elects a qualified 

21 HSA distribution or, if later, on the 

22 date of the individual enrolls in an 

23 HSA-qualified health plan, that does 

24 not pay or reimburse, at any time, 

25 any medical expense incurred during 


dlhill on DSK3GLQ082PROD with BILLS
9 

•HR 5138 IH

1 the suspension period except as de2 scribed in the preceding subclauses of 

3 this clause.’’. 

4 (b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF5 FECT FLEXIBLE SPENDING ARRANGEMENT.—Paragraph 

6 (1) of section 106(e) of such Code is amended to read 

7 as follows: 

8 ‘‘(1) IN GENERAL.—A plan shall not fail to be 

9 treated as— 

10 ‘‘(A) a health flexible spending arrange11 ment under this section, section 105, or section 

12 125, 

13 ‘‘(B) a health reimbursement arrangement 

14 under this section or section 105, or 

15 ‘‘(C) an accident or health plan, 

16 merely because such plan provides for a qualified 

17 HSA distribution.’’. 

18 (c) FSA BALANCES AT YEAR END SHALL NOT FOR19 FEIT.—Paragraph (2) of section 125(d) of such Code is 

20 amended by adding at the end the following new subpara21 graph: 

22 ‘‘(E) EXCEPTION FOR QUALIFIED HSA DIS23 TRIBUTIONS.—Subparagraph (A) shall not 

24 apply to the extent that there is an amount re25 maining in a health flexible spending account at 


dlhill on DSK3GLQ082PROD with BILLS
10 

•HR 5138 IH

1 the end of a plan year that an individual elects 

2 to contribute to a health savings account pursu3 ant to a qualified HSA distribution (as defined 

4 in section 106(e)(2)).’’. 

5 (d) SIMPLIFICATION OF LIMITATIONS ON FSA AND

6 HRA ROLLOVERS.—Paragraph (2) of section 106(e) of 

7 such Code is amended to read as follows: 

8 ‘‘(2) QUALIFIED HSA DISTRIBUTION.— 

9 ‘‘(A) IN GENERAL.—The term ‘qualified 

10 HSA distribution’ means a distribution from a 

11 health flexible spending arrangement or health 

12 reimbursement arrangement directly to a health 

13 savings account of the employee to the extent 

14 that such distribution does not exceed the lesser 

15 of— 

16 ‘‘(i) the balance in such arrangement 

17 as of the date of such distribution, or 

18 ‘‘(ii) the amount determined under 

19 subparagraph (B). 

20 Such term shall not include more than 1 dis21 tribution with respect to any arrangement. 

22 ‘‘(B) DOLLAR LIMITATIONS.— 

23 ‘‘(i) DISTRIBUTIONS FROM A HEALTH

24 FLEXIBLE SPENDING ARRANGEMENT.—A 

25 qualified HSA distribution from a health 


dlhill on DSK3GLQ082PROD with BILLS
11 

•HR 5138 IH

1 flexible spending arrangement shall not ex2 ceed the applicable amount. 

3 ‘‘(ii) DISTRIBUTIONS FROM A HEALTH

4 REIMBURSEMENT ARRANGEMENT.—A 

5 qualified HSA distribution from a health 

6 reimbursement arrangement shall not ex7 ceed— 

8 ‘‘(I) the applicable amount di9 vided by 12, multiplied by 

10 ‘‘(II) the number of months dur11 ing which the individual is a partici12 pant in the health reimbursement ar13 rangement. 

14 ‘‘(iii) APPLICABLE AMOUNT.—For 

15 purposes of this subparagraph, the applica16 ble amount is— 

17 ‘‘(I) $2,250 in the case of an eli18 gible individual who has self-only cov19 erage under an HSA-qualified health 

20 plan at the time of such distribution, 

21 and 

22 ‘‘(II) $4,500 in the case of an eli23 gible individual who has family cov24 erage under an HSA-qualified health 


dlhill on DSK3GLQ082PROD with BILLS
12 

•HR 5138 IH

1 plan at the time of such distribu2 tion.’’. 

3 (e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE

4 TO MAINTAIN HSA-QUALIFIED HEALTH PLAN COV5 ERAGE.—Subsection (e) of section 106 of such Code is 

6 amended— 

7 (1) by striking subparagraph (A) of paragraph 

8 (4) and redesignating subparagraphs (B) and (C) of 

9 such paragraph as subparagraphs (A) and (B) 

10 thereof, respectively; and 

11 (2) by striking paragraph (3) and redesignating 

12 paragraphs (4) (as so amended) and (5) as para13 graphs (3) and (4), respectively. 

14 (f) LIMITED PURPOSE FSAS AND HRAS.—Sub15 section (e) of section 106 of such Code, as amended by 

16 this section, is amended by adding at the end the following 

17 new paragraph: 

18 ‘‘(5) LIMITED PURPOSE FSAS AND HRAS.—A 

19 plan shall not fail to be a health flexible spending 

20 arrangement, a health reimbursement arrangement, 

21 or an accident or health plan under this section or 

22 section 105 merely because the plan converts cov23 erage for individuals who enroll in an HSA-qualified 

24 health plan described in section 223(c)(2) to cov25 erage described in subclause (I), (II), (III), (IV), 


dlhill on DSK3GLQ082PROD with BILLS
13 

•HR 5138 IH

1 (V), or (VI) of section 223(c)(1)(B)(iv). Coverage 

2 for such individuals may be converted as of the date 

3 of enrollment in the HSA-qualified health plan, 

4 without regard to the period of coverage under the 

5 health flexible spending arrangement or health reim6 bursement arrangement, and without requiring any 

7 change in coverage to individuals who do not enroll 

8 in an HSA-qualified health plan.’’. 

9 (g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST10 OF-LIVING.—Subsection (e) of section 106 of such Code, 

11 as amended by this section, is amended by adding at the 

12 end the following new paragraph: 

13 ‘‘(6) COST-OF-LIVING ADJUSTMENT.— 

14 ‘‘(A) IN GENERAL.—In the case of any 

15 taxable year beginning in a calendar year after 

16 2018, each of the dollar amounts in paragraph 

17 (2)(B)(iii) shall be increased by an amount 

18 equal to such dollar amount, multiplied by the 

19 cost-of-living adjustment determined under sec20 tion 1(f)(3) for the calendar year in which such 

21 taxable year begins by substituting ‘calendar 

22 year 2017’ for ‘calendar year 1992’ in subpara23 graph (B) thereof. 

24 ‘‘(B) ROUNDING.—If any increase under 

25 paragraph (1) is not a multiple of $50, such inVerDate Sep 11 2014 04:23 Mar 07, 2018 Jkt 079200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\H5138.IH H5138

dlhill on DSK3GLQ082PROD with BILLS
14 

•HR 5138 IH

1 crease shall be rounded to the nearest multiple 

2 of $50.’’. 

3 (h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 

4 Subparagraph (B) of section 223(c)(1) of such Code, as 

5 amended by this section, is amended by striking ‘‘and’’ 

6 at the end of clause (iv), by striking the period at the end 

7 of clause (v) and inserting ‘‘, and’’, and by inserting after 

8 clause (v) the following new clause: 

9 ‘‘(iv) any coverage (including prospec10 tive coverage) under a health plan that is 

11 not an HSA-qualified health plan which is 

12 disclaimed in writing, at the time of the 

13 creation or organization of the health sav14 ings account, including by execution of a 

15 trust described in subsection (d)(1) 

16 through a governing instrument that in17 cludes such a disclaimer, or by acceptance 

18 of an amendment to such a trust that in19 cludes such a disclaimer.’’. 

20 (i) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 

23 SEC. 7. CHRONIC DISEASE PREVENTION. 

24 (a) IN GENERAL.—Section 223(c)(2) of the Internal 

25 Revenue Code of 1986 is amended by redesignating subVerDate Sep 11 2014 04:23 Mar 07, 2018 Jkt 079200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\H5138.IH H5138

dlhill on DSK3GLQ082PROD with BILLS
15 

•HR 5138 IH

1 paragraph (D) as subparagraph (E) and by inserting after 

2 subparagraph (C) the following new subparagraph: 

3 ‘‘(D) SAFE HARBOR FOR ABSENCE OF DE4 DUCTIBLE FOR CARE RELATED TO CHRONIC

5 CONDITIONS.—A plan shall not fail to be treat6 ed as a high deductible health plan by reason 

7 of failing to have a deductible for care and pre8 scription medications related to the treatment 

9 of medically complex chronic conditions which— 

10 ‘‘(i) are substantially disabling or life 

11 threatening, 

12 ‘‘(ii) have a high risk of hospitaliza13 tion or other significant adverse health 

14 outcomes, and 

15 ‘‘(iii) require specialized delivery sys16 tems across domains of care.’’. 

17 (b) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to coverage for months beginning 

19 after the date of the enactment of this Act. 

20 SEC. 8. CERTAIN AMOUNTS PAID FOR PHYSICAL ACTIVITY, 

21 FITNESS, AND EXERCISE TREATED AS 

22 AMOUNTS PAID FOR MEDICAL CARE. 

23 (a) IN GENERAL.—Section 213(d)(1) of the Internal 

24 Revenue Code of 1986 is amended by striking ‘‘or’’ at the 

25 end of subparagraph (C), by striking the period at the end 


dlhill on DSK3GLQ082PROD with BILLS
16 

•HR 5138 IH

1 of subparagraph (D) and inserting ‘‘, or’’, and by inserting 

2 after subparagraph (D) the following new subparagraph: 

3 ‘‘(E) for qualified sports and fitness ex4 penses.’’. 

5 (b) QUALIFIED SPORTS AND FITNESS EXPENSES.— 

6 Section 213(d) of such Code, as amended by this Act, is 

7 amended by adding at the end the following paragraph: 

8 ‘‘(13) QUALIFIED SPORTS AND FITNESS EX9 PENSES.— 

10 ‘‘(A) IN GENERAL.—The term ‘qualified 

11 sports and fitness expenses’ means amounts 

12 paid exclusively for the sole purpose of partici13 pating in a physical activity including— 

14 ‘‘(i) for membership at a fitness facil15 ity, 

16 ‘‘(ii) for participation or instruction in 

17 a program of physical exercise or physical 

18 activity, and 

19 ‘‘(iii) for equipment for use in a pro20 gram (including a self-directed program) of 

21 physical exercise or physical activity. 

22 ‘‘(B) OVERALL DOLLAR LIMITATION.—The 

23 aggregate amount treated as qualified sports 

24 and fitness expenses with respect to any tax25 payer for any taxable year shall not exceed 


dlhill on DSK3GLQ082PROD with BILLS
17 

•HR 5138 IH

1 $1,000 ($2,000 in the case of a joint return or 

2 a head of household (as defined in section 

3 2(b))). 

4 ‘‘(C) FITNESS FACILITY DEFINED.—For 

5 purposes of subparagraph (A)(i), the term ‘fit6 ness facility’ means a facility— 

7 ‘‘(i) providing instruction in a pro8 gram of physical exercise, offering facilities 

9 for the preservation, maintenance, encour10 agement, or development of physical fit11 ness, or serving as the site of such a pro12 gram of a State or local government, 

13 ‘‘(ii) which is not a private club owned 

14 and operated by its members, 

15 ‘‘(iii) which does not offer golf, hunt16 ing, sailing, or riding facilities, 

17 ‘‘(iv) whose health or fitness facility is 

18 not incidental to its overall function and 

19 purpose, and 

20 ‘‘(v) which is fully compliant with the 

21 State of jurisdiction and Federal anti-dis22 crimination laws. 

23 ‘‘(D) TREATMENT OF EXERCISE VIDEOS, 

24 ETC.—Videos, books, and similar materials 

25 shall be treated as described in subparagraph 


dlhill on DSK3GLQ082PROD with BILLS
18 

•HR 5138 IH

1 (A)(ii) if the content of such materials con2 stitute instruction in a program of physical ex3 ercise or physical activity. 

4 ‘‘(E) LIMITATIONS RELATED TO SPORTS

5 AND FITNESS EQUIPMENT.—Amounts paid for 

6 equipment described in subparagraph (A)(iii) 

7 shall be treated as a qualified sports and fitness 

8 expense only— 

9 ‘‘(i) if such equipment is utilized ex10 clusively for participation in fitness, exer11 cise, sport, or other physical activity pro12 grams, 

13 ‘‘(ii) if such equipment is not apparel 

14 or footwear, and 

15 ‘‘(iii) in the case of any item of sports 

16 equipment (other than exercise equip17 ment), with respect to so much of the 

18 amount paid for such item as does not ex19 ceed $250. 

20 ‘‘(F) PROGRAMS WHICH INCLUDE COMPO21 NENTS OTHER THAN PHYSICAL EXERCISE AND

22 PHYSICAL ACTIVITY.—Rules similar to the rules 

23 of section 213(d)(6) shall apply in the case of 

24 any program that includes physical exercise or 

25 physical activity and also other components. 


dlhill on DSK3GLQ082PROD with BILLS
19 

•HR 5138 IH

1 For purposes of the preceding sentence, travel 

2 and accommodations shall be treated as an 

3 other component.’’. 

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

5 this section shall apply to taxable years beginning after 

6 the date of the enactment of this Act. 

Æ 


dlhill on DSK3GLQ082PROD with BILLS