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[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2010 Introduced in House (IH)]

112th CONGRESS
  1st Session
                                H. R. 2010

To amend the Internal Revenue Code of 1986 to improve access to health 
 care through expanded health savings accounts, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 26, 2011

 Mr. Paulsen (for himself, Mr. Tiberi, Ms. Granger, Mr. Culberson, Mr. 
Burton of Indiana, Mr. Franks of Arizona, Mr. McHenry, Mr. Fleming, Mr. 
Garrett, Mr. Gohmert, Ms. Herrera Beutler, Mr. Luetkemeyer, Mr. Daniel 
 E. Lungren of California, Mr. Manzullo, Mr. Pearce, Mr. Chaffetz, Mr. 
Paul, Mr. Roskam, Mrs. Lummis, Mrs. McMorris Rodgers, Mr. Westmoreland, 
Mr. Brady of Texas, Mr. Dent, Mrs. Biggert, Mr. Lance, and Mr. Rooney) 
 introduced the following bill; which was referred to the Committee on 
Ways and Means, and in addition to the Committees on the Judiciary and 
Energy and Commerce, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL

 
To amend the Internal Revenue Code of 1986 to improve access to health 
 care through expanded health savings accounts, and for other purposes.

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

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Family and 
Retirement Health Investment Act of 2011''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents is as follows:

Sec. 1. Short title, etc.
     TITLE I--PROVISIONS RELATING TO TAX-PREFERRED HEALTH ACCOUNTS

Sec. 101. Allow both spouses to make catch-up contributions to the same 
                            HSA account.
Sec. 102. Provisions relating to Medicare.
Sec. 103. Individuals eligible for veterans benefits for a service-
                            connected disability.
Sec. 104. Individuals eligible for Indian Health Service assistance.
Sec. 105. Individuals eligible for TRICARE coverage.
Sec. 106. Health FSA carryforwards.
Sec. 107. FSA and HRA interaction with HSAs.
Sec. 108. Allowance of distributions for prescription and over-the-
                            counter medicines and drugs.
Sec. 109. Purchase of health insurance from HSA account.
Sec. 110. Special rule for certain medical expenses incurred before 
                            establishment of account.
Sec. 111. Preventive care prescription drug clarification.
Sec. 112. Equivalent bankruptcy protections for health savings accounts 
                            as retirement funds.
Sec. 113. Administrative error correction before due date of return.
Sec. 114. Reauthorization of medicaid health opportunity accounts.
                       TITLE II--OTHER PROVISIONS

Sec. 121. Certain exercise equipment and physical fitness programs 
                            treated as medical care.
Sec. 122. Certain nutritional and dietary supplements to be treated as 
                            medical care.
Sec. 123. Certain provider fees to be treated as medical care.
Sec. 124. Repeal of annual limitations on deductibles for employer-
                            sponsored plans offered in small group 
                            market.

     TITLE I--PROVISIONS RELATING TO TAX-PREFERRED HEALTH ACCOUNTS

SEC. 101. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CONTRIBUTIONS TO THE SAME 
              HSA ACCOUNT.

    (a) In General.--Paragraph (3) of section 223(b) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Special rule where both spouses are eligible 
                individuals with 1 account.--If--
                            ``(i) an individual and the individual's 
                        spouse have both attained age 55 before the 
                        close of the taxable year, and
                            ``(ii) the spouse is not an account 
                        beneficiary of a health savings account as of 
                        the close of such year,
                the additional contribution amount shall be 200 percent 
                of the amount otherwise determined under subparagraph 
                (B).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 102. PROVISIONS RELATING TO MEDICARE.

    (a) Individuals Over Age 65 Only Enrolled in Medicare Part A.--
Paragraph (7) of section 223(b) is amended by adding at the end the 
following: ``This paragraph shall not apply to any individual during 
any period for which the individual's only entitlement to such benefits 
is an entitlement to hospital insurance benefits under part A of title 
XVIII of such Act pursuant to an enrollment for such hospital insurance 
benefits under section 226(a)(1) of such Act.''.
    (b) Medicare Beneficiaries Participating in Medicare Advantage MSA 
May Contribute Their Own Money to Their MSA.--Subsection (b) of section 
138 is amended by striking paragraph (2) and by redesignating 
paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 103. INDIVIDUALS ELIGIBLE FOR VETERANS BENEFITS FOR A SERVICE-
              CONNECTED DISABILITY.

    (a) In General.--Paragraph (1) of section 223(c) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Special rule for individuals eligible for 
                certain veterans benefits.--For purposes of 
                subparagraph (A)(ii), an individual shall not be 
                treated as covered under a health plan described in 
                such subparagraph merely because the individual 
                receives periodic hospital care or medical services for 
                a service-connected disability under any law 
                administered by the Secretary of Veterans Affairs but 
                only if the individual is not eligible to receive such 
                care or services for any condition other than a 
                service-connected disability.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 104. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH SERVICE ASSISTANCE.

    (a) In General.--Paragraph (1) of section 223(c), as amended by 
section 103, is amended by adding at the end the following new 
subparagraph:
                    ``(D) Special rule for individuals eligible for 
                assistance under indian health service programs.--For 
                purposes of subparagraph (A)(ii), an individual shall 
                not be treated as covered under a health plan described 
                in such subparagraph merely because the individual 
                receives hospital care or medical services under a 
                medical care program of the Indian Health Service or of 
                a tribal organization.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 105. INDIVIDUALS ELIGIBLE FOR TRICARE COVERAGE.

    (a) In General.--Paragraph (1) of section 223(c), as amended by 
sections 103 and 104, is amended by adding at the end the following new 
subparagraph:
                    ``(E) Special rule for individuals eligible for 
                assistance under tricare.--For purposes of subparagraph 
                (A)(ii), an individual shall not be treated as covered 
                under a health plan described in such subparagraph 
                merely because the individual is eligible to receive 
                hospital care, medical services, or prescription drugs 
                under TRICARE Extra or TRICARE Standard and such 
                individual is not enrolled in TRICARE Prime.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 106. HEALTH FSA CARRYFORWARDS.

    (a) In General.--Section 125 is amended by redesignating 
subsections (i) and (j) as subsections (j) and (k), respectively, and 
by inserting after subsection (h) the following new subsection:
    ``(i) Special Rules Applicable to Health Flexible Spending 
Arrangements.--
            ``(1) In general.--For purposes of this title, a plan or 
        other arrangement shall not fail to be treated as a health 
        flexible spending or similar arrangement solely because under 
        the plan or arrangement a participant is permitted access to 
        any unused balance in the participant's accounts under such 
        plan or arrangement in the manner provided under paragraph (2).
            ``(2) Carryforward of unused benefits in health 
        arrangements.--
                    ``(A) In general.--A plan or arrangement may permit 
                a participant in a health flexible spending arrangement 
                to elect to carry forward any aggregate unused balances 
                in the participant's accounts under such arrangement as 
                of the close of any year to the succeeding year. Such 
                carryforward shall be treated as having occurred within 
                30 days of the close of the year.
                    ``(B) Dollar limit on carryforwards.--
                            ``(i) In general.--The amount which a 
                        participant may elect to carry forward under 
                        subparagraph (A) from any year shall not exceed 
                        $500. For purposes of this paragraph, all plans 
                        and arrangements maintained by an employer or 
                        any related person shall be treated as 1 plan.
                            ``(ii) Cost-of-living adjustment.--In the 
                        case of any taxable year beginning in a 
                        calendar year after 2011, the $500 amount under 
                        clause (i) shall be increased by an amount 
                        equal to--
                                    ``(I) $500, multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for such calendar year, 
                                determined by substituting `2010' for 
                                `1992' in subparagraph (B) thereof.
                        If any dollar amount as increased under this 
                        clause is not a multiple of $100, such amount 
                        shall be rounded to the next lowest multiple of 
                        $100.
                    ``(C) Exclusion from gross income.--No amount shall 
                be required to be included in gross income under this 
                chapter by reason of any carryforward under this 
                paragraph.
                    ``(D) Coordination with limits.--The maximum amount 
                which may be contributed to a health flexible spending 
                arrangement for any year to which an unused amount is 
                carried under this paragraph shall be reduced by such 
                amount.
            ``(3) Terms relating to flexible spending arrangements.--
                    ``(A) Flexible spending arrangements.--For purposes 
                of this subsection, a flexible spending arrangement is 
                a benefit program which provides employees with 
                coverage under which specified incurred expenses may be 
                reimbursed (subject to reimbursement maximums and other 
                reasonable conditions).
                    ``(B) Health arrangements.--The term `health 
                flexible spending arrangement' means any flexible 
                spending arrangement (or portion thereof) which 
                provides payments for expenses incurred for medical 
                care (as defined in section 213(d)).''.
    (b) Conforming Amendments.--
            (1) The heading for section 125 of the Internal Revenue 
        Code of 1986 is amended by inserting ``and health flexible 
        spending arrangements'' after ``plans''.
            (2) The item relating to section 125 in the table of 
        sections for part III of subchapter B of chapter 1 of such Code 
        is amended by inserting ``and health flexible spending 
        arrangements'' after ``plans''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 107. FSA AND HRA INTERACTION WITH HSAS.

    (a) Eligible Individuals Include FSA and HRA Participants.--
Subparagraph (B) of section 223(c)(1) is amended--
            (1) by striking ``and'' at the end of clause (ii),
            (2) by striking the period at the end of clause (iii) and 
        inserting ``, and'', and
            (3) by inserting after clause (iii) the following new 
        clause:
                            ``(iv) coverage under a health flexible 
                        spending arrangement or a health reimbursement 
                        arrangement in the plan year a qualified HSA 
                        distribution as described in section 106(e) is 
                        made on behalf of the individual if after the 
                        qualified HSA distribution is made and for the 
                        remaining duration of the plan year, the 
                        coverage provided under the health flexible 
                        spending arrangement or health reimbursement 
                        arrangement is converted to--
                                    ``(I) coverage that does not pay or 
                                reimburse any medical expense incurred 
                                before the minimum annual deductible 
                                under paragraph (2)(A)(i) (prorated for 
                                the period occurring after the 
                                qualified HSA distribution is made) is 
                                satisfied,
                                    ``(II) coverage that, after the 
                                qualified HSA distribution is made, 
                                does not pay or reimburse any medical 
                                expense incurred after the qualified 
                                HSA distribution is made other than 
                                preventive care as defined in paragraph 
                                (2)(C),
                                    ``(III) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses benefits for 
                                coverage described in clause (ii) (but 
                                not through insurance or for long-term 
                                care services),
                                    ``(IV) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses benefits for 
                                permitted insurance or coverage 
                                described in clause (ii) (but not for 
                                long-term care services),
                                    ``(V) coverage that, after the 
                                qualified HSA distribution is made, 
                                pays or reimburses only those medical 
                                expenses incurred after an individual's 
                                retirement (and no expenses incurred 
                                before retirement), or
                                    ``(VI) coverage that, after the 
                                qualified HSA distribution is made, is 
                                suspended, pursuant to an election made 
                                on or before the date the individual 
                                elects a qualified HSA distribution or, 
                                if later, on the date of the individual 
                                enrolls in a high deductible health 
                                plan, that does not pay or reimburse, 
                                at any time, any medical expense 
                                incurred during the suspension period 
                                except as defined in the preceding 
                                subclauses of this clause.''.
    (b) Qualified HSA Distribution Shall Not Affect Flexible Spending 
Arrangement.--Paragraph (1) of section 106(e) is amended to read as 
follows:
            ``(1) In general.--A plan shall not fail to be treated as a 
        health flexible spending arrangement under this section, 
        section 105, or section 125, or as a health reimbursement 
        arrangement under this section or section 105, merely because 
        such plan provides for a qualified HSA distribution.''.
    (c) FSA Balances at Year End Shall Not Forfeit.--Paragraph (2) of 
section 125(d) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Exception for qualified hsa distributions.--
                Subparagraph (A) shall not apply to the extent that 
                there is an amount remaining in a health flexible 
                spending account at the end of a plan year that an 
                individual elects to contribute to a health savings 
                account pursuant to a qualified HSA distribution (as 
                defined in section 106(e)(2)).''.
    (d) Simplification of Limitations on FSA and HRA Rollovers.--
Paragraph (2) of section 106(e) is amended to read as follows:
            ``(2) Qualified hsa distribution.--
                    ``(A) In general.--The term `qualified HSA 
                distribution' means a distribution from a health 
                flexible spending arrangement or health reimbursement 
                arrangement to the extent that such distribution does 
                not exceed the lesser of--
                            ``(i) the balance in such arrangement as of 
                        the date of such distribution, or
                            ``(ii) the amount determined under 
                        subparagraph (B).
                Such term shall not include more than 1 distribution 
                with respect to any arrangement.
                    ``(B) Dollar limitations.--
                            ``(i) Distributions from a health flexible 
                        spending arrangement.--A qualified HSA 
                        distribution from a health flexible spending 
                        arrangement shall not exceed the applicable 
                        amount.
                            ``(ii) Distributions from a health 
                        reimbursement arrangement.--A qualified HSA 
                        distribution from a health reimbursement 
                        arrangement shall not exceed--
                                    ``(I) the applicable amount divided 
                                by 12, multiplied by
                                    ``(II) the number of months during 
                                which the individual is a participant 
                                in the health reimbursement 
                                arrangement.
                            ``(iii) Applicable amount.--For purposes of 
                        this subparagraph, the applicable amount is--
                                    ``(I) $2,250 in the case of an 
                                eligible individual who has self-only 
                                coverage under a high deductible health 
                                plan at the time of such distribution, 
                                and
                                    ``(II) $4,500 in the case of an 
                                eligible individual who has family 
                                coverage under a high deductible health 
                                plan at the time of such 
                                distribution.''.
    (e) Elimination of Additional Tax for Failure To Maintain High 
Deductible Health Plan Coverage.--Subsection (e) of section 106 is 
amended--
            (1) by striking paragraph (3) and redesignating paragraphs 
        (4) and (5) as paragraphs (3) and (4), respectively, and
            (2) by striking subparagraph (A) of paragraph (3), as so 
        redesignated, and redesignating subparagraphs (B) and (C) of 
        such paragraph as subparagraphs (A) and (B) thereof, 
        respectively.
    (f) Limited Purpose FSAs and HRAs.--Subsection (e) of section 106, 
as amended by this section, is amended by adding at the end the 
following new paragraph:
            ``(5) Limited purpose fsas and hras.--A plan shall not fail 
        to be a health flexible spending arrangement or health 
        reimbursement arrangement under this section or section 105 
        merely because the plan converts coverage for individuals who 
        enroll in a high deductible health plan described in section 
        223(c)(2) to coverage described in section 223(c)(1)(B)(iv). 
        Coverage for such individuals may be converted as of the date 
        of enrollment in the high deductible health plan, without 
        regard to the period of coverage under the health flexible 
        spending arrangement or health reimbursement arrangement, and 
        without requiring any change in coverage to individuals who do 
        not enroll in a high deductible health plan.''.
    (g) Distribution Amounts Adjusted for Cost-of-Living.--Subsection 
(e) of section 106, as amended by this section, is amended by adding at 
the end the following new paragraph:
            ``(6) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning after December 31, 2011, each of the dollar 
                amounts in paragraph (2)(B)(iii) shall be increased by 
                an amount equal to such dollar amount, multiplied by 
                the cost-of-living adjustment determined under section 
                1(f)(3) for the calendar year in which such taxable 
                year begins by substituting `calendar year 2010' for 
                `calendar year 1992' in subparagraph (B) thereof.
                    ``(B) 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) Disclaimer of Disqualifying Coverage.--Subparagraph (B) of 
section 223(c)(1), as amended by this section, is amended--
            (1) by striking ``and'' at the end of clause (iii),
            (2) by striking the period at the end of clause (iv) and 
        inserting ``, and'', and
            (3) by inserting after clause (iv) the following new 
        clause:
                            ``(v) any coverage (including prospective 
                        coverage) under a health plan that is not a 
                        high deductible health plan which is disclaimed 
                        in writing, at the time of the creation or 
                        organization of the health savings account, 
                        including by execution of a trust described in 
                        subsection (d)(1) through a governing 
                        instrument that includes such a disclaimer, or 
                        by acceptance of an amendment to such a trust 
                        that includes such a disclaimer.''.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 108. ALLOWANCE OF DISTRIBUTIONS FOR PRESCRIPTION AND OVER-THE-
              COUNTER MEDICINES AND DRUGS.

    (a) Repeal of Distributions for Medicine Qualified Only if for 
Prescribed Drug or Insulin.--Section 9003 of the Patient Protection and 
Affordable Care Act (Public Law 111-148) and the amendments made by 
such section are repealed and the Internal Revenue Code of 1986 shall 
be applied as if such section and amendments had never been enacted.
    (b) Allowance of Distributions for All Medicines and Drugs.--
            (1) HSAs.--Subparagraph (A) of section 223(d)(2) is amended 
        by adding at the end the following: ``Such term shall include 
        an amount paid for any prescription or over-the-counter 
        medicine or drug.''.
            (2) Archer msas.--Subparagraph (A) of section 220(d)(2) is 
        amended by adding at the end the following: ``Such term shall 
        include an amount paid for any prescription or over-the-counter 
        medicine or drug.''.
            (3) Health flexible spending arrangements and health 
        reimbursement arrangements.--Section 106 is amended by adding 
        at the end the following new subsection:
    ``(f) Reimbursements for All Medicines and Drugs.--For purposes of 
this section and section 105, reimbursement for expenses incurred for 
any prescription or over-the-counter medicine or drug shall be treated 
as a reimbursement for medical expenses.''.
            (4) Effective dates.--
                    (A) Distributions from savings accounts.--The 
                amendments made by paragraphs (1) and (2) shall apply 
                to amounts paid with respect to taxable years beginning 
                after December 31, 2009.
                    (B) Reimbursements.--The amendment made by 
                paragraph (3) shall apply to expenses incurred with 
                respect to taxable years beginning after December 31, 
                2009.

SEC. 109. PURCHASE OF HEALTH INSURANCE FROM HSA ACCOUNT.

    (a) In General.--Paragraph (2) of section 223(d) is amended to read 
as follows:
            ``(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 any 
                individual covered by a high deductible health plan of 
                the account beneficiary, but only to the extent such 
                amounts are not compensated for by insurance or 
                otherwise.
                    ``(B) Health insurance may not be purchased from 
                account.--Except as provided in subparagraph (C), 
                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 any period in 
                        which the individual is receiving unemployment 
                        compensation under any Federal or State law,
                            ``(iv) a high deductible health plan, or
                            ``(v) any health insurance under title 
                        XVIII of the Social Security Act, other than a 
                        Medicare supplemental policy (as defined in 
                        section 1882 of such Act).''.
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to insurance purchased after the date of the enactment of 
this Act in taxable years beginning after such date.

SEC. 110. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE 
              ESTABLISHMENT OF ACCOUNT.

    (a) In General.--Paragraph (2) of section 223(d), as amended by 
section 109, is amended by adding at the end the following new 
subparagraph:
                    ``(D) Certain medical expenses incurred before 
                establishment of account treated as qualified.--An 
                expense shall not fail to be treated as a qualified 
                medical expense solely because such expense was 
                incurred before the establishment of the health savings 
                account if such expense was incurred--
                            ``(i) during either--
                                    ``(I) the taxable year in which the 
                                health savings account was established, 
                                or
                                    ``(II) the preceding taxable year 
                                in the case of a health savings account 
                                established after the taxable year in 
                                which such expense was incurred but 
                                before the time prescribed by law for 
                                filing the return for such taxable year 
                                (not including extensions thereof), and
                            ``(ii) for medical care of an individual 
                        during a period that such individual was 
                        covered by a high deductible health plan and 
                        met the requirements of subsection 
                        (c)(1)(A)(ii) (after application of subsection 
                        (c)(1)(B)).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 111. PREVENTIVE CARE PRESCRIPTION DRUG CLARIFICATION.

    (a) Clarify Use of Drugs in Preventive Care.--Subparagraph (C) of 
section 223(c)(2) is amended by adding at the end the following: 
``Preventive care shall include prescription and over-the-counter drugs 
and medicines which have the primary purpose of preventing the onset 
of, further deterioration from, or complications associated with 
chronic conditions, illnesses, or diseases.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 112. EQUIVALENT BANKRUPTCY PROTECTIONS FOR HEALTH SAVINGS ACCOUNTS 
              AS RETIREMENT FUNDS.

    (a) In General.--Section 522 of title 11, United States Code, is 
amended by adding at the end the following new subsection:
    ``(r) Treatment of Health Savings Accounts.--For purposes of this 
section, any health savings account (as described in section 223 of the 
Internal Revenue Code of 1986) shall be treated in the same manner as 
an individual retirement account described in section 408 of such 
Code.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to cases commencing under title 11, United States Code, after the date 
of the enactment of this Act.

SEC. 113. ADMINISTRATIVE ERROR CORRECTION BEFORE DUE DATE OF RETURN.

    (a) In General.--Paragraph (4) of section 223(f) is amended by 
adding at the end the following new subparagraph:
                    ``(D) Exception for administrative errors corrected 
                before due date of return.--Subparagraph (A) shall not 
                apply if any payment or distribution is made to correct 
                an administrative, clerical or payroll contribution 
                error and 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 
                        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) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 114. REAUTHORIZATION OF MEDICAID HEALTH OPPORTUNITY ACCOUNTS.

    (a) In General.--Section 1938 of the Social Security Act (42 U.S.C. 
1396u-8) is amended--
            (1) in subsection (a)--
                    (A) by striking paragraph (2) and inserting the 
                following:
            ``(2) Initial demonstration.--The demonstration program 
        under this section shall begin on January 1, 2007. The 
        Secretary shall approve States to conduct demonstration 
        programs under this section for a 5-year period, with each 
        State demonstration program covering 1 or more geographic areas 
        specified by the State. With respect to a State, after the 
        initial 5-year period of any demonstration program conducted 
        under this section by the State, unless the Secretary finds, 
        taking into account cost-effectiveness and quality of care, 
        that the State demonstration program has been unsuccessful, the 
        demonstration program may be extended or made permanent in the 
        State.''; and
                    (B) in paragraph (3), in the matter preceding 
                subparagraph (A)--
                            (i) by striking ``not''; and
                            (ii) by striking ``unless'' and inserting 
                        ``if'';
            (2) in subsection (b)--
                    (A) in paragraph (3), by inserting ``clause (i) 
                through (vii), (viii) (without regard to the amendment 
                made by section 2004(c)(2) of Public Law 111-148), (x), 
                or (xi) of'' after ``described in''; and
                    (B) by striking paragraphs (4), (5), and (6);
            (3) in subsection (c)--
                    (A) by striking paragraphs (3) and (4);
                    (B) by redesignating paragraphs (5) through (8) as 
                paragraphs (3) through (6), respectively; and
                    (C) in paragraph (4) (as redesignated by 
                subparagraph (B)), by striking ``Subject to 
                subparagraphs (D) and (E)'' and inserting ``Subject to 
                subparagraph (D)''; and
            (4) in subsection (d)--
                    (A) in paragraph (2), by striking subparagraph (E); 
                and
                    (B) in paragraph (3)--
                            (i) in subparagraph (A)(ii), by striking 
                        ``Subject to subparagraph (B)(ii), in'' and 
                        inserting ``In''; and
                            (ii) by striking subparagraph (B) and 
                        inserting the following:
                    ``(B) Maintenance of health opportunity account 
                after becoming ineligible for public benefit.--
                Notwithstanding any other provision of law, if an 
                account holder of a health opportunity account becomes 
                ineligible for benefits under this title because of an 
                increase in income or assets--
                            ``(i) no additional contribution shall be 
                        made into the account under paragraph 
                        (2)(A)(i); and
                            ``(ii) the account shall remain available 
                        to the account holder for 3 years after the 
                        date on which the individual becomes ineligible 
                        for such benefits for withdrawals under the 
                        same terms and conditions as if the account 
                        holder remained eligible for such benefits, and 
                        such withdrawals shall be treated as medical 
                        assistance in accordance with subsection 
                        (c)(4).''.
    (b) Conforming Amendment.--Section 613 of Public Law 111-3 is 
repealed.

                       TITLE II--OTHER PROVISIONS

SEC. 121. CERTAIN EXERCISE EQUIPMENT AND PHYSICAL FITNESS PROGRAMS 
              TREATED AS MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213 is amended by adding 
at the end the following new paragraph:
            ``(12) Exercise equipment and physical fitness programs.--
                    ``(A) In general.--The term `medical care' shall 
                include amounts paid--
                            ``(i) to purchase or use equipment used in 
                        a program (including a self-directed program) 
                        of physical exercise,
                            ``(ii) to participate, or receive 
                        instruction, in a program of physical exercise, 
                        and
                            ``(iii) for membership dues in a fitness 
                        club the primary purpose of which is to provide 
                        access to equipment and facilities for physical 
                        exercise.
                    ``(B) Limitation.--Amounts treated as medical care 
                under subparagraph (A) shall not exceed $1,000 with 
                respect to any individual for any taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 122. CERTAIN NUTRITIONAL AND DIETARY SUPPLEMENTS TO BE TREATED AS 
              MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213, as amended by 
section 121, is amended by adding at the end the following new 
paragraph:
            ``(13) Nutritional and dietary supplements.--
                    ``(A) In general.--The term `medical care' shall 
                include amounts paid to purchase herbs, vitamins, 
                minerals, homeopathic remedies, meal replacement 
                products, and other dietary and nutritional 
                supplements.
                    ``(B) Limitation.--Amounts treated as medical care 
                under subparagraph (A) shall not exceed $1,000 with 
                respect to any individual for any taxable year.
                    ``(C) Meal replacement product.--For purposes of 
                this paragraph, the term `meal replacement product' 
                means any product that--
                            ``(i) is permitted to bear labeling making 
                        a claim described in section 403(r)(3) of the 
                        Federal Food, Drug, and Cosmetic Act, and
                            ``(ii) is permitted to claim under such 
                        section that such product is low in fat and is 
                        a good source of protein, fiber, and multiple 
                        essential vitamins and minerals.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 123. CERTAIN PROVIDER FEES TO BE TREATED AS MEDICAL CARE.

    (a) In General.--Subsection (d) of section 213, as amended by 
sections 121 and 122, is amended by adding at the end the following new 
paragraph:
            ``(14) Periodic provider fees.--The term `medical care' 
        shall include periodic fees paid to a primary physician, 
        physician assistant, or nurse practitioner for the right to 
        receive medical services on an as-needed basis.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 124. REPEAL OF ANNUAL LIMITATIONS ON DEDUCTIBLES FOR EMPLOYER-
              SPONSORED PLANS OFFERED IN SMALL GROUP MARKET.

    Section 1302(c)(2) of the Patient Protection and Affordable Care 
Act (Public Law 111-148) is repealed.
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