II

103D CONGRESS

2D SESSION S. 2532

To amend the Internal Revenue Code of 1986 to allow for the establishment

of medical savings accounts for individuals covered by certain high deductible health plans.

IN THE SENATE OF THE UNITED STATES

OCTOBER 6 (legislative day, SEPTEMBER 12), 1994

Mr. ROTH (for himself, Mr. BOREN, Mr. SIMON, and Mr. COATS) introduced

the following bill; which was read twice and referred to the Committee

on Finance

A BILL

To amend the Internal Revenue Code of 1986 to allow for

the establishment of medical savings accounts for individuals covered by certain high deductible health plans.

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 Savings Account Tax Incentive Act’’.

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. DEDUCTION FOR CONTRIBUTIONS TO MEDICAL

4 SAVINGS ACCOUNTS.

5 (a) IN GENERAL.—Part VII of subchapter B of chap6 ter 1 (relating to additional itemized deductions for indi7 viduals) is amended by redesignating section 220 as sec8 tion 221 and by inserting after section 219 the following

9 new section:

10 ‘‘SEC. 220. CONTRIBUTIONS TO MEDICAL SAVINGS AC11 COUNTS.

12 ‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi13 ble individual, the amounts paid in cash during the taxable

14 year by such individual to a medical savings account for

15 the benefit of such individual or for the benefit of such

16 individual and any spouse or dependent of such individual

17 who is an eligible individual shall be treated for purposes

18 of sections 162(l) and 213 as amounts paid for insurance

19 which constitutes medical care.

20 ‘‘(b) LIMITATIONS.—

21 ‘‘(1) ONLY 1 ACCOUNT PER FAMILY.—Except as

22 provided in regulations prescribed by the Secretary,

23 no amount shall be treated as paid for insurance by

24 reason of subsection (a) for amounts paid to any

25 medical savings account if the account beneficiary,
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1 or such beneficiary’s spouse or dependent, is a bene2 ficiary of any other medical savings account.

3 ‘‘(2) DOLLAR LIMITATION.—

4 ‘‘(A) IN GENERAL.—The aggregate

5 amount which may be treated as paid for insur6 ance under subsection (a) with respect to any

7 account beneficiary shall not exceed the excess

8 (if any) of—

9 ‘‘(i) the premium determined under

10 subparagraph (B) for the same class of en11 rollment as the high deductible health plan

12 described in subsection (c)(1)(A), over

13 ‘‘(ii) the cost of such high deductible

14 health plan.

15 ‘‘(B) PREMIUM.—Not later than January

16 1 of each calendar year, the Secretary shall de17 termine and publish the premium (for each

18 class of enrollment) for the preceding calendar

19 year for the health benefits plan offered under

20 chapter 89 of title 5, United States Code, with

21 the highest enrollment (determined on the basis

22 of the annual open enrollment period).

23 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur24 poses of this section—
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1 ‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible

2 individual’ means any individual—

3 ‘‘(A) who is covered under a high deduct4 ible health plan during any portion of the cal5 endar year with or within which the taxable

6 year begins, and

7 ‘‘(B) who is not eligible during such cal8 endar year—

9 ‘‘(i) to participate in an employer-sub10 sidized health plan maintained by an em11 ployer of the individual, the individual’s

12 spouse, or any dependent of either, or

13 ‘‘(ii) to receive any employer contribu14 tion to a medical savings account.

15 For purposes of subparagraph (B), a self-employed

16 individual (within the meaning of section 401(c))

17 shall not be treated as his own employer.

18 ‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—

19 ‘‘(A) IN GENERAL.—The term ‘high de20 ductible health plan’ means a health plan

21 which—

22 ‘‘(i) has an annual deductible limit for

23 each individual covered by the plan which

24 is not less than $1,000 or more than

25 $3,000, and
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1 ‘‘(ii) has an annual limit on the aggre2 gate amount of deductibles required to be

3 paid with respect to all individuals covered

4 by the plan which is not less than $2,000

5 or more than $5,500.

6 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—In

7 the case of taxable years beginning after De8 cember 31, 1996, each dollar amount contained

9 in subparagraph (A) shall be increased by an

10 amount equal to the product of—

11 ‘‘(i) such dollar amount, and

12 ‘‘(ii) the cost-of-living adjustment de13 termined under section 1(f)(3) for the cal14 endar year in which the taxable year be15 gins, except that such section shall be ap16 plied by substituting ‘the medical compo17 nent of the CPI’ for ‘the CPI’ each place

18 it appears and by substituting ‘1995’ for

19 ‘1992’ in subparagraph (B).

20 If any amount under this paragraph is not a

21 multiple of $100, such amount shall be rounded

22 to the next lowest multiple of $100.

23 ‘‘(3) MEDICAL SAVINGS ACCOUNT.—The term

24 ‘medical savings account’ has the meaning given

25 such term by section 7705.
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1 ‘‘(4) TIME WHEN CONTRIBUTIONS DEEMED

2 MADE.—A contribution shall be deemed to be made

3 on the last day of the preceding taxable year if the

4 contribution is made on account of such taxable year

5 and is made not later than the time prescribed by

6 law for filing the return for such taxable year (not

7 including extensions thereof).’’

8 (b) CLERICAL AMENDMENT.—The table of sections

9 for part VII of subchapter B of chapter 1 is amended by

10 striking the last item and inserting the following new item:

‘‘Sec. 220. Contributions to medical savings accounts.’’

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

12 this section shall apply to taxable years beginning after

13 December 31, 1995.

14 SEC. 3. EXCLUSION FROM INCOME OF EMPLOYER CON15 TRIBUTIONS TO MEDICAL SAVINGS AC16 COUNTS.

17 (a) IN GENERAL.—Section 106 (relating to contribu18 tions by employers to accident and health plans) is amend19 ed by adding at the end the following new subsection:

20 ‘‘(b) CONTRIBUTIONS TO MEDICAL SAVINGS AC21 COUNTS.—

22 ‘‘(1) TREATMENT OF CONTRIBUTIONS.—

23 ‘‘(A) IN GENERAL.—Gross income of an

24 employee who is covered by a high deductible

25 health plan of an employer shall not include any
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1 employer contribution to a medical savings ac2 count on behalf of the employee or the employ3 ee’s spouse or dependents.

4 ‘‘(B) NO CONSTRUCTIVE RECEIPT.—No

5 amount shall be included in the gross income of

6 any employee solely because the employee may

7 choose between the contributions described in

8 subparagraph (A) and employer contributions

9 to a health plan of the employer.

10 ‘‘(2) DOLLAR LIMITATION.—The amount which

11 may be excluded under paragraph (1) for any tax12 able year shall not exceed the high deductible health

13 plan differential.

14 ‘‘(3) HIGH DEDUCTIBLE HEALTH PLAN DIF15 FERENTIAL.—For purposes of paragraph (2)(B), the

16 high deductible health plan differential with respect

17 to any employee is the amount by which the cost of

18 the high deductible health plan in which the em19 ployee is enrolled is less than the lesser of—

20 ‘‘(A) the cost (for the same class of enroll21 ment) of the health plan which—

22 ‘‘(i) the employee is eligible to enroll

23 in through the employer, and
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1 ‘‘(ii) has the highest cost of all health

2 plans in which the employee may enroll in

3 through the employer, or

4 ‘‘(B) the amount determined under section

5 220(b)(2)(B).

6 ‘‘(4) DEFINITIONS.—For purposes of this sub7 section—

8 ‘‘(A) HIGH DEDUCTIBLE HEALTH PLAN.—

9 The term ‘high deductible health plan’ has the

10 meaning given such term by section 220(c)(2).

11 ‘‘(B) MEDICAL SAVINGS ACCOUNT.—The

12 term ‘medical savings account’ has the meaning

13 given such term by section 7705.’’

14 (b) EMPLOYER PAYMENTS EXCLUDED FROM EM15 PLOYMENT TAX BASE.—

16 (1) SOCIAL SECURITY TAXES.—

17 (A) Subsection (a) of section 3121 is

18 amended by striking ‘‘or’’ at the end of para19 graph (20), by striking the period at the end of

20 paragraph (21) and inserting ‘‘; or’’, and by in21 serting after paragraph (21) the following new

22 paragraph:

23 ‘‘(22) any payment made to or for the benefit

24 of an employee if at the time of such payment it is

25 reasonable to believe that the employee will be able
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1 to exclude such payment from income under section

2 106(b).’’

3 (B) Subsection (a) of section 209 of the

4 Social Security Act is amended by striking ‘‘or’’

5 at the end of paragraph (18), by striking the

6 period at the end of paragraph (19) and insert7 ing ‘‘; or’’, and by inserting after paragraph

8 (19) the following new paragraph:

9 ‘‘(20) any payment made to or for the benefit

10 of an employee if at the time of such payment it is

11 reasonable to believe that the employee will be able

12 to exclude such payment from income under section

13 106(b) of the Internal Revenue Code of 1986.’’

14 (2) RAILROAD RETIREMENT TAX.—Subsection

15 (e) of section 3231 is amended by adding at the end

16 the following new paragraph:

17 ‘‘(10) MEDICAL SAVINGS ACCOUNT CONTRIBU18 TIONS.—The term ‘compensation’ shall not include

19 any payment made to or for the benefit of an em20 ployee if at the time of such payment it is reason21 able to believe that the employee will be able to ex22 clude such payment from income under section

23 106(b).’’

24 (3) UNEMPLOYMENT TAX.—Subsection (b) of

25 section 3306 is amended by striking ‘‘or’’ at the end
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1 of paragraph (15), by striking the period at the end

2 of paragraph (16) and inserting ‘‘; or’’, and by in3 serting after paragraph (16) the following new para4 graph:

5 ‘‘(17) any payment made to or for the benefit

6 of an employee if at the time of such payment it is

7 reasonable to believe that the employee will be able

8 to exclude such payment from income under section

9 106(b).’’

10 (4) WITHHOLDING TAX.—Subsection (a) of sec11 tion 3401 is amended by striking ‘‘or’’ at the end of

12 paragraph (19), by striking the period at the end of

13 paragraph (20) and inserting ‘‘; or’’, and by insert14 ing after paragraph (20) the following new para15 graph:

16 ‘‘(21) any payment made to or for the benefit

17 of an employee if at the time of such payment it is

18 reasonable to believe that the employee will be able

19 to exclude such payment from income under section

20 106(b).’’

21 (c) CONFORMING AMENDMENT.—Section 106 is

22 amended by striking ‘‘Gross income’’ and inserting:

23 ‘‘(a) GENERAL RULE.—Gross income’’.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years beginning after

3 December 31, 1995.

4 SEC. 4. MEDICAL SAVINGS ACCOUNTS.

5 (a) IN GENERAL.—Chapter 79 is amended by adding

6 at the end the following new section:

7 ‘‘SEC. 7705. MEDICAL SAVINGS ACCOUNTS.

8 ‘‘(a) GENERAL RULE.—The term ‘medical savings

9 account’ means a trust created or organized in the United

10 States for the exclusive benefit of the beneficiaries of the

11 trust, but only if the written governing instrument creat12 ing the trust meets the following requirements:

13 ‘‘(1) Except in the case of a rollover contribu14 tion described in subsection (c)(4)—

15 ‘‘(A) no contribution will be accepted un16 less—

17 ‘‘(i) it is in cash, and

18 ‘‘(ii) it is made for a period during

19 which the individual on whose behalf it is

20 made is covered under a high deductible

21 health plan, and

22 ‘‘(B) contributions will not be accepted for

23 any calendar year in excess of the amount de24 termined under section 220(b)(2)(B).
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1 ‘‘(2) The trustee is a bank (as defined in sec2 tion 408(n)), insurance company (as defined in sec3 tion 816), or another person who demonstrates to

4 the satisfaction of the Secretary that the manner in

5 which such person will administer the trust will be

6 consistent with the requirements of this section.

7 ‘‘(3) The assets of the trust will not be commin8 gled with other property except in a common trust

9 fund or common investment fund.

10 ‘‘(4) No part of the trust assets will be invested

11 in life insurance contracts.

12 ‘‘(5) The interest of an individual in the bal13 ance in the individual’s account is nonforfeitable.

14 ‘‘(b) TAX TREATMENT OF ACCOUNTS.—

15 ‘‘(1) ACCOUNT TAXED AS GRANTOR TRUST.—

16 ‘‘(A) IN GENERAL.—Except as provided in

17 subparagraph (B), the account beneficiary of a

18 medical savings account shall be treated for

19 purposes of this title as the owner of such ac20 count and shall be subject to tax thereon in ac21 cordance with subpart E of part I of subchapter

22 J of this chapter (relating to grantors and oth23 ers treated as substantial owners).

24 ‘‘(B) TREATMENT OF CAPITAL LOSSES.—

25 With respect to assets held in a medical savings
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1 account, any capital loss for a taxable year

2 from the sale or exchange of such an asset shall

3 be allowed only to the extent of capital gains

4 from such assets for such taxable year. Any

5 capital loss which is disallowed under the pre6 ceding sentence shall be treated as a capital

7 loss from the sale or exchange of such an asset

8 in the next taxable year.

9 ‘‘(2) ACCOUNT TERMINATIONS.—

10 ‘‘(A) PROHIBITED TRANSACTIONS; EXCESS

11 WITHDRAWALS.—If, during any taxable year of

12 the account beneficiary—

13 ‘‘(i) such beneficiary engages in any

14 transaction prohibited by section 4975

15 with respect to the account, or

16 ‘‘(ii) there is a distribution out of the

17 account any portion of which is includible

18 in the income of the account beneficiary

19 under subsection (c)(1)(A), and after such

20 distribution the balance in the account is

21 less than the annual aggregate deductible

22 limit for all individuals covered by the high

23 deductible health plan,

24 the account shall cease to be a medical savings

25 account as of the first day of such taxable year.
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1 ‘‘(B) FAILURE TO REMAIN IN HEALTH

2 PLAN.—

3 ‘‘(i) IN GENERAL.—If, at any time

4 during the 2-taxable year period beginning

5 with the taxable year of the account bene6 ficiary in which the medical savings ac7 count was established, the account bene8 ficiary becomes a participant in a health

9 plan which has a lower individual (or ag10 gregate) deductible limit than the lowest

11 individual (or aggregate) limit permitted

12 under a high deductible health plan, the

13 account shall cease to be a medical savings

14 account as of the first day of the taxable

15 year in which the individual ceases to be so

16 covered.

17 ‘‘(ii) EXCEPTION.—This subpara18 graph shall not apply to any account bene19 ficiary who becomes a participant in a plan

20 described in such subparagraph by reason

21 of separation from employment.

22 ‘‘(C) ACCOUNT TREATED AS DISTRIBUTING

23 ALL ITS ASSETS.—In any case in which any ac24 count ceases to be a medical savings account by

25 reason of subparagraph (A) or (B) on the first
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1 day of any taxable year, subsection (c) shall be

2 applied as if—

3 ‘‘(i) there were a distribution on such

4 first day in an amount equal to the fair

5 market value (on such first day) of all as6 sets in the account (on such first day), and

7 ‘‘(ii) no portion of such distribution

8 were used to pay qualified medical ex9 penses.

10 ‘‘(D) CORRECTION WITHIN 60 DAYS.—Sub11 paragraph (A)(ii) shall not apply to any dis12 tribution if, within 60 days of the 1st date the

13 account beneficiary knew (or exercising reason14 able diligence would have known) of a failure to

15 meet the requirements of subparagraph (A)(ii),

16 the account beneficiary repays to the account

17 the amount of the excess distribution. Such re18 payment shall not be treated as a contribution

19 to the account.

20 ‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU21 RITY.—If, during any taxable year, the account ben22 eficiary uses the account or any portion thereof as

23 security for a loan, the portion so used is treated as

24 distributed and not used to pay qualified medical ex25 penses.
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1 ‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.—

2 ‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR

3 QUALIFIED MEDICAL EXPENSES.—

4 ‘‘(A) IN GENERAL.—Any amount paid or

5 distributed out of a medical savings account

6 which is not used exclusively to pay the quali7 fied medical expenses of the account beneficiary

8 or of the spouse or dependents of such bene9 ficiary shall be included in the gross income of

10 such beneficiary to the extent such amount does

11 not exceed the excess of—

12 ‘‘(i) the aggregate contributions to

13 such account which were not includible in

14 gross income by reason of section 106(b)

15 or which were deductible under section

16 220, over

17 ‘‘(ii) the aggregate prior payments or

18 distributions from such account which were

19 includible in gross income under this para20 graph.

21 ‘‘(B) SPECIAL RULES.—For purposes of

22 subparagraph (A)—

23 ‘‘(i) all payments and distributions

24 during any taxable year shall be treated as

25 1 distribution, and
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1 ‘‘(ii) any distribution of property shall

2 be taken into account at its fair market

3 value on the date of the distribution.

4 ‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE5 FORE DUE DATE OF RETURN.—Paragraph (1) shall

6 not apply to the distribution of any contribution paid

7 during a taxable year to a medical savings account

8 to the extent that such contribution exceeds the

9 amount under subsection (a)(2) if—

10 ‘‘(A) such distribution is received by the

11 individual on or before the last day prescribed

12 by law (including extensions of time) for filing

13 such individual’s return for such taxable year,

14 and

15 ‘‘(B) such distribution is accompanied by

16 the amount of net income attributable to such

17 excess contribution.

18 Any net income described in subparagraph (B) shall

19 be included in the gross income of the individual for

20 the taxable year in which it is received.

21 ‘‘(3) PENALTY FOR DISTRIBUTIONS NOT USED

22 FOR QUALIFIED MEDICAL EXPENSES.—

23 ‘‘(A) IN GENERAL.—The tax imposed by

24 chapter 1 on the account beneficiary for any

25 taxable year in which there is a payment or dis-
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1 tribution from a medical savings account of

2 such beneficiary which is includible in gross in3 come under paragraph (1) shall be increased by

4 10 percent of the amount which is so includible.

5 ‘‘(B) EXCEPTION FOR DISABILITY OR

6 DEATH.—Subparagraph (A) shall not apply if

7 the payment or distribution is made after the

8 account beneficiary becomes disabled within the

9 meaning of section 72(m)(7) or dies.

10 ‘‘(C) EXCEPTION FOR DISTRIBUTIONS

AFTER AGE 591 11 ⁄2.—Subparagraph (A) shall not

12 apply to any payment or distribution after the

13 date on which the account beneficiary attains

age 591 14 ⁄2.

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

16 described in this paragraph as a rollover contribu17 tion if it meets the requirements of subparagraphs

18 (A) and (B).

19 ‘‘(A) IN GENERAL.—Paragraph (1) shall

20 not apply to any amount paid or distributed

21 from a medical savings account to the account

22 beneficiary to the extent the amount received is

23 paid into a medical savings account for the ben24 efit of such beneficiary not later than the 60th
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1 day after the day on which the beneficiary re2 ceives the payment or distribution.

3 ‘‘(B) LIMITATION.—This paragraph shall

4 not apply to any amount described in subpara5 graph (A) received by an individual from a

6 medical savings account if, at any time during

7 the 1-year period ending on the day of such re8 ceipt, such individual received any other amount

9 described in subparagraph (A) from a medical

10 savings account which was not includible in the

11 individual’s gross income because of the appli12 cation of this paragraph.

13 ‘‘(5) COORDINATION WITH MEDICAL EXPENSE

14 DEDUCTION.—For purposes of section 213, any pay15 ment or distribution out of a medical savings ac16 count for qualified medical expenses shall not be

17 treated as an expense paid for medical care to the

18 extent of the amount of such payment or distribu19 tion which is excludable from gross income solely by

20 reason of paragraph (1)(A).

21 ‘‘(6) TRANSFER OF ACCOUNT INCIDENT TO DI22 VORCE.—The transfer of an individual’s interest in

23 a medical savings account to an individual’s spouse

24 or former spouse under a divorce or separation in25 strument described in subparagraph (A) of section
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1 71(b)(2) shall not be considered a taxable transfer

2 made by such individual notwithstanding any other

3 provision of this subtitle, and such interest at the

4 time of the transfer shall be treated as a medical

5 savings account of such spouse, and not of such in6 dividual. Any such account or annuity shall, for pur7 poses of this subtitle, be treated as maintained for

8 the benefit of the spouse to whom the interest was

9 transferred.

10 ‘‘(d) DEFINITIONS.—For purposes of this section—

11 ‘‘(1) QUALIFIED MEDICAL EXPENSES.—

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

13 medical expenses’ means any expense for—

14 ‘‘(i) medical care (as defined in sec15 tion 213(d)), or

16 ‘‘(ii) qualified long-term care services.

17 ‘‘(B) EXCEPTION FOR INSURANCE.—

18 ‘‘(i) IN GENERAL.—Such term shall

19 not include any expense for insurance.

20 ‘‘(ii) EXCEPTIONS.—Clause (i) shall

21 not apply to any expense for—

22 ‘‘(I) coverage under a health plan

23 during a period of continuation cov24 erage described in section

25 4980B(f)(2)(B),
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1 ‘‘(II) coverage under a medicare

2 supplemental policy (as defined in sec3 tion 1882(g)(1) of the Social Security

4 Act), or

5 ‘‘(III) payment of premiums

6 under part A or B of title XVIII of

7 the Social Security Act, or

8 ‘‘(IV) coverage under a policy

9 providing qualified long-term care

10 services.

11 ‘‘(C) QUALIFIED LONG-TERM CARE SERV12 ICES.—For purposes of this paragraph—

13 ‘‘(i) IN GENERAL.—The term ‘quali14 fied long-term care services’ means nec15 essary diagnostic, preventive, therapeutic,

16 rehabilitative, and maintenance (including

17 personal care) services—

18 ‘‘(I) which are required by an in19 dividual during any period during

20 which such individual is a functionally

21 impaired individual,

22 ‘‘(II) which have as their primary

23 purpose the provision of needed assist24 ance with 1 or more activities of daily

25 living which a functionally impaired
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1 individual is certified as being unable

2 to perform under clause (ii)(I), and

3 ‘‘(III) which are provided pursu4 ant to a continuing plan of care pre5 scribed by a licensed health care prac6 titioner (other than a relative of such

7 individual).

8 ‘‘(ii) FUNCTIONALLY IMPAIRED INDI9 VIDUAL.—

10 ‘‘(I) IN GENERAL.—The term

11 ‘functionally impaired individual’

12 means any individual who is certified

13 by a licensed health care practitioner

14 (other than a relative of such individ15 ual) as being unable to perform, with16 out substantial assistance from an17 other individual (including assistance

18 involving verbal reminding, physical

19 cueing, or substantial supervision), at

20 least 3 activities of daily living de21 scribed in clause (iii).

22 ‘‘(II) SPECIAL RULE FOR HOME

23 HEALTH CARE SERVICES.—In the case

24 of services which are provided during

25 any period during which an individual
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1 is residing within the individual’s

2 home (whether or not the services are

3 provided within the home), subclause

4 (I) shall be applied by substituting ‘2’

5 for ‘3’. For purposes of this

6 subclause, a nursing home or similar

7 facility shall not be treated as a home.

8 ‘‘(iii) ACTIVITIES OF DAILY LIVING.—

9 Each of the following is an activity of daily

10 living:

11 ‘‘(I) Eating.

12 ‘‘(II) Transferring.

13 ‘‘(III) Toileting.

14 ‘‘(IV) Dressing.

15 ‘‘(V) Bathing.

16 ‘‘(D) LICENSED HEALTH CARE PRACTI17 TIONER.—For purposes of subparagraph (C)—

18 ‘‘(i) IN GENERAL.—The term ‘licensed

19 health care practitioner’ means—

20 ‘‘(I) a physician or registered

21 professional nurse,

22 ‘‘(II) a qualified community care

23 case manager (as defined in clause

24 (ii)), or
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1 ‘‘(III) any other individual who

2 meets such requirements as may be

3 prescribed by the Secretary after con4 sultation with the Secretary of Health

5 and Human Services.

6 ‘‘(ii) QUALIFIED COMMUNITY CARE

7 CASE MANAGER.—The term ‘qualified com8 munity care case manager’ means an indi9 vidual or entity which—

10 ‘‘(I) has experience or has been

11 trained in providing case management

12 services and in preparing individual

13 care plans;

14 ‘‘(II) has experience in assessing

15 individuals to determine their func16 tional and cognitive impairment;

17 ‘‘(III) is not a relative of the in18 dividual receiving case management

19 services; and

20 ‘‘(IV) meets such requirements

21 as may be prescribed by the Secretary

22 after consultation with the Secretary

23 of Health and Human Services.

24 ‘‘(E) RELATIVE.—For purposes of this

25 paragraph, the term ‘relative’ means an individ-
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1 ual bearing a relationship to another individual

2 which is described in paragraphs (1) through

3 (8) of section 152(a).

4 ‘‘(2) ACCOUNT BENEFICIARY.—The term ‘ac5 count beneficiary’ means the individual for whose

6 benefit the medical savings account is maintained.

7 ‘‘(e) CUSTODIAL ACCOUNTS.—For purposes of this

8 section, a custodial account shall be treated as a trust if—

9 ‘‘(1) the assets of such account are held by a

10 bank (as defined in section 408(n)), insurance com11 pany (as defined in section 816), or another person

12 who demonstrates to the satisfaction of the Sec13 retary that the manner in which such person will ad14 minister the account will be consistent with the re15 quirements of this section, and

16 ‘‘(2) the custodial account would, except for the

17 fact that it is not a trust, constitute a medical sav18 ings account described in subsection (a).

19 For purposes of this title, in the case of a custodial ac20 count treated as a trust by reason of the preceding sen21 tence, the custodian of such account shall be treated as

22 the trustee thereof.

23 ‘‘(f) REPORTS.—The trustee of a medical savings ac24 count shall make such reports regarding such account to

25 the Secretary and to the individual for whose benefit the
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1 account is maintained with respect to contributions, dis2 tributions, and such other matters as the Secretary may

3 require under regulations. The reports required by this

4 subsection shall be filed at such time and in such manner

5 and furnished to such individuals at such time and in such

6 manner as may be required by those regulations.’’

7 (b) TAX ON EXCESS CONTRIBUTIONS.—Section 4973

8 (relating to tax on excess contributions to individual re9 tirement accounts, certain section 403(b) contracts, and

10 certain individual retirement annuities) is amended—

11 (1) by inserting ‘‘MEDICAL SAVINGS AC12 COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of

13 such section,

14 (2) by striking ‘‘or’’ at the end of paragraph

15 (1) of subsection (a),

16 (3) by redesignating paragraph (2) of sub17 section (a) as paragraph (3) and by inserting after

18 paragraph (1) the following:

19 ‘‘(2) a medical savings account (within the

20 meaning of section 7705(a)), or’’, and

21 (4) by adding at the end the following new sub22 section:

23 ‘‘(d) EXCESS CONTRIBUTIONS TO MEDICAL SAVINGS

24 ACCOUNTS.—For purposes of this section, in the case of

25 a medical savings account (within the meaning of section
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1 7705(a)), the term ‘excess contributions’ means the

2 amount by which the amount contributed for the taxable

3 year to the account exceeds the amount which may be con4 tributed to the account under section 7705(a)(1)(B) for

5 such taxable year. For purposes of this subsection, any

6 contribution which is distributed out of the medical sav7 ings account in a distribution to which section 7705(c)(2)

8 applies shall be treated as an amount not contributed.’’

9 (c) TAX ON PROHIBITED TRANSACTIONS.—Section

10 4975 (relating to prohibited transactions) is amended—

11 (1) by adding at the end of subsection (c) the

12 following new paragraph:

13 ‘‘(4) SPECIAL RULE FOR MEDICAL SAVINGS AC14 COUNTS.—An individual for whose benefit a medical

15 savings account (within the meaning of section

16 7705(a)) is established shall be exempt from the tax

17 imposed by this section with respect to any trans18 action concerning such account (which would other19 wise be taxable under this section) if, with respect

20 to such transaction, the account ceases to be a medi21 cal savings account by reason of the application of

22 section 7705(b)(2)(A)(i) to such account.’’, and

23 (2) by inserting ‘‘or a medical savings account

24 described in section 7705(a)’’ in subsection (e)(1)

25 after ‘‘described in section 408(a)’’.
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1 (d) FAILURE TO PROVIDE REPORTS ON MEDICAL

2 SAVINGS ACCOUNTS.—Section 6693 (relating to failure to

3 provide reports on individual retirement accounts or annu4 ities) is amended—

5 (1) by inserting ‘‘OR ON MEDICAL SAVINGS

6 ACCOUNTS’’ after ‘‘ANNUITIES’’ in the heading of

7 such section, and

8 (2) by adding at the end of subsection (a) the

9 following: ‘‘The person required by section 7705(f)

10 to file a report regarding a medical savings account

11 at the time and in the manner required by such sec12 tion shall pay a penalty of $50 for each failure un13 less it is shown that such failure is due to reasonable

14 cause.’’

15 (e) CLERICAL AMENDMENTS.—

16 (1) The table of sections for chapter 43 is

17 amended by striking the item relating to section

18 4973 and inserting the following:

‘‘Sec. 4973. Tax on excess contributions to individual retirement

accounts, medical savings accounts, certain 403(b)

contracts, and certain individual retirement annuities.’’

19 (2) The table of sections for subchapter B of

20 chapter 68 is amended by inserting ‘‘or on medical

21 savings accounts’’ after ‘‘annuities’’ in the item re22 lating to section 6693.
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1 (f) EFFECTIVE DATE.—The amendments made by

2 this section shall take effect on January 1, 1996.

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