II 

110TH CONGRESS 

2D SESSION S. 3626 

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 SENATE OF THE UNITED STATES 

SEPTEMBER 26 (legislative day, SEPTEMBER 17), 2008 

Mr. HATCH 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 improve 

access to health care through expanded health savings 

accounts, and for other purposes. 

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, ETC. 

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

5 ‘‘Family and Retirement Health Investment Act of 2008’’. 

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 (c) TABLE OF CONTENTS.—The table of contents is 

4 as follows: 

Sec. 1. Short title, etc. 

Sec. 2. Allow both spouses to make catch-up contributions to the same HSA 

account. 

Sec. 3. Provisions relating to Medicare. 

Sec. 4. Individuals eligible for veterans benefits for a service-connected disability. 

Sec. 5. Individuals eligible for Indian Health Service assistance. 

Sec. 6. FSA and HRA termination to fund HSAS. 

Sec. 7. Purchase of health insurance from HSA account. 

Sec. 8. Special rule for certain medical expenses incurred before establishment 

of account. 

Sec. 9. Preventive care prescription drug clarification. 

Sec. 10. Certain exercise equipment and physical fitness programs treated as 

medical care. 

Sec. 11. Certain nutritional and dietary supplements to be treated as medical 

care. 

Sec. 12. Certain physician fees to be treated as medical care. 

5 SEC. 2. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CON6 TRIBUTIONS TO THE SAME HSA ACCOUNT. 

7 (a) IN GENERAL.—Paragraph (3) of section 223(b) 

8 is amended by adding at the end the following new sub9 paragraph: 

10 ‘‘(C) SPECIAL RULE WHERE BOTH

11 SPOUSES ARE ELIGIBLE INDIVIDUALS WITH 1

12 ACCOUNT.—If— 

13 ‘‘(i) an individual and the individual’s 

14 spouse have both attained age 55 before 

15 the close of the taxable year, and 


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1 ‘‘(ii) the spouse is not an account ben2 eficiary of a health savings account as of 

3 the close of such year, 

4 the additional contribution amount shall be 200 

5 percent of the amount otherwise determined 

6 under subparagraph (B).’’. 

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. 3. PROVISIONS RELATING TO MEDICARE. 

11 (a) INDIVIDUALS OVER AGE 65 ONLY ENROLLED IN

12 MEDICARE PART A.—Section 223(b)(7) (relating to con13 tribution limitation on Medicare eligible individuals) is 

14 amended by adding at the end the following new sentence: 

15 ‘‘This paragraph shall not apply to any individual during 

16 any period the individual’s only entitlement to such bene17 fits is an entitlement to hospital insurance benefits under 

18 part A of title XVIII of such Act pursuant to an enroll19 ment for such hospital insurance benefits under section 

20 226(a)(1) of such Act.’’. 

21 (b) MEDICARE BENEFICIARIES PARTICIPATING IN

22 MEDICARE ADVANTAGE MSA MAY CONTRIBUTE THEIR

23 OWN MONEY TO THEIR MSA.—Subsection (b) of section 

24 138 is amended by striking paragraph (2) and by redesigVerDate Aug 31 2005 03:45 Oct 02, 2008 Jkt 069200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3626.IS S3626

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1 nating paragraphs (3) and (4) as paragraphs (2) and (3), 

2 respectively. 

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

4 this section shall apply to taxable years beginning after 

5 the date of the enactment of this Act. 

6 SEC. 4. INDIVIDUALS ELIGIBLE FOR VETERANS BENEFITS 

7 FOR A SERVICE-CONNECTED DISABILITY. 

8 (a) IN GENERAL.—Section 223(c)(1) (defining eligi9 ble individual) is amended by adding at the end the fol10 lowing new subparagraph: 

11 ‘‘(C) SPECIAL RULE FOR INDIVIDUALS ELI12 GIBLE FOR CERTAIN VETERANS BENEFITS.— 

13 For purposes of subparagraph (A)(ii), an indi14 vidual shall not be treated as covered under a 

15 health plan described in such subparagraph 

16 merely because the individual receives periodic 

17 hospital care or medical services for a service18 connected disability under any law administered 

19 by the Secretary of Veterans Affairs but only if 

20 the individual is not eligible to receive such care 

21 or services for any condition other than a serv22 ice-connected disability.’’. 

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

24 this section shall apply to taxable years beginning after 

25 the date of the enactment of this Act. 


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1 SEC. 5. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH SERV2 ICE ASSISTANCE. 

3 (a) IN GENERAL.—Section 223(c)(1), as amended by 

4 section 4, is amended by adding at the end the following 

5 new subparagraph: 

6 ‘‘(D) SPECIAL RULE FOR INDIVIDUALS EL7 IGIBLE FOR ASSISTANCE UNDER INDIAN

8 HEALTH SERVICE PROGRAMS.—For purposes of 

9 subparagraph (A)(ii), an individual shall not be 

10 treated as covered under a health plan de11 scribed in such subparagraph merely because 

12 the individual receives hospital care or medical 

13 services under a medical care program of the 

14 Indian Health Service or of a tribal organiza15 tion.’’. 

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

17 this section shall apply to taxable years beginning after 

18 the date of the enactment of this Act. 

19 SEC. 6. FSA AND HRA TERMINATION TO FUND HSAS. 

20 (a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 

21 PARTICIPANTS.—Section 223(c)(1)(B) is amended— 

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

23 (2) by striking the period at the end of clause 

24 (iii) and inserting ‘‘, and’’, and 

25 (3) by inserting after clause (iii) the following 

26 new clause: 


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1 ‘‘(iv) coverage under a health flexible 

2 spending arrangement or a health reim3 bursement arrangement in the plan year a 

4 qualified HSA distribution as described in 

5 section 106(e) is made on behalf of the in6 dividual if after the qualified HSA dis7 tribution is made and for the remaining 

8 duration of the plan year, the coverage 

9 provided under the health flexible spending 

10 arrangement or health reimbursement ar11 rangement is converted to— 

12 ‘‘(I) coverage that does not pay 

13 or reimburse any medical expense in14 curred before the minimum annual de15 ductible under section 223(c)(2)(A)(i) 

16 (prorated for the period occurring 

17 after the qualified HSA distribution is 

18 made) is satisfied, 

19 ‘‘(II) coverage that, after the 

20 qualified HSA distribution is made, 

21 does not pay or reimburse any med22 ical expense incurred after the quali23 fied HSA distribution is made other 

24 than preventive care as defined in sec25 tion 223(c)(2)(3), 


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1 ‘‘(III) coverage that, after the 

2 qualified HSA distribution is made, 

3 pays or reimburses benefits for cov4 erage described in section 

5 223(c)(1)(B)(ii) (but not through in6 surance or for long-term care serv7 ices), 

8 ‘‘(IV) coverage that, after the 

9 qualified HSA distribution is made, 

10 pays or reimburses benefits for per11 mitted insurance as defined in section 

12 223(c)(1)(B)(i) or coverage described 

13 in section 223(c)(1)(B)(ii) (but not 

14 for long-term care services), 

15 ‘‘(V) coverage that, after the 

16 qualified HSA distribution is made, 

17 pays or reimburses only those medical 

18 expenses incurred after an individual’s 

19 retirement (and no expenses incurred 

20 before retirement), or 

21 ‘‘(VI) coverage that, after the 

22 qualified HSA distribution is made, is 

23 suspended, pursuant to an election 

24 made on or before the date the indi25 vidual elects a qualified HSA distribuVerDate Aug 31 2005 03:45 Oct 02, 2008 Jkt 069200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3626.IS S3626

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1 tion or, if later, on the date of the in2 dividual enrolls in a high deductible 

3 health plan (as defined in section 

4 223(c)(2)), that does not pay or reim5 burse, at any time, any medical ex6 pense incurred during the suspension 

7 period except as defined in subclauses 

8 (I) through (V) above.’’. 

9 (b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF10 FECT FLEXIBLE SPENDING ARRANGEMENT.—Section 

11 106(e)(1) is amended to read as follows: 

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

13 treated as a health flexible spending arrangement 

14 under this section, section 105, or section 125, or as 

15 a health reimbursement arrangement under this sec16 tion or section 105, merely because such plan pro17 vides for a qualified HSA distribution.’’. 

18 (c) FSA BALANCES AT YEAR END SHALL NOT FOR19 FEIT.—Section 125(d)(2) is amended by adding at the end 

20 the following new subparagraph: 

21 ‘‘(E) EXCEPTION FOR QUALIFIED HSA DIS22 TRIBUTIONS.—Subparagraph (A) shall not 

23 apply to the extent that there is an amount re24 maining in a health flexible spending account at 

25 the end of a plan year that an individual elects 


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1 to contribute to a health savings account pursu2 ant to a qualified HSA distribution (as defined 

3 in section 106(e)(2)).’’. 

4 (d) SIMPLIFICATION OF LIMITATIONS ON FSA AND

5 HRA ROLLOVERS.—Section 106(e)(2) (relating to quali6 fied HSA distribution) is amended to read as follows: 

7 ‘‘(2) QUALIFIED HSA DISTRIBUTION.— 

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

9 HSA distribution’ means a distribution from a 

10 health flexible spending arrangement or health 

11 reimbursement arrangement to the extent that 

12 such distribution does not exceed the lesser 

13 of— 

14 ‘‘(i) the balance in such arrangement 

15 as of the date of such distribution, or 

16 ‘‘(ii) the amount determined under 

17 subparagraph (B). 

18 Such term shall not include more than 1 dis19 tribution with respect to any arrangement. 

20 ‘‘(B) DOLLAR LIMITATIONS.— 

21 ‘‘(i) DISTRIBUTIONS FROM A HEALTH

22 FLEXIBLE SPENDING ARRANGEMENT.—A 

23 qualified HSA distribution from a health 

24 flexible spending arrangement shall not ex25 ceed the applicable amount. 


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1 ‘‘(ii) DISTRIBUTIONS FROM A HEALTH

2 REIMBURSEMENT ARRANGEMENT.—A 

3 qualified HSA distribution from a health 

4 reimbursement arrangement shall not ex5 ceed— 

6 ‘‘(I) the applicable amount di7 vided by 12, multiplied by 

8 ‘‘(II) the number of months dur9 ing which the individual is a partici10 pant in the health reimbursement ar11 rangement. 

12 ‘‘(iii) APPLICABLE AMOUNT.—For 

13 purposes of this subparagraph, the applica14 ble amount is— 

15 ‘‘(I) $2,250 in the case of an eli16 gible individual who has self-only cov17 erage under a high deductible health 

18 plan at the time of such distribution, 

19 and 

20 ‘‘(II) $4,500 in the case of an eli21 gible individual who has family cov22 erage under a high deductible health 

23 plan at the time of such distribu24 tion.’’. 


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1 (e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE

2 TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COV3 ERAGE.—Section 106(e) is amended— 

4 (1) by striking paragraph (3) and redesignating 

5 paragraphs (4) and (5) as paragraphs (3) and (4), 

6 respectively, and 

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

8 (3), as so redesignated, and redesignating subpara9 graphs (B) and (C) of such paragraph as subpara10 graphs (A) and (B) thereof, respectively. 

11 (f) LIMITED PURPOSE FSAS AND HRAS.—Section 

12 106(e), as amended by this section, is amended by adding 

13 at the end the following new paragraph: 

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

15 plan shall not fail to be a health flexible spending 

16 arrangement or health reimbursement arrangement 

17 under this section or section 105 merely because the 

18 plan converts coverage for individuals who enroll in 

19 a high deductible health plan described in section 

20 223(c)(2) to coverage described in section 

21 223(c)(1)(B)(iv). Coverage for such individuals may 

22 be converted as of the date of enrollment in the high 

23 deductible health plan, without regard to the period 

24 of coverage under the health flexible spending ar25 rangement or health reimbursement arrangement, 


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1 and without requiring any change in coverage to in2 dividuals who do not enroll in a high deductible 

3 health plan.’’. 

4 (g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST5 OF-LIVING.—Section 106(e), as amended by this section, 

6 is amended by adding at the end the following new para7 graph: 

8 ‘‘(6) COST-OF-LIVING ADJUSTMENT.— 

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

10 taxable year beginning after December 31, 

11 2008, each of the dollar amounts in paragraph 

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

13 equal to such dollar amount, multiplied by the 

14 cost-of-living adjustment determined under sec15 tion 1(f)(3) for the calendar year in which such 

16 taxable year begins by substituting ‘calendar 

17 year 2007’ for ‘calendar year 1992’ in subpara18 graph (B) thereof. 

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

20 paragraph (1) is not a multiple of $50, such in21 crease shall be rounded to the nearest multiple 

22 of $50.’’. 

23 (h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 

24 Section 223(c)(1)(B), as amended by this section, is 

25 amended— 


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1 (1) by striking ‘‘and’’ at the end of clause (iii), 

2 (2) by striking the period at the end of clause 

3 (iv) and inserting ‘‘, and’’, and 

4 (3) by inserting after clause (iv) the following 

5 new clause: 

6 ‘‘(v) any coverage (including prospec7 tive coverage) under a health plan that is 

8 not a high deductible health plan which is 

9 disclaimed in writing, at the time of the 

10 creation or organization of the health sav11 ings account, including by execution of a 

12 trust described in subsection (d)(1) 

13 through a governing instrument that in14 cludes such a disclaimer, or by acceptance 

15 of an amendment to such a trust that in16 cludes such a disclaimer.’’. 

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

18 this section shall apply to taxable years beginning after 

19 the date of the enactment of this Act. 

20 SEC. 7. PURCHASE OF HEALTH INSURANCE FROM HSA AC21 COUNT. 

22 (a) IN GENERAL.—Paragraph (2) of section 223(d) 

23 (defining qualified medical expenses) is amended to read 

24 as follows: 

25 ‘‘(2) QUALIFIED MEDICAL EXPENSES.— 


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

2 medical expenses’ means, with respect to an ac3 count beneficiary, amounts paid by such bene4 ficiary for medical care (as defined in section 

5 213(d)) for any individual covered by a high de6 ductible health plan of the account beneficiary, 

7 but only to the extent such amounts are not 

8 compensated for by insurance or otherwise. 

9 ‘‘(B) HEALTH INSURANCE MAY NOT BE

10 PURCHASED FROM ACCOUNT.—Except as pro11 vided in subparagraph (C), subparagraph (A) 

12 shall not apply to any payment for insurance. 

13 ‘‘(C) EXCEPTIONS.—Subparagraph (B) 

14 shall not apply to any expense for coverage 

15 under— 

16 ‘‘(i) a health plan during any period 

17 of continuation coverage required under 

18 any Federal law, 

19 ‘‘(ii) a qualified long-term care insur20 ance contract (as defined in section 

21 7702B(b)), 

22 ‘‘(iii) a health plan during any period 

23 in which the individual is receiving unem24 ployment compensation under any Federal 

25 or State law, 


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1 ‘‘(iv) a high deductible health plan, or 

2 ‘‘(v) any health insurance under title 

3 XVIII of the Social Security Act, other 

4 than a Medicare supplemental policy (as 

5 defined in section 1882 of such Act).’’. 

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

7 this section shall apply with respect to insurance pur8 chased after the date of the enactment of this Act in tax9 able years beginning after such date. 

10 SEC. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 

11 INCURRED BEFORE ESTABLISHMENT OF AC12 COUNT. 

13 Paragraph (2) of section 223(d), as amended by sec14 tion 7, is amended by adding at the end the following new 

15 subparagraph: 

16 ‘‘(D) CERTAIN MEDICAL EXPENSES IN17 CURRED BEFORE ESTABLISHMENT OF ACCOUNT

18 TREATED AS QUALIFIED.—An expense shall not 

19 fail to be treated as a qualified medical expense 

20 solely because such expense was incurred before 

21 the establishment of the health savings account 

22 if such expense was incurred— 

23 ‘‘(i) during either— 


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1 ‘‘(I) the taxable year in which the 

2 health savings account was estab3 lished, or 

4 ‘‘(II) the preceding taxable year 

5 in the case of a health savings ac6 count established after the taxable 

7 year in which such expense was in8 curred but before the time prescribed 

9 by law for filing the return for such 

10 taxable year (not including extensions 

11 thereof), and 

12 ‘‘(ii) for medical care of an individual 

13 during a period that such individual was 

14 covered by a high deductible health plan 

15 and met the requirements of subsection 

16 (c)(1)(A)(ii) (after application of sub17 section (c)(1)(B)).’’. 

18 SEC. 9. PREVENTIVE CARE PRESCRIPTION DRUG CLARI19 FICATION. 

20 (a) CLARIFY USE OF DRUGS IN PREVENTIVE

21 CARE.—Subparagraph (C) of section 223(c)(2) is amend22 ed by adding at the end the following: ‘‘Preventive care 

23 shall include prescription and over-the-counter drugs and 

24 medicines which have the primary purpose of preventing 


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1 the onset of, further deterioration from, or complications 

2 associated with chronic conditions, illnesses, or diseases.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2003. 

6 SEC. 10. CERTAIN EXERCISE EQUIPMENT AND PHYSICAL 

7 FITNESS PROGRAMS TREATED AS MEDICAL 

8 CARE. 

9 (a) IN GENERAL.—Subsection (d) of section 213 is 

10 amended by adding at the end the following new para11 graph: 

12 ‘‘(12) EXERCISE EQUIPMENT AND PHYSICAL

13 FITNESS PROGRAMS.— 

14 ‘‘(A) IN GENERAL.—The term ‘medical 

15 care’ shall include amounts paid— 

16 ‘‘(i) to purchase or use equipment 

17 used in a program (including a self-di18 rected program) of physical exercise, 

19 ‘‘(ii) to participate, or receive instruc20 tion, in a program of physical exercise, and 

21 ‘‘(iii) for membership dues in a fitness 

22 club the primary purpose of which is to 

23 provide access to equipment and facilities 

24 for physical exercise. 


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1 ‘‘(B) LIMITATION.—Amounts treated as 

2 medical care under subparagraph (A) shall not 

3 exceed $1,000 with respect to any individual for 

4 any taxable year.’’. 

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

6 this section shall apply to taxable years beginning after 

7 the date of the enactment of this Act. 

8 SEC. 11. CERTAIN NUTRITIONAL AND DIETARY SUPPLE9 MENTS TO BE TREATED AS MEDICAL CARE. 

10 (a) IN GENERAL.—Subsection (d) of section 213, as 

11 amended by section 10, is amended by adding at the end 

12 the following new paragraph: 

13 ‘‘(13) NUTRITIONAL AND DIETARY SUPPLE14 MENTS.— 

15 ‘‘(A) IN GENERAL.—The term ‘medical 

16 care’ shall include amounts paid to purchase 

17 herbs, vitamins, minerals, homeopathic rem18 edies, meal replacement products, and other di19 etary and nutritional supplements. 

20 ‘‘(B) LIMITATION.—Amounts treated as 

21 medical care under subparagraph (A) shall not 

22 exceed $1,000 with respect to any individual for 

23 any taxable year. 


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1 ‘‘(C) MEAL REPLACEMENT PRODUCT.— 

2 For purposes of this paragraph, the term ‘meal 

3 replacement product’ means any product that— 

4 ‘‘(i) is permitted to bear labeling mak5 ing a claim described in section 403(r)(3) 

6 of the Federal Food, Drug, and Cosmetic 

7 Act, and 

8 ‘‘(ii) is permitted to claim under such 

9 section that such product is low in fat and 

10 is a good source of protein, fiber, and mul11 tiple essential vitamins and minerals.’’. 

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

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 12. CERTAIN PHYSICIAN FEES TO BE TREATED AS 

16 MEDICAL CARE. 

17 (a) IN GENERAL.—Subsection (d) of section 213, as 

18 amended by sections 10 and 11, is amended by adding 

19 at the end the following new paragraph: 

20 ‘‘(14) PRE-PAID PHYSICIAN FEES.—The term 

21 ‘medical care’ shall include amounts paid by patients 

22 to their primary physician in advance for the right 

23 to receive medical services on an as-needed basis.’’. 


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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

Æ 


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