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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 720 Introduced in House (IH)]

104th CONGRESS
  1st Session
                                H. R. 720

   To amend the Internal Revenue Code of 1986 to allow individuals a 
           deduction for contributions to a Medisave account.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            January 27, 1995

   Mr. Hoke introduced the following bill; which was referred to the 
                      Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 
   To amend the Internal Revenue Code of 1986 to allow individuals a 
           deduction for contributions to a Medisave account.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Medisave Patient Empowerment Act of 
1995''.

SEC. 2. MEDISAVE ACCOUNTS.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 220 as 
section 221 and by inserting after section 219 the following new 
section:

``SEC. 220. MEDISAVE ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an eligible individual, 
there shall be allowed as a deduction the amounts paid in cash during 
the taxable year by or on behalf of such individual to a Medisave 
account for the benefit of such individual and (if any) such 
individual's spouse and dependents if such spouse and dependents are 
eligible individuals.
    ``(b) Limitations.--
            ``(1) Only 1 account per family.--Except as provided in 
        regulations prescribed by this Secretary, no deduction shall be 
        allowed under subsection (a) for amounts paid to any Medisave 
        account for the benefit of an individual, such individual's 
        spouse, or any dependent of such individual or spouse if such 
        individual, spouse, or dependent is a beneficiary of any other 
        Medisave account.
            ``(2) Dollar limitation.--The amount allowable as a 
        deduction under subsection (a) for the taxable year shall not 
        exceed the lesser of--
                    ``(A) the lowest deductible under any catastrophic 
                health plan providing coverage to any beneficiary of 
                the Medisave account, or
                    ``(B)(i) $2,500, or
                    ``(ii) $5,000 if the catastrophic health plan 
                covering the taxpayer provides coverage for more than 1 
                individual.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--The term `eligible individual' 
        means any individual who is covered under a catastrophic health 
        plan throughout the calendar year in which or with which the 
        taxable year ends.
            ``(2) Catastrophic health plan.--For purposes of paragraph 
        (1)--
                    ``(A) In general.--The term `catastrophic health 
                plan' means a health plan covering specified expenses 
                incurred by an individual for medical care for such 
                individual and the spouse and dependents (as defined in 
                section 152) of such individual only to the extent such 
                expenses covered by the plan for any calendar year 
                exceed $1,800 ($3,600 if the catastrophic health plan 
                covering the taxpayer provides coverage for more than 1 
                individual) or such higher amounts as may be specified 
                by the plan.
                    ``(B) Cost-of-living adjustment.--In the case of 
                any calendar year after 1995, each dollar amount in 
                subparagraph (A) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        1994' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any increase under the preceding sentence is not a 
                multiple of $50, such increase shall be rounded to the 
                nearest multiple of $50.
    ``(d) Medisave Accounts.--For purposes of this section--
            ``(1) Medisave account.--
                    ``(A) In general.--The term `Medisave account' 
                means a trust created or organized in the United States 
                exclusively for the purpose of paying the medical 
                expenses of the beneficiaries of such trust, but only 
                if the written governing instrument creating the trust 
                meets the following requirements:
                            ``(i) Except in the case of a rollover 
                        contribution described in subsection (e)(4), no 
                        contribution will be accepted unless it is in 
                        cash, and contributions will not be accepted in 
                        excess of the amount allowed as a deduction 
                        under this section for the taxable year.
                            ``(ii) The trustee is a bank (as defined in 
                        section 408(n)) or another person who 
                        demonstrates to the satisfaction of the 
                        Secretary that the manner in which such person 
                        will administer the trust will be consistent 
                        with the requirements of this section.
                            ``(iii) No part of the trust assets will be 
                        invested in life insurance contracts.
                            ``(iv) The assets of the trust will not be 
                        commingled with other property except in a 
                        common trust fund or common investment fund.
                            ``(v) The interest of an individual in the 
                        balance in his account is nonforfeitable.
                            ``(vi) Under regulations prescribed by the 
                        Secretary, rules similar to the rules of 
                        section 401(a)(9) shall apply to the 
                        distribution of the entire interest of 
                        beneficiaries of such trust.
                    ``(B) Treatment of comparable accounts held by 
                insurance companies.--For purposes of this section, an 
                account held by an insurance company in the United 
                States shall be treated as a Medisave account (and such 
                company shall be treated as a bank) if--
                            ``(i) such account is part of a health 
                        insurance plan that includes a catastrophic 
                        health plan (as defined in subsection (c)(2)),
                            ``(ii) such account is exclusively for the 
                        purpose of paying the medical expenses of the 
                        beneficiaries of such account who are covered 
                        under such catastrophic health plan, and
                            ``(iii) the written instrument governing 
                        the account meets the requirements of clauses 
                        (i), (v), and (vi) of subparagraph (A).
            ``(2) Medical expenses.--
                    ``(A) In general.--The term `medical expenses' 
                means, with respect to an individual, amounts paid or 
                incurred by such individual for--
                            ``(i) medical care (as defined in section 
                        213), or
                            ``(ii) long-term care (as defined in 
                        paragraph (3)),
                for such individual, the spouse of such individual, and 
                any dependent (as defined in section 152) of such 
                individual, but only to the extent such amounts are not 
                compensated for by insurance or otherwise.
                    ``(B) Health plan coverage may not be purchased 
                from account.--
                            ``(i) In general.--Such term shall not 
                        include any amount paid for coverage under a 
                        health plan.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply to coverage of an individual under a 
                        catastrophic health plan or under a long-term 
                        care insurance plan.
            ``(3) Long-term care.--
                    ``(A) In general.--The term `long-term care' means 
                diagnostic, preventive, therapeutic, rehabilitative, 
                maintenance, or personal care services which are 
                required by, and provided to, a chronically ill 
                individual, which have as their primary purpose the 
                direct provision of needed assistance with 1 or more 
                activities of daily living (or the alleviation of the 
                conditions necessitating such assistance) that the 
                individual is certified under subparagraph (B) as being 
                unable to perform, and which are provided in a setting 
                other than an acute care unit of a hospital pursuant to 
                a continuing plan of care prescribed by a physician or 
                registered professional nurse. Such term does not 
                include food or lodging provided in an institutional or 
                other setting, or basic living services associated with 
                the maintenance of a household or participation in 
                community life, such as case management, transportation 
                or legal services, or the performance of home 
                maintenance or household chores.
                    ``(B) Chronically ill individual.--The term 
                `chronically ill individual' means an individual who is 
                certified by a physician or registered professional 
                nurse as being unable to perform at least 3 activities 
                of daily living without substantial assistance from 
                another individual. For purposes of this paragraph, the 
                term `activities of daily living' means bathing, 
                dressing, eating, toileting, transferring, and walking.
            ``(4) Time when contributions deemed made.--A contribution 
        shall be deemed to be made on the last day of the preceding 
        taxable year if the contribution is made on account of such 
        taxable year and is made not later than the time prescribed by 
        law for filing the return for such taxable year (not including 
        extensions thereof).
    ``(e) Tax Treatment of Distributions.--
            ``(1) In general.--Any amount paid or distributed out of a 
        Medisave account shall be included in the gross income of the 
        individual for whose benefit such account was established 
        unless such amount is used exclusively to pay the medical 
        expenses of such individual.
            ``(2) Excess contributions returned before due date of 
        return.--Paragraph (1) shall not apply to the distribution of 
        any contribution paid during a taxable year to a Medisave 
        account to the extent that such contribution exceeds the amount 
        allowable as a deduction under subsection (a) if--
                    ``(A) 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
                    ``(B) such distribution is accompanied by the 
                amount of net income attributable to such excess 
                contribution.
        Any net income described in subparagraph (B) shall be included 
        in the gross income of the individual for the taxable year in 
        which it is received.
            ``(3) Penalty for distributions not used for medical 
        expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a Medisave account which is not used 
                to pay the medical expenses of the individual for whose 
                benefit the account was established shall be increased 
                by 10 percent of the amount of such payment or 
                distribution which is includible in gross income under 
                paragraph (1).
                    ``(B) Account balance limitation.--If--
                            ``(i) the tax imposed by this chapter is 
                        required to be increased under subparagraph (A) 
                        by reason of a distribution, and
                            ``(ii) after such distribution, the 
                        aggregate balance of all Medisave accounts 
                        established for the benefit of the individual, 
                        is less than the amount of the deductible under 
                        the catastrophic health plan covering such 
                        individual,
                subparagraph (A) shall be applied by substituting `50 
                percent' for `10 percent'.
            ``(4) Rollovers.--Paragraph (1) shall not apply to any 
        amount paid or distributed out of a Medisave account to the 
        individual for whose benefit the account is maintained if the 
        entire amount received (including money and any other property) 
        is paid into another Medisave account for the benefit of such 
        individual not later than the 60th day after the day on which 
        he received the payment or distribution.
    ``(f) Tax Treatment of Accounts.--
            ``(1) Exemption from tax.--Any Medisave account is exempt 
        from taxation under this subtitle unless such account has 
        ceased to be a Medisave account by reason of paragraph (2) or 
        (3). Notwithstanding the preceding sentence, any such account 
        shall be subject to the taxes imposed by section 511 (relating 
        to imposition of tax on unrelated business income of 
        charitable, etc. organizations).
            ``(2) Account terminates if individual engages in 
        prohibited transaction.--
                    ``(A) In general.--If, during any taxable year of 
                the individual for whose benefit the Medisave account 
                was established, such individual engages in any 
                transaction prohibited by section 4975 with respect to 
                the account, the account ceases to be a Medisave 
                account as of the first day of that taxable year.
                    ``(B) Account treated as distributing all its 
                assets.--In any case in which any account ceases to be 
                a Medisave account by reason of subparagraph (A) on the 
                first day of any taxable year, paragraph (1) of 
                subsection (e) shall be applied as if there were a 
                distribution on such first day in an amount equal to 
                the fair market value (on such first day) of all assets 
                in the account (on such first day) and no portion of 
                such distribution were used to pay medical expenses.
            ``(3) Effect of pledging account as security.--If, during 
        any taxable year, the individual for whose benefit a Medisave 
        account was established uses the account or any portion thereof 
        as security for a loan, the portion so used is treated as 
        distributed to that individual and not used to pay medical 
        expenses.
    ``(g) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if--
            ``(1) the assets of such account are held by a bank (as 
        defined in section 408(n)) or another person who demonstrates 
        to the satisfaction of the Secretary that the manner in which 
        he will administer the account will be consistent with the 
        requirements of this section, and
            ``(2) the custodial account would, except for the fact that 
        it is not a trust, constitute a Medisave account described in 
        subsection (d).
For purposes of this title, in the case of a custodial account treated 
as a trust by reason of the preceding sentence, the custodian of such 
account shall be treated as the trustee thereof.
    ``(h) Reports.--The trustee of a Medisave account shall make such 
reports regarding such account to the Secretary and to the individual 
for whose benefit the account is maintained with respect to 
contributions, distributions, and such other matters as the Secretary 
may require under regulations. The reports required by this subsection 
shall be filed at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required by those 
regulations.''
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 of such Code is amended by 
inserting after paragraph (15) the following new paragraph:
            ``(16) Medisave accounts.--The deduction allowed by section 
        220.''
    (c) Distributions From Medisave Accounts Not Allowed as Medical 
Expense Deduction.--Section 213 of such Code is amended by adding at 
the end thereof the following new subsection:
    ``(f) Coordination With Medisave Accounts.--The amount otherwise 
taken into account under subsection (a) as expenses paid for medical 
care shall be reduced by the amount (if any) of the distributions from 
any Medisave account of the taxpayer during the taxable year which is 
not includible in gross income by reason of being used for medical 
care.''
    (d) Exclusion of Employer Contributions to Medisave Accounts From 
Employment Taxes.--
            (1) Social security taxes.--
                    (A) Subsection (a) of section 3121 of such Code is 
                amended by striking ``or'' at the end of paragraph 
                (20), by striking the period at the end of paragraph 
                (21) and inserting ``; or'', and by inserting after 
paragraph (21) the following new paragraph:
            ``(22) remuneration paid to or on behalf of an employee if 
        (and to the extent that) at the time of payment of such 
        remuneration it is reasonable to believe that a corresponding 
        deduction is allowable under section 220.''
                    (B) Subsection (a) of section 209 of the Social 
                Security Act is amended by striking ``or'' at the end 
                of paragraph (17), by striking the period at the end of 
                paragraph (18) and inserting ``; or'', and by inserting 
                after paragraph (18) the following new paragraph:
            ``(19) remuneration paid to or on behalf of an employee if 
        (and to the extent that) at the time of payment of such 
        remuneration it is reasonable to believe that a corresponding 
        deduction is allowable under section 220 of the Internal 
        Revenue Code of 1986.''
            (2) Railroad retirement tax.--Subsection (e) of section 
        3231 of such Code is amended by adding at the end thereof the 
        following new paragraph:
            ``(10) Employer contributions to medisave accounts.--The 
        term `compensation' shall not include any payment made to or on 
        behalf of an employee if (and to the extent that) at the time 
        of payment of such remuneration it is reasonable to believe 
        that a corresponding deduction is allowable under section 
        220.''
            (3) Unemployment tax.--Subsection (b) of section 3306 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (15), by striking the period at the end of paragraph (16) and 
        inserting ``; or'', and by inserting after paragraph (16) the 
        following new paragraph:
            ``(17) remuneration paid to or on behalf of an employee if 
        (and to the extent that) at the time of payment of such 
        remuneration it is reasonable to believe that a corresponding 
        deduction is allowable under section 220.''
            (4) Withholding tax.--Subsection (a) of section 3401 of 
        such Code is amended by striking ``or'' at the end of paragraph 
        (19), by striking the period at the end of paragraph (20) and 
        inserting ``; or'', and by inserting after paragraph (20) the 
        following new paragraph:
            ``(21) to or on behalf of an employee if (and to the extent 
        that) at the time of payment of such remuneration it is 
        reasonable to believe that a corresponding deduction is 
        allowable under section 220.''
    (e) Tax on Excess Contributions.--Section 4973 of such Code 
(relating to tax on excess contributions to individual retirement 
accounts, certain section 403(b) contracts, and certain individual 
retirement annuities) is amended--
            (1) by inserting ``medisave accounts,'' after ``accounts,'' 
        in the heading of such section,
            (2) by redesignating paragraph (2) of subsection (a) as 
        paragraph (3) and by inserting after paragraph (1) the 
        following:
            ``(2) a Medisave account (within the meaning of section 
        220(d)),'',
            (3) by striking ``or'' at the end of paragraph (1) of 
        subsection (a), and
            (4) by adding at the end thereof the following new 
        subsection:
    ``(d) Excess Contributions to Medisave Accounts.--For purposes of 
this section, in the case of a Medisave account (within the meaning of 
section 220(d)), the term `excess contributions' means the amount by 
which the amount contributed for the taxable year to the account 
exceeds the amount allowable as a deduction under section 220 for such 
taxable year. For purposes of this subsection, any contribution which 
is distributed out of the Medisave account in a distribution to which 
section 220(e)(2) applies shall be treated as an amount not 
contributed.''
    (f) Tax on Prohibited Transactions.--Section 4975 of such Code 
(relating to prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(4) Special rule for medisave accounts.--An individual 
        for whose benefit a Medisave account (within the meaning of 
        section 220(d)) is established shall be exempt from the tax 
        imposed by this section with respect to any transaction 
        concerning such account (which would otherwise be taxable under 
        this section) if, with respect to such transaction, the account 
        ceases to be a Medisave account by reason of the application of 
        section 220(e)(2)(A) to such account.'', and
            (2) by inserting ``or a Medisave account described in 
        section 220(d)'' in subsection (e)(1) after ``described in 
        section 408(a)''.
    (g) Failure To Provide Reports on Medisave Accounts.--Section 6693 
of such Code (relating to failure to provide reports on individual 
retirement account or annuities) is amended--
            (1) by inserting ``or on medisave accounts'' after 
        ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following: 
        ``The person required by section 220(h) to file a report 
        regarding a Medisave account at the time and in the manner 
        required by such section shall pay a penalty of $50 for each 
        failure unless it is shown that such failure is due to 
        reasonable cause.''
    (h) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 of such Code is amended by striking the last item and 
        inserting the following:

                              ``Sec. 220. Medisave accounts.
                              ``Sec. 221. Cross reference.''
            (2) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medisave accounts, 
                                        certain 403(b) contracts, and 
                                        certain individual retirement 
                                        annuities.''
            (3) The table of sections for subchapter B of chapter 68 of 
        such Code is amended by inserting ``or on Medisave accounts'' 
        after ``annuities'' in the item relating to section 6693.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.
                                 <all>
HR 720 IH----2
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