I 

111TH CONGRESS 

1ST SESSION H. R. 3508 

To amend the Internal Revenue Code of 1986 to provide for improved 

treatment of HSA account provisions, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 31, 2009 

Mr. PAULSEN (for himself, Mr. AKIN, Mr. BOUSTANY, Mr. BROWN of South 

Carolina, Mrs. MCMORRIS RODGERS, Mr. RYAN of Wisconsin, Mr. 

BRADY of Texas, Mr. CONAWAY, Mr. FRANKS of Arizona, Mr. PRICE of 

Georgia, Mr. KIRK, Mr. ROSKAM, Mrs. BIGGERT, Mr. MCCARTHY of California, Mr. CASSIDY, Mrs. LUMMIS, Mr. ROONEY, Mr. DAVIS of Kentucky, Mr. LANCE, Mr. PENCE, and Mrs. BACHMANN) 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 provide 

for improved treatment of HSA account provisions, 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. 

4 This Act may be cited as the ‘‘Healthy Savings Act 

5 of 2009’’. 


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1 SEC. 2. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CON2 TRIBUTIONS TO THE SAME HSA ACCOUNT. 

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

4 of the Internal Revenue Code of 1986 is amended by add5 ing at the end the following new subparagraph: 

6 ‘‘(C) SPECIAL RULE WHERE BOTH

7 SPOUSES ARE ELIGIBLE INDIVIDUALS WITH 1

8 ACCOUNT.—If— 

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

10 spouse have both attained age 55 before 

11 the close of the taxable year, and 

12 ‘‘(ii) the spouse is not an account ben13 eficiary of a health savings account as of 

14 the close of such year, 

15 the additional contribution amount shall be 200 

16 percent of the amount otherwise determined 

17 under subparagraph (B).’’. 

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

19 this section shall apply to taxable years beginning after 

20 the date of the enactment of this Act. 

21 SEC. 3. PROVISIONS RELATING TO MEDICARE. 

22 (a) INDIVIDUALS OVER AGE 65 ONLY ENROLLED IN

23 MEDICARE PART A.—Section 223(b)(7) of the Internal 

24 Revenue Code of 1986 (relating to contribution limitation 

25 on Medicare eligible individuals) is amended by adding at 

26 the end the following new sentence: ‘‘This paragraph shall 


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1 not apply to any individual during any period the individ2 ual’s only entitlement to such benefits is an entitlement 

3 to hospital insurance benefits under part A of title XVIII 

4 of such Act pursuant to an enrollment for such hospital 

5 insurance benefits under section 226(a)(1) of such Act.’’. 

6 (b) MEDICARE BENEFICIARIES PARTICIPATING IN

7 MEDICARE ADVANTAGE MSA MAY CONTRIBUTE THEIR

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

9 138 of such Code is amended by striking paragraph (2) 

10 and by redesignating paragraphs (3) and (4) as para11 graphs (2) and (3), respectively. 

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

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 4. INDIVIDUALS ELIGIBLE FOR VETERANS BENEFITS 

16 FOR A SERVICE-CONNECTED DISABILITY. 

17 (a) IN GENERAL.—Section 223(c)(1) of the Internal 

18 Revenue Code of 1986 (defining eligible individual) is 

19 amended by adding at the end the following new subpara20 graph: 

21 ‘‘(C) SPECIAL RULE FOR INDIVIDUALS ELI22 GIBLE FOR CERTAIN VETERANS BENEFITS.— 

23 For purposes of subparagraph (A)(ii), an indi24 vidual shall not be treated as covered under a 

25 health plan described in such subparagraph 


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1 merely because the individual receives periodic 

2 hospital care or medical services for a service3 connected disability under any law administered 

4 by the Secretary of Veterans Affairs but only if 

5 the individual is not eligible to receive such care 

6 or services for any condition other than a serv7 ice-connected disability.’’. 

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

9 this section shall apply to taxable years beginning after 

10 the date of the enactment of this Act. 

11 SEC. 5. INDIVIDUALS ELIGIBLE FOR INDIAN HEALTH SERV12 ICE ASSISTANCE. 

13 (a) IN GENERAL.—Section 223(c)(1) of the Internal 

14 Revenue Code of 1986, as amended by this Act, is amend15 ed by adding at the end the following new subparagraph: 

16 ‘‘(D) SPECIAL RULE FOR INDIVIDUALS EL17 IGIBLE FOR ASSISTANCE UNDER INDIAN

18 HEALTH SERVICE PROGRAMS.—For purposes of 

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

20 treated as covered under a health plan de21 scribed in such subparagraph merely because 

22 the individual receives hospital care or medical 

23 services under a medical care program of the 

24 Indian Health Service or of a tribal organiza25 tion.’’. 


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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. 

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

5 (a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 

6 PARTICIPANTS.—Section 223(c)(1)(B) of the Internal 

7 Revenue Code of 1986 is amended— 

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

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

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

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

12 new clause: 

13 ‘‘(iv) coverage under a health flexible 

14 spending arrangement or a health reim15 bursement arrangement in the plan year a 

16 qualified HSA distribution as described in 

17 section 106(e) is made on behalf of the in18 dividual if after the qualified HSA dis19 tribution is made and for the remaining 

20 duration of the plan year, the coverage 

21 provided under the health flexible spending 

22 arrangement or health reimbursement ar23 rangement is converted to— 

24 ‘‘(I) coverage that does not pay 

25 or reimburse any medical expense inVerDate Nov 24 2008 23:33 Aug 03, 2009 Jkt 079200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3508.IH H3508

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1 curred before the minimum annual de2 ductible under section 223(c)(2)(A)(i) 

3 (prorated for the period occurring 

4 after the qualified HSA distribution is 

5 made) is satisfied, 

6 ‘‘(II) coverage that, after the 

7 qualified HSA distribution is made, 

8 does not pay or reimburse any med9 ical expense incurred after the quali10 fied HSA distribution is made other 

11 than preventive care as defined in sec12 tion 223(c)(2)(3), 

13 ‘‘(III) coverage that, after the 

14 qualified HSA distribution is made, 

15 pays or reimburses benefits for cov16 erage described in section 

17 223(c)(1)(B)(ii) (but not through in18 surance or for long-term care serv19 ices), 

20 ‘‘(IV) coverage that, after the 

21 qualified HSA distribution is made, 

22 pays or reimburses benefits for per23 mitted insurance as defined in section 

24 223(c)(1)(B)(i) or coverage described 


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

2 for long-term care services), 

3 ‘‘(V) coverage that, after the 

4 qualified HSA distribution is made, 

5 pays or reimburses only those medical 

6 expenses incurred after an individual’s 

7 retirement (and no expenses incurred 

8 before retirement), or 

9 ‘‘(VI) coverage that, after the 

10 qualified HSA distribution is made, is 

11 suspended, pursuant to an election 

12 made on or before the date the indi13 vidual elects a qualified HSA distribu14 tion or, if later, on the date of the in15 dividual enrolls in a high deductible 

16 health plan (as defined in section 

17 223(c)(2)), that does not pay or reim18 burse, at any time, any medical ex19 pense incurred during the suspension 

20 period except as defined in subclauses 

21 (I) through (V) above.’’. 

22 (b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF23 FECT FLEXIBLE SPENDING ARRANGEMENT.—Section 

24 106(e)(1) of such Code is amended to read as follows: 


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

2 treated as a health flexible spending arrangement 

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

4 a health reimbursement arrangement under this sec5 tion or section 105, merely because such plan pro6 vides for a qualified HSA distribution.’’. 

7 (c) FSA BALANCES AT YEAR END SHALL NOT FOR8 FEIT.—Section 125(d)(2) of such Code is amended by 

9 adding at the end the following new subparagraph: 

10 ‘‘(E) EXCEPTION FOR QUALIFIED HSA DIS11 TRIBUTIONS.—Subparagraph (A) shall not 

12 apply to the extent that there is an amount re13 maining in a health flexible spending account at 

14 the end of a plan year that an individual elects 

15 to contribute to a health savings account pursu16 ant to a qualified HSA distribution (as defined 

17 in section 106(e)(2)).’’. 

18 (d) SIMPLIFICATION OF LIMITATIONS ON FSA AND

19 HRA ROLLOVERS.—Section 106(e)(2) of such Code (re20 lating to qualified HSA distribution) is amended to read 

21 as follows: 

22 ‘‘(2) QUALIFIED HSA DISTRIBUTION.— 

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

24 HSA distribution’ means a distribution from a 

25 health flexible spending arrangement or health 


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1 reimbursement arrangement to the extent that 

2 such distribution does not exceed the lesser 

3 of— 

4 ‘‘(i) the balance in such arrangement 

5 as of the date of such distribution, or 

6 ‘‘(ii) the amount determined under 

7 subparagraph (B). 

8 Such term shall not include more than 1 dis9 tribution with respect to any arrangement. 

10 ‘‘(B) DOLLAR LIMITATIONS.— 

11 ‘‘(i) DISTRIBUTIONS FROM A HEALTH

12 FLEXIBLE SPENDING ARRANGEMENT.—A 

13 qualified HSA distribution from a health 

14 flexible spending arrangement shall not ex15 ceed the applicable amount. 

16 ‘‘(ii) DISTRIBUTIONS FROM A HEALTH

17 REIMBURSEMENT ARRANGEMENT.—A 

18 qualified HSA distribution from a health 

19 reimbursement arrangement shall not ex20 ceed— 

21 ‘‘(I) the applicable amount di22 vided by 12, multiplied by 

23 ‘‘(II) the number of months dur24 ing which the individual is a particiVerDate Nov 24 2008 23:33 Aug 03, 2009 Jkt 079200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3508.IH H3508

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1 pant in the health reimbursement ar2 rangement. 

3 ‘‘(iii) APPLICABLE AMOUNT.—For 

4 purposes of this subparagraph, the applica5 ble amount is— 

6 ‘‘(I) $2,250 in the case of an eli7 gible individual who has self-only cov8 erage under a high deductible health 

9 plan at the time of such distribution, 

10 and 

11 ‘‘(II) $4,500 in the case of an eli12 gible individual who has family cov13 erage under a high deductible health 

14 plan at the time of such distribu15 tion.’’. 

16 (e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE

17 TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COV18 ERAGE.—Section 106(e) of such Code is amended— 

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

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

21 respectively, and 

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

23 (3), as so redesignated, and redesignating subpara24 graphs (B) and (C) of such paragraph as subpara25 graphs (A) and (B) thereof, respectively. 


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

2 106(e) of such Code, as amended by this section, is 

3 amended by adding at the end the following new para4 graph: 

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

6 plan shall not fail to be a health flexible spending 

7 arrangement or health reimbursement arrangement 

8 under this section or section 105 merely because the 

9 plan converts coverage for individuals who enroll in 

10 a high deductible health plan described in section 

11 223(c)(2) to coverage described in section 

12 223(c)(1)(B)(iv). Coverage for such individuals may 

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

14 deductible health plan, without regard to the period 

15 of coverage under the health flexible spending ar16 rangement or health reimbursement arrangement, 

17 and without requiring any change in coverage to in18 dividuals who do not enroll in a high deductible 

19 health plan.’’. 

20 (g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST21 OF-LIVING.—Section 106(e) of such Code, as amended by 

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

23 new paragraph: 

24 ‘‘(6) COST-OF-LIVING ADJUSTMENT.— 


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

2 taxable year beginning after December 31, 

3 2010, each of the dollar amounts in paragraph 

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

5 equal to such dollar amount, multiplied by the 

6 cost-of-living adjustment determined under sec7 tion 1(f)(3) for the calendar year in which such 

8 taxable year begins by substituting ‘calendar 

9 year 2009’ for ‘calendar year 1992’ in subpara10 graph (B) thereof. 

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

12 paragraph (1) is not a multiple of $50, such in13 crease shall be rounded to the nearest multiple 

14 of $50.’’. 

15 (h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 

16 Section 223(c)(1)(B) of such Code, as amended by this 

17 section, is amended— 

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

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

20 (iv) and inserting ‘‘, and’’, and 

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

22 new clause: 

23 ‘‘(v) any coverage (including prospec24 tive coverage) under a health plan that is 

25 not a high deductible health plan which is 


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1 disclaimed in writing, at the time of the 

2 creation or organization of the health sav3 ings account, including by execution of a 

4 trust described in subsection (d)(1) 

5 through a governing instrument that in6 cludes such a disclaimer, or by acceptance 

7 of an amendment to such a trust that in8 cludes such a disclaimer.’’. 

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

10 this section shall apply to taxable years beginning after 

11 the date of the enactment of this Act. 

12 SEC. 7. PURCHASE OF HEALTH INSURANCE FROM HSA AC13 COUNT. 

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

15 of the Internal Revenue Code of 1986 (defining qualified 

16 medical expenses) is amended— 

17 (1) by striking subparagraphs (B) and (C), 

18 (2) by inserting ‘‘ and including payment for in19 surance)’’ after ‘‘section 213(d)’’. 

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

21 this section shall apply to taxable years beginning after 

22 the date of the enactment of this Act. 


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1 SEC. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 

2 INCURRED BEFORE ESTABLISHMENT OF AC3 COUNT. 

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

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

6 Act, is amended by adding at the end the following new 

7 subparagraph: 

8 ‘‘(B) CERTAIN MEDICAL EXPENSES IN9 CURRED BEFORE ESTABLISHMENT OF ACCOUNT

10 TREATED AS QUALIFIED.—An expense shall not 

11 fail to be treated as a qualified medical expense 

12 solely because such expense was incurred before 

13 the establishment of the health savings account 

14 if such expense was incurred— 

15 ‘‘(i) during either— 

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

17 health savings account was estab18 lished, or 

19 ‘‘(II) the preceding taxable year 

20 in the case of a health savings ac21 count established after the taxable 

22 year in which such expense was in23 curred but before the time prescribed 

24 by law for filing the return for such 

25 taxable year (not including extensions 

26 thereof), and 


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

2 during a period that such individual was 

3 covered by a high deductible health plan 

4 and met the requirements of subsection 

5 (c)(1)(A)(ii) (after application of sub6 section (c)(1)(B)).’’. 

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

8 this section shall apply to health savings accounts estab9 lished during taxable years beginning after the date of the 

10 enactment of this Act. 

11 SEC. 9. PREVENTIVE CARE PRESCRIPTION DRUG CLARI12 FICATION. 

13 (a) CLARIFY USE OF DRUGS IN PREVENTIVE

14 CARE.—Subparagraph (C) of section 223(c)(2) of the In15 ternal Revenue Code of 1986 is amended by adding at the 

16 end the following: ‘‘Preventive care shall include prescrip17 tion and over-the-counter drugs and medicines which have 

18 the primary purpose of preventing the onset of, further 

19 deterioration from, or complications associated with 

20 chronic conditions, illnesses, or diseases.’’. 

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

22 this section shall apply to taxable years beginning after 

23 the date of the enactment of this Act. 


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1 SEC. 10. QUALIFIED MEDICAL EXPENSES. 

2 (a) CERTAIN EXERCISE EQUIPMENT AND PHYSICAL

3 FITNESS PROGRAMS TREATED AS MEDICAL CARE.— 

4 (1) IN GENERAL.—Subsection (d) of section 

5 213 of the Internal Revenue Code of 1986 is amend6 ed by adding at the end the following new para7 graph: 

8 ‘‘(12) EXERCISE EQUIPMENT AND PHYSICAL

9 FITNESS PROGRAMS.— 

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

11 care’ shall include amounts paid— 

12 ‘‘(i) to purchase or use equipment 

13 used in a program (including a self-di14 rected program) of physical exercise, 

15 ‘‘(ii) to participate, or receive instruc16 tion, in a program of physical exercise, and 

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

18 club the primary purpose of which is to 

19 provide access to equipment and facilities 

20 for physical exercise. 

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

22 medical care under subparagraph (A) shall not 

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

24 any taxable year.’’. 


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1 (2) EFFECTIVE DATE.—The amendment made 

2 by this subsection shall apply to taxable years begin3 ning after the date of the enactment of this Act. 

4 (b) CERTAIN NUTRITIONAL AND DIETARY SUPPLE5 MENTS TO BE TREATED AS MEDICAL CARE.— 

6 (1) IN GENERAL.—Subsection (d) of section 

7 213 of such Code, as amended by subsection (a), is 

8 amended by adding at the end the following new 

9 paragraph: 

10 ‘‘(13) NUTRITIONAL AND DIETARY SUPPLE11 MENTS.— 

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

13 care’ shall include amounts paid to purchase 

14 herbs, vitamins, minerals, homeopathic rem15 edies, meal replacement products, and other di16 etary and nutritional supplements. 

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

18 medical care under subparagraph (A) shall not 

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

20 any taxable year. 

21 ‘‘(C) MEAL REPLACEMENT PRODUCT.— 

22 For purposes of this paragraph, the term ‘meal 

23 replacement product’ means any product that— 

24 ‘‘(i) is permitted to bear labeling mak25 ing a claim described in section 403(r)(3) 


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1 of the Federal Food, Drug, and Cosmetic 

2 Act, and 

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

4 section that such product is low in fat and 

5 is a good source of protein, fiber, and mul6 tiple essential vitamins and minerals.’’. 

7 (2) EFFECTIVE DATE.—The amendment made 

8 by this subsection shall apply to taxable years begin9 ning after the date of the enactment of this Act. 

Æ 


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