I
103D CONGRESS
1ST SESSION
H. R. 2367
To amend the Internal Revenue Code of 1986 to restore the deduction
for the health insurance costs of self-employed individuals, to provide
incentives for certain medical practitioners to practice in rural areas,
to provide for the creation of medical savings accounts, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 10, 1993
Mr. BAKER of Louisiana introduced the following bill; which was referred
jointly to the Committees on Ways and Means, Energy and Commerce,
and the Judiciary
A BILL
To amend the Internal Revenue Code of 1986 to restore
the deduction for the health insurance costs of self-em-
ployed individuals, to provide incentives for certain medi-
cal practitioners to practice in rural areas, to provide
for the creation of medical savings accounts, and for
other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Health Care Accessibil-
ity Expansion Act of 1993’’.
SEC. 2. FULL DEDUCTION FOR HEALTH INSURANCE COSTS
OF SELF-EMPLOYED INDIVIDUALS.
(a) DEDUCTION MADE PERMANENT.—
(1) IN GENERAL.—Subsection (l) of section 162
of the Internal Revenue Code of 1986 (relating to
special rules for health insurance costs of self-em-
ployed individuals) is amended by striking paragraph
(6).
(2) CONFORMING AMENDMENT.—Subsection (a)
of section 110 of the Tax Extension Act of 1991 is
amended by striking paragraph (2).
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to taxable years begin-
ning after December 31, 1991.
(b) DEDUCTION INCREASED TO 100 PERCENT.—
(1) IN
GENERAL.—Paragraph (1) of section
162(l) of such Code is amended by striking ‘‘25 per-
cent’’ and inserting ‘‘100 percent’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after December 31, 1993.
SEC. 3. CREDIT FOR MEDICAL PRACTITIONERS COMMENC-
ING MEDICAL PRACTICE IN RURAL AREAS.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable personal credits) is
amended by inserting after section 22 the following new
section:
‘‘SEC. 23. CERTAIN MEDICAL PRACTITIONERS COMMENC-
ING MEDICAL PRACTICE IN RURAL AREAS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eli-
gible medical practitioner who commences a medical prac-
tice in a rural area, there is allowed as a credit against
the tax imposed by this subtitle for the taxable year during
which such commencement occurs, and for each of the 4
succeeding taxable years, an amount equal to $5,000.
‘‘(b) LIMITATION.—No credit shall be allowed under
subsection (a) with respect to any taxable year in which
the taxpayer practices a medical practice in the rural area
for less than 9 months or ceases to practice a medical
practice in the rural area.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE MEDICAL PRACTITIONER.—The
term ‘eligible medical practitioner’ means any physi-
cian, nurse practitioner, or certified physician assist-
ant.
‘‘(2) PHYSICIAN.—The term ‘physician’ means
a doctor of medicine or osteopathy legally authorized
to practice medicine and surgery by the State in
which such individual performs such function or ac-
tion.
‘‘(3) COMMENCES PRACTICE.—The term ‘com-
mences practice’ means the location or relocation of
an eligible medical practitioner’s principal place of
medical practice to a rural area. Such term does not
include the relocation of a practitioner’s medical
practice from 1 rural area to another rural area.
‘‘(4) RURAL
AREA.—The term ‘rural area’
means any area that is not within any metropolitan
statistical area (as defined by the Secretary of Com-
merce).
‘‘(d) RECAPTURE OF CREDIT.—
‘‘(1) IN GENERAL.—If, a taxpayer who is al-
lowed a credit under subsection (a) ceases medical
practice in a rural area during any taxable year,
then the tax of the taxpayer under this chapter for
such taxable year shall be increased by an amount
equal to the sum of the credits allowed under sub-
section (a) for the 5 preceding taxable years.
‘‘(2) NO CREDITS AGAINST TAX.—Any increase
in tax under this subsection shall not be treated as
a tax imposed by this chapter for purposes of deter-
mining—
‘‘(A) the amount of any credit under this
part, or
‘‘(B) the amount of the tax under section
55.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part IV of subchapter A of chapter 1
of such Code is amended by inserting after the item relat-
ing to section 22 the following new item:
‘‘Sec. 23. Certain medical practitioners commencing medical prac-
tice in rural areas.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 4. DEDUCTION FOR MEDICAL SCHOOL EDUCATION
LOAN 
INTEREST 
INCURRED 
BY 
CERTAIN
MEDICAL 
PRACTITIONERS 
SERVING 
IN
RURAL AREAS.
(a) IN GENERAL.—Paragraph (1) of section 163(h)
of the Internal Revenue Code of 1986 (relating to dis-
allowance of deduction for personal interest) is amended
by striking ‘‘and’’ at the end of subparagraph (D), by re-
designating subparagraph (E) as subparagraph (F), and
by inserting after subparagraph (D) the following new
subparagraph:
‘‘(E) any qualified medical education loan
interest (within the meaning of paragraph (5)),
and’’.
(b) QUALIFIED MEDICAL EDUCATION LOAN INTER-
EST DEFINED.—Subsection (h) of section 163 of such
Code is amended by redesignating paragraph (5) as para-
graph (6) and by inserting after paragraph (4) the follow-
ing new paragraph:
‘‘(5) QUALIFIED MEDICAL EDUCATION LOAN IN-
TEREST.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical education loan interest’ means inter-
est—
‘‘(i) which is on a medical education
loan of an eligible medical practitioner (as
defined in section 23(c)),
‘‘(ii) which is paid or accrued by such
practitioner, and
‘‘(iii) which accrues during the period
during which the practitioner is eligible to
receive a credit under section 23(c).
‘‘(B) MEDICAL
EDUCATION
LOAN.—The
term ‘medical education loan’ means indebted-
ness incurred to pay the individual’s—
‘‘(i) qualified tuition and related ex-
penses (as defined in section 117(b)) in-
curred for the medical education of such
individual, or
‘‘(ii) reasonable living expenses while
away from home in order to attend an edu-
cational institution described in section
170(b)(1)(A)(ii) for the medical education
of such individual.
‘‘(C) RURAL AREA.—The term ‘rural area’
means any area that is not within any metro-
politan statistical area (as defined by the Sec-
retary of Commerce).’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
SEC. 5. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 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 insert-
ing after section 219 the following new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an eligi-
ble individual, there shall be allowed as a deduction
amounts paid in cash during the taxable year by or on
behalf of such individual to a medical savings account.
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—The amount allowable as a
deduction under subsection (a) to an individual for
the taxable year shall not exceed the excess (if any)
of—
‘‘(A) the lesser of—
‘‘(i) the applicable limit, or
‘‘(ii) the compensation (as defined in
section 219(f)) includible in the individ-
ual’s gross income for the taxable year,
over
‘‘(B) the sum of—
‘‘(i) the value of employer-provided
coverage for the medical expenses of such
individual, plus
‘‘(ii) the aggregate amount contrib-
uted to such account during the taxable
year pursuant to section 125(d)(3).
‘‘(2) APPLICABLE
LIMIT.—For purposes of
paragraph (1), the applicable limit is the sum of—
‘‘(A) $4,800, plus
‘‘(B) $1,000 for each individual who is a
dependent (as defined in section 152) of the in-
dividual for whose benefit the account is estab-
lished.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the individual for whose benefit the trust is estab-
lished, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted un-
less it is in cash and contributions will not be
accepted for any taxable year in excess of the
applicable limit (as defined in subsection
(b)(2)).
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means any individual if—
‘‘(A) such individual is not covered by any
employer-provided group health plan, or
‘‘(B) such individual is covered by an em-
ployer-provided group health plan which is a
qualified catastrophic coverage health plan and
is not covered by any other health plan.
‘‘(3) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means—
‘‘(i) medical expenses, and
‘‘(ii) amounts paid for qualified long-
term care insurance.
‘‘(B) MEDICAL
EXPENSES.—The term
‘medical expenses’ means amounts paid by the
individual for whose benefit the account was es-
tablished for medical care (as defined in section
213) of such individual, the spouse of such indi-
vidual, and any dependent (as defined in section
152) of such individual, but only to the extent
such amounts are not compensated for by in-
surance or otherwise.
‘‘(C) QUALIFIED LONG-TERM CARE INSUR-
ANCE.—
‘‘(i) IN GENERAL.—Subject to clauses
(i) and (ii), the term ‘qualified long-term
care insurance’ means insurance under a
policy or rider, which is issued by a quali-
fied issuer, which meets standards at least
as stringent as those set forth in the Janu-
ary 1990 Long-Term Care Insurance
Model Regulation of the National Associa-
tion of Insurance Commissioners, and
which is certified by the Secretary of
Health and Human Services (in accord-
ance with procedures similar to the proce-
dures prescribed in section 1882 of the So-
cial Security Act (42 U.S.C. 1385ss) used
in the certification of medicare supple-
mental policies (as defined in subsection
(g)(1) of such section)) to be advertised,
marketed, offered, or designed to provide
coverage—
‘‘(I) for not less than 12 consecu-
tive months for each covered person
who has attained age 50,
‘‘(II) on an expense incurred, in-
demnity, or prepaid basis,
‘‘(III) for 1 or more medically
necessary, diagnostic services, preven-
tive services, therapeutic services, re-
habilitation 
services, 
maintenance
services, or personal care services, and
‘‘(IV) provided in a setting other
than an acute care unit of a hospital.
The requirement of subclause (IV) shall be
met only if at least 1 of the settings in
which such coverage is provided is the pa-
tient’s home.
‘‘(ii) COVERAGE
SPECIFICALLY
EX-
CLUDED.—Such term does not include any
insurance under any policy or rider which
is offered primarily to provide any com-
bination of the following kinds of coverage:
‘‘(I) Basic Medicare supplement
coverage.
‘‘(II) Basic hospital-based acute
care expense coverage.
‘‘(III) Basic medical-surgical ex-
pense coverage.
‘‘(IV) Hospital confinement in-
demnity coverage.
‘‘(V) Major medical expense cov-
erage.
‘‘(VI) Disability income protec-
tion coverage.
‘‘(VII) Accident only coverage.
‘‘(VIII) Specified disease cov-
erage.
‘‘(IX) Specified accident cov-
erage.
‘‘(X) Limited benefit health cov-
erage.
‘‘(iii) QUALIFIED
ISSUER.—For pur-
poses of clause (i), the term ‘qualified is-
suer’ means any of the following:
‘‘(I) Private insurance company.
‘‘(II) Fraternal benefit society.
‘‘(III) Nonprofit health corpora-
tion.
‘‘(IV) Nonprofit hospital corpora-
tion.
‘‘(V) Nonprofit medical service
corporation.
‘‘(VI) Prepaid health plan.
‘‘(4) QUALIFIED
CATASTROPHIC
COVERAGE
HEALTH
PLAN.—The term ‘qualified catastrophic
coverage health plan’ means any health plan which
is certified by the Secretary of Health and Human
Services as a plan—
‘‘(A) which provides no compensation for
medical expenses not exceeding $3,000 during
any year,
‘‘(B) which requires the individual to pay
15 percent of such individual’s medical expenses
to the extent they exceed $3,000 but not
$9,000 during any year, and
‘‘(C) which provides full reimbursement for
medical expenses exceeding $9,000.
‘‘(5) TIME
WHEN
CONTRIBUTIONS
DEEMED
MADE.—A taxpayer shall be deemed to have made a
contribution 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 tax-
able year (not including extensions thereof).
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in the gross income of the individual for
whose benefit such account was established unless
such amount is used exclusively to pay the qualified
medical expenses of such individual.
‘‘(2) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—Paragraph (1) shall
not apply to the distribution of any contribution paid
during a taxable year to a medical savings account
to the extent that such contribution exceeds the
amount allowable as a deduction under subsection
(a) if—
‘‘(A) such distribution is received on or be-
fore the day prescribed by law (including exten-
sions of time) for filing such individual’s return
for such taxable year,
‘‘(B) no deduction is allowed under sub-
section (a) with respect to such excess contribu-
tion, and
‘‘(C) such distribution is accompanied by
the amount of net income attributable to such
excess contribution.
Any net income described in subparagraph (C) shall
be included in the gross income of the individual for
the taxable year in which it is received.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION FROM TAX.—A medical sav-
ings account is exempt from taxation under this sub-
title unless such account has ceased to be an invest-
ment savings account by reason of paragraph (2).
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
INDIVIDUAL
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit the
medical savings account was established, such
individual engages in any transaction prohibited
by section 4975 with respect to the account, the
account ceases to be a medical savings account
as of the first day of that taxable year.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) on the first day of
any taxable year, paragraph (1) of subsection
(d) applies 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).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year, the individual for
whose benefit a medical savings account was estab-
lished uses the account or any portion thereof as se-
curity for a loan, the portion so used is treated as
distributed to that individual.
‘‘(f) ADDITIONAL TAX ON CERTAIN AMOUNTS IN-
CLUDED IN GROSS INCOME.—
‘‘(1) DISTRIBUTION NOT USED FOR QUALIFIED
MEDICAL EXPENSES.—If a distribution from a medi-
cal savings account is made, and not used to pay the
qualified medical expenses of the individual for
whose benefit the account was established, the tax li-
ability of such individual for the taxable year in
which such distribution is received shall be increased
by an amount equal to 10 percent of the amount of
the distribution which is includible in gross income
for such taxable year.
‘‘(2) DISQUALIFICATION CASES.—If an amount
is includible in the gross income of an individual for
a taxable year under subsection (e), his tax under
this chapter for such taxable year shall be increased
by an amount equal to 10 percent of such amount
includible in his gross income.
‘‘(3) DISABILITY
OR
DEATH
CASES.—Para-
graphs (1) and (2) do not apply if the payment or
distribution is made after the individual for whose
benefit the medical savings account was established
becomes disabled within the meaning of section
72(m)(7) or dies.
‘‘(g) SPECIAL RULES.—
‘‘(1) COMMUNITY PROPERTY LAWS.—This sec-
tion shall be applied without regard to any commu-
nity property laws.
‘‘(2) CUSTODIAL ACCOUNTS.—For purposes of
this section, a custodial account shall be treated as
a trust if—
‘‘(A) the assets of such account are held by
a bank (as defined in section 408(n)) or an-
other person who demonstrates to the satisfac-
tion of the Secretary that the manner in which
he will administer the account will be consistent
with the requirements of this section, and
‘‘(B) the custodial account would, except
for the fact that it is not a trust, constitute a
medical savings account described in subsection
(c).
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.
‘‘(3) DENIAL
OF
DEDUCTIONS.—No amount
paid or distributed from a medical savings account
shall be taken into account in determining the de-
duction provided by section 213.
‘‘(h) INFLATION ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1994, each
applicable dollar amount shall be increased by an
amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment for the
calendar year in which the taxable year begins.
‘‘(2) COST-OF-LIVING ADJUSTMENT.—For pur-
poses of paragraph (1), the cost-of-living adjustment
for any calendar year is the percentage (if any) by
which—
‘‘(A) the deemed average total wages (as
defined in section 209(k) of the Social Security
Act) for the preceding calendar year, exceeds
‘‘(B) the deemed average total wages (as
so defined) for calendar year 1993.
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of paragraph (1), the term ‘applicable dollar
amount’ means—
‘‘(A) the $4,800 and $1,000 amounts in
subsection (b), and
‘‘(B) the $3,000 and $9,000 amounts in
subsection (c)(4).
‘‘(4) ROUNDING.—If any amount as adjusted
under paragraph (1) is not a multiple of $10, such
amount shall be rounded to the nearest multiple of
$10 (or, if such amount is a multiple of $5 and not
of $10, such amount shall be rounded to the next
highest multiple of $10).
‘‘(i) REPORTS.—The trustee of a medical savings ac-
count 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, dis-
tributions, 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
IN ARRIVING
AT AD-
JUSTED GROSS INCOME.—Paragraph (7) of section 62(a)
of such Code (relating to retirement savings) is amend-
ed—
(1) by inserting ‘‘OR MEDICAL EXPENSE’’ after
‘‘RETIREMENT’’ in the heading of such paragraph,
and
(2) by inserting before the period at the end
thereof the following: ‘‘and the deduction allowed by
section 220 (relating to deduction of certain pay-
ments to medical savings accounts)’’.
(c) TAX ON EXCESS CONTRIBUTIONS.—Section 4973
of such Code (relating to tax on excess contributions to
individual retirement accounts, certain section 403(b) con-
tracts, and certain individual retirement annuities) is
amended—
(1) by inserting ‘‘MEDICAL
SAVINGS
AC-
COUNTS,’’ after ‘‘ACCOUNTS,’’ in the heading of
such section,
(2) by redesignating paragraph (2) of sub-
section (a) as paragraph (3) and by inserting after
paragraph (1) the following:
‘‘(2) a medical savings account (within the
meaning of section 220(c)),’’,
(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 MEDICAL SAVINGS
ACCOUNTS.—For purposes of this section, in the case of
a medical savings account, the term ‘excess contributions’
means the amount by which the amount contributed for
the taxable year to the account exceeds the amount allow-
able as a deduction under section 220 for such taxable
year. For purposes of this subsection, any contribution
which is distributed out of the medical savings account
and a distribution to which section 220(d)(2) applies shall
be treated as an amount not contributed.’’
(d) 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 MEDICAL SAVINGS AC-
COUNTS.—An individual for whose benefit a medical
savings account 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 re-
spect to such transaction, the account ceases to be
paid out as reimbursements under a flexible
spending arrangement for health and disability
for the benefit of an individual are contributed
to a medical savings account (as defined in sec-
tion 220(c)) for the benefit of such individual.
‘‘(B) SPECIAL RULES.—
‘‘(i) TIMING
OF
CONTRIBUTIONS.—
Contributions made under this paragraph
shall be made on the last day of the plan
year of the cafeteria plan.
‘‘(ii) AVAILABILITY REQUIREMENT.—
Subparagraph (A) shall apply only if the
plan is available to at least 80 percent of
the employees of the employer. For pur-
poses of the preceding sentence, there shall
be excluded employees who are excluded
under section 414(q)(8) or who would be
so excluded if ‘30’ were substituted for
‘171⁄2’ in subparagraph (B) thereof.’’
(b) TREATMENT OF AMOUNTS RECEIVED BY QUALI-
FIED CASH OR DEFERRED ARRANGEMENT.—
(1) Paragraph (2) of section 401(k) of such
Code is amended by striking ‘‘and’’ at the end of
subparagraph (C), by striking the period at the end
of subparagraph (D) and inserting ‘‘, and’’, and by
adding at the end thereof the following new sub-
paragraph:
‘‘(E) which provides that, with respect to
amounts held by the trust which are attrib-
utable to contributions made to the trust pursu-
ant to section 125(d)(3)—
‘‘(i) an employee’s right to such
amounts is nonforfeitable, and
‘‘(ii) such amounts may be used only
to pay expenses (not compensated for by
insurance or otherwise) for the medical
care (as defined in section 213) of the em-
ployee, the spouse of the employee, or any
dependent (as defined in section 152) of
the employee.’’
(2) Subsection (k) of section 401 of such Code
is amended by adding at the end thereof the follow-
ing new paragraph:
‘‘(11) TREATMENT
OF
AMOUNTS
RECEIVED
FROM
MEDICAL
SAVINGS
ARRANGEMENTS.—Con-
tributions made to a trust by reason of section
125(d)(3) shall not be taken into account under
paragraph (3)(A)(ii), and subsection (l) shall not
apply to such contributions.’’
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1993.
SEC. 7. VOUCHERS FOR INDIVIDUALS ELIGIBLE TO PAR-
TICIPATE IN MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—
(1) ESTABLISHMENT OF PROGRAM.—The Sec-
retary of the Treasury shall establish a program
under which eligible individuals may obtain health
insurance vouchers to be used during such taxable
year to make payments for qualified medical ex-
penses.
(2) DEFINITIONS.—In this section, the terms
‘‘eligible individuals’’ and ‘‘qualified medical ex-
penses’’ have the meaning given such terms in sec-
tion 220(c) of the Internal Revenue Code of 1986
(as added by section 5(a)).
(b) USE OF DESIGNATED STATE AGENCIES.—Under
the program established pursuant to subsection (a), each
State shall enter into an agreement with the Secretary of
the Treasury under which an agency designated by the
State shall—
(1) receive applications from individuals resid-
ing in the State for vouchers described in subsection
(a);
(2) using forms provided by the Secretary, de-
termine whether the individual is likely to be consid-
ered an eligible individual under such subsection;
(3) if the agency determines that an individual
is likely to be considered such an eligible individual
for such taxable year, issue the individual a health
insurance voucher the value of which is equal to 50
percent of the agency’s best estimate of the total
contributions to the individual’s medical savings ac-
count (as described in section 220 of the Internal
Revenue Code of 1986) that will be available for
payments for qualified medical expenses for such
taxable year; and
(4) submit regular reports notifying the Sec-
retary of those individuals in the State to whom
such health insurance vouchers are issued during the
year and the value of such vouchers.
(c) APPLICATION PROCESS.—Each individual may
apply for 2 health insurance vouchers for a taxable year,
at 6-month intervals (or at such other intervals as may
be prescribed). In order to obtain a health insurance
voucher, an individual shall submit to the designated agen-
cy of the State in which the individual resides an applica-
tion (at such time and in such form as the State and the
Secretary may require) containing such information and
assurances as the State and the Secretary may require.
(d) APPLICATION AGAINST COSTS
OF QUALIFIED
MEDICAL EXPENSES.—A health insurance voucher issued
to an individual pursuant to this section for a year may
be presented to an entity in full or partial payment of the
entity’s charges for the individual for qualified medical ex-
penses during the year. If an individual presents the entity
with such a voucher, the entity shall accept the voucher
toward payment of the entity’s charges for the individual
for the year.
(e) PAYMENT TO PROVIDERS.—
(1) AMOUNT.—Except as otherwise provided in
this paragraph, an entity providing services for
which an eligible individual incurs qualified medical
expenses shall be entitled, upon presentation to the
Secretary (or his designee) of an individual’s voucher
and of information used by the entity to determine
the individual’s applicable charges, to payment in
the amount of the voucher.
(2) CHARGES LESS THAN VOUCHER AMOUNT.—
If the amount of a voucher issued to an individual
pursuant to this subsection is greater than the
amount of the individual’s applicable charges, the
entity shall be entitled to payment under paragraph
(1) only in the amount of the individual’s applicable
charges.
(3) OFFSETTING PAYMENTS.—If an entity has
received prepayment of an individual’s applicable
charges for any period for which the individual’s
voucher is in effect, the amount of the payment to
which the entity is otherwise entitled under para-
graph (1) shall be reduced to the extent of such
charges paid.
(4) 
ACCEPTANCE
OF
CERTAIN
IMPROPER
VOUCHERS.—The Secretary may not deny payment
under paragraph (1) to an entity because a voucher
presented for payment was erroneously issued, im-
properly transferred, forged, counterfeited, or other-
wise invalid, unless the entity had knowledge of such
invalidity at the time of its acceptance of the vouch-
er.
(f) REFUNDABLE CREDIT TO PROVIDERS.—Subpart
C of part IV of subchapter A of chapter 1 of such Code
(relating to refundable credits) is amended by redesignat-
ing section 35 as section 36 and by inserting after section
34 the following new section:
‘‘SEC. 35. HEALTH INSURANCE VOUCHERS.
‘‘There shall be allowed as a credit against the tax
imposed by this subtitle an amount equal to the aggregate