shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
(c) TABLE OF CONTENTS.—The table of contents is 
as follows: 
Sec. 1. Short title, etc. 
Sec. 2. Health reimbursement arrangements and spending arrangements in 
combination with health savings accounts. 
Sec. 3. Increase in annual HSA contribution limitation. 
Sec. 4. Purchase of health insurance from HSA account. 
Sec. 5. Special rule for certain medical expenses incurred before establishment 
of account. 
Sec. 6. Provisions relating to Medicare. 
Sec. 7. Individuals eligible for veterans benefits for a service-connected dis-
ability. 
Sec. 8. Allow both spouses to make catch-up contributions to the same HSA 
account. 
Sec. 9. FSA and HRA Termination to fund HSAs. 
SEC. 2. HEALTH REIMBURSEMENT ARRANGEMENTS AND 
SPENDING ARRANGEMENTS IN COMBINATION 
WITH HEALTH SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Subparagraph (B) of section 
223(c)(1) (relating to certain coverage disregarded) is 
amended by striking ‘‘and’’ at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting 
‘‘, and’’, and by inserting after clause (iii) the following 
new clause: 
‘‘(iv) coverage under a flexible spend-
ing arrangement or a health reimburse-
ment arrangement, or both, which meets 
the requirements of paragraph (6).’’. 
(b) COMBINATION HEALTH REIMBURSEMENT, SAV-
INGS, AND SPENDING ARRANGEMENTS.—Subsection (c) of 
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section 223 (relating to definitions and special rules) is 
amended by adding at the end the following new para-
graph: 
‘‘(6) COMBINED LIMIT FOR CONTRIBUTIONS OR 
CREDITS TO HEALTH REIMBURSEMENT, ARRANGE-
MENTS AND SPENDING ARRANGEMENTS.— 
‘‘(A) IN GENERAL.—In the case of cov-
erage under a flexible spending arrangement or 
a health reimbursement arrangement, or both, 
such coverage meets the requirements of this 
paragraph if, with respect to an individual— 
‘‘(i) the sum of— 
‘‘(I) the amount allowable as a 
deduction under subsection (a), 
‘‘(II) 
the 
salary 
reduction 
amount elected by the individual and, 
if applicable, the employer contribu-
tion or credit allocated to the indi-
vidual for the taxable year under the 
flexible spending arrangement (as de-
fined in section 106(c)(2)), plus 
‘‘(III) the amounts that the indi-
vidual is permitted, under the terms 
of the plan, to receive in reimburse-
ments for the taxable year under the 
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health reimbursement arrangement, 
does not exceed 
‘‘(ii) the sum of the annual deductible 
and the other annual out-of-pocket ex-
penses (other than for premiums) required 
to be paid under the plan by the eligible 
individual for covered benefits. 
‘‘(B) EXCEPTIONS FOR DISREGARDED COV-
ERAGE.—For purposes of subparagraph (A)— 
‘‘(i) CERTAIN
FLEXIBLE
SPENDING 
ARRANGEMENTS.—Any flexible spending 
arrangement salary reduction amounts or 
employer contributions or credits that are 
restricted by the employer to use for cov-
erage described in paragraph (1)(B) shall 
not be taken into account under subpara-
graph (A)(i)(II). 
‘‘(ii) CERTAIN
HEALTH
REIMBURSE-
MENT
ARRANGEMENTS.—Any reimburse-
ments from a health reimbursement ar-
rangement for coverage described in para-
graph (1)(B) shall not be taken into ac-
count under subparagraph (A)(i)(III). 
‘‘(iii) QUALIFIED HSA DISTRIBUTIONS 
FROM FSA AND HRA TERMINATIONS.—Any 
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qualified HSA distribution (as defined in 
section 106(e)) shall not be taken into ac-
count under subparagraph (A)(i). 
‘‘(C) TERMINATION.—Coverage shall not 
be treated as meeting the requirements of this 
paragraph for any taxable year beginning after 
December 31, 2012.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
SEC. 3. INCREASE IN ANNUAL HSA CONTRIBUTION LIMITA-
TION. 
(a) IN GENERAL.—Paragraph (2) of section 223(b) 
(relating to monthly limitation) is amended— 
(1) in subparagraph (A) by striking ‘‘$2,250’’ 
and inserting ‘‘$4,500’’, and 
(2) in subparagraph (B) by striking ‘‘$4,500’’ 
and inserting ‘‘$9,000’’. 
(b) 
COST-OF-LIVING
ADJUSTMENT.—Section 
223(g)(1)(B)(i) is amended by striking ‘‘calendar year 
1997’’ and inserting ‘‘calendar year 2007’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2007. 
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SEC. 4. PURCHASE OF HEALTH INSURANCE FROM HSA AC-
COUNT. 
(a) IN GENERAL.—Paragraph (2) of section 223(d) 
(defining qualified medical expenses) is amended— 
(1) by striking subparagraphs (B) and (C), 
(2) in subparagraph (A) by striking ‘‘(A) IN 
GENERAL.—’’ and moving the text 2 ems to the left, 
and 
(3) by inserting ‘‘ and including payment for in-
surance)’’ after ‘‘section 213(d)’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to insurance pur-
chased after the date of the enactment of this Act in tax-
able years beginning after such date. 
SEC. 5. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 
INCURRED BEFORE ESTABLISHMENT OF AC-
COUNT. 
(a) IN GENERAL.—Subsection (d) of section 223, as 
amended by section 4, is amended by redesignating para-
graph (4) as paragraph (5) and by inserting after para-
graph (3) the following new paragraph: 
‘‘(4) CERTAIN MEDICAL EXPENSES INCURRED 
BEFORE ESTABLISHMENT OF ACCOUNT TREATED AS 
QUALIFIED.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (2), an expense shall not fail to be treat-
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ed as a qualified medical expense solely because 
such expense was incurred before the establish-
ment of the health savings account if such ex-
pense was incurred during the 60-day period 
beginning on the date on which the high de-
ductible health plan is first effective. 
‘‘(B) SPECIAL
RULES.—For purposes of 
subparagraph (A)— 
‘‘(i) an individual shall be treated as 
an eligible individual for any portion of a 
month for which the individual is described 
in subsection (c)(1), determined without 
regard to whether the individual is covered 
under a high deductible health plan on the 
1st day of such month, and 
‘‘(ii) the effective date of the health 
savings account is deemed to be the date 
on which the high deductible health plan is 
first effective after the date of the enact-
ment of this paragraph.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to insurance pur-
chased after the date of the enactment of this Act in tax-
able years beginning after such date. 
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SEC. 6. PROVISIONS RELATING TO MEDICARE. 
(a) INDIVIDUALS OVER AGE 65 ONLY ENROLLED IN 
MEDICARE PART A.—Section 223(b)(7) (relating to con-
tribution limitation on Medicare eligible individuals) is 
amended by adding at the end the following new sentence: 
‘‘This paragraph shall not apply to any individual during 
any period the individual’s only entitlement to such bene-
fits is an entitlement to hospital insurance benefits under 
part A of title XVIII of such Act pursuant to an enroll-
ment for such hospital insurance benefits under section 
226(a)(1) of such Act.’’. 
(b) MEDICARE BENEFICIARIES PARTICIPATING
IN 
MEDICARE ADVANTAGE MSA MAY CONTRIBUTE THEIR 
OWN MONEY TO THEIR MSA.—Subsection (b) of section 
138 is amended by striking paragraph (2) and redesig-
nating paragraphs (3) and (4) as paragraphs (2) and (3), 
respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 7. INDIVIDUALS ELIGIBLE FOR VETERANS BENEFITS 
FOR A SERVICE-CONNECTED DISABILITY. 
(a) IN GENERAL.—Section 223(c)(1) (defining eligi-
ble individual) is amended by adding at the end the fol-
lowing new subparagraph: 
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‘‘(D) SPECIAL RULE FOR INDIVIDUALS EL-
IGIBLE FOR CERTAIN VETERANS BENEFITS.— 
For purposes of subparagraph (A)(ii), an indi-
vidual shall not be treated as covered under a 
health plan described in such subparagraph 
merely because the individual receives periodic 
hospital care or medical services for a service- 
connected disability under any law administered 
by the Secretary of Veterans Affairs but only if 
the individual is not eligible to receive such care 
or services for any condition other than a serv-
ice-connected disability.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 8. ALLOW BOTH SPOUSES TO MAKE CATCH-UP CON-
TRIBUTIONS TO THE SAME HSA ACCOUNT. 
(a) IN GENERAL.—Paragraph (3) of section 223(b) 
is amended by adding at the end the following new sub-
paragraph: 
‘‘(C) 
SPECIAL
RULE
WHERE
BOTH 
SPOUSES ARE ELIGIBLE INDIVIDUALS WITH 1 
ACCOUNT.—If— 
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‘‘(i) an individual and the individual’s 
spouse have both attained age 55 before 
the close of the taxable year, and 
‘‘(ii) the spouse is not an account ben-
eficiary of a health savings account as of 
the close of such year, 
the additional contribution amount shall be 200 
percent of the amount otherwise determined 
under subparagraph (B).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 9. FSA AND HRA TERMINATION TO FUND HSAS. 
(a) 
GRACE
PERIOD
NOT
REQUIRED.—Section 
106(e)(2) of the Internal Revenue Code of 1986 is amend-
ed by adding at the end the following new sentence: ‘‘A 
distribution shall not fail to be treated as a qualified HSA 
distribution merely because the balance in such arrange-
ment is determined without regard to the requirement that 
unused amounts remaining at the end of a plan year must 
be forfeited in the absence of a grace period.’’. 
(b) DEPOSIT IN LIMITED FSA OR HRA OF FUNDS 
IN EXCESS FSA OR HRA TERMINATION DISTRIBU-
TION.—Paragraph (1) of section 106(e) of such Code is 
amended by inserting before the period at the end thereof 
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the following: ‘‘and the deposit of funds in excess of a 
qualified HSA distribution amount into a health flexible 
spending account or health reimbursement arrangement 
which is compatible with a health savings account and 
which, on the date of such distribution, is a part of the 
employer’s plan’’. 
(c) DISCLAIMER OF DISQUALIFYING COVERAGE.— 
Subparagraph (B) of section 223(c)(1) of such Code is 
amended by striking ‘‘and’’ at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting 
‘‘, and’’, and by inserting after clause (iii) the following 
new clause: 
‘‘(iv) any coverage (whether actual or 
prospective) otherwise described in sub-
paragraph (A)(ii) which is disclaimed at 
the time of the creation or organization of 
the health savings account.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
Æ 
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