(1) IN
GENERAL.—Subsection (b) of section 
220 of the Internal Revenue Code of 1986 (relating 
to limitations) is amended by striking paragraphs 
(1), (2), and (3) and by redesignating paragraphs 
(4) through (7) as (1) through (4), respectively. 
(2) CONFORMING AMENDMENT.—Paragraph (1) 
of section 106(b) of such Code is amended by strik-
ing ‘‘to the extent’’ and all that follows and inserting 
a period. 
(b) REPEAL OF LIMITATIONS ON NUMBER OF MED-
ICAL SAVINGS ACCOUNTS.—
(1) IN GENERAL.—Subsections (i) and (j) of 
section 220 of the Internal Revenue Code of 1986 
are hereby repealed. 
(2) CONFORMING AMENDMENTS.—
(A) Paragraph (1) of section 220(c) of 
such Code is amended by striking subparagraph 
(D). 
(B) Section 138 of such Code is amended 
by striking subsection (f). 
(c) AVAILABILITY NOT LIMITED TO ACCOUNTS FOR 
EMPLOYEES
OF
SMALL
EMPLOYERS
AND
SELF-EM-
PLOYED INDIVIDUALS.—
(1) IN GENERAL.—Subparagraph (A) of section 
220(c)(1) of such Code (relating to eligible indi-
vidual) is amended to read as follows: 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any 
individual if—
‘‘(i) such individual is covered under a 
high deductible health plan as of the 1st 
day of such month, and 
‘‘(ii) such individual is not, while cov-
ered under a high deductible health plan, 
covered under any health plan—
‘‘(I) which is not a high deduct-
ible health plan, and 
‘‘(II) which provides coverage for 
any benefit which is covered under the 
high deductible health plan.’’. 
(2) CONFORMING AMENDMENTS.—
(A) Section 220(c)(1) of such Code is 
amended by striking subparagraph (C). 
(B) Section 220(c) of such Code is amend-
ed by striking paragraph (4) (defining small 
employer) and by redesignating paragraph (5) 
as paragraph (4).
(C) Section 220(b) of such Code is amend-
ed by striking paragraph (4) (relating to deduc-
tion limited by compensation) and by redesig-
nating paragraphs (5), (6), and (7) as para-
graphs (4), (5), and (6), respectively. 
(d) BOTH EMPLOYERS AND EMPLOYEES MAY CON-
TRIBUTE TO MEDICAL SAVINGS ACCOUNTS.—Paragraph 
(4) of section 220(b) of such Code (as redesignated by 
subsection (b)(2)(C)) is amended to read as follows: 
‘‘(4) COORDINATION WITH EXCLUSION FOR EM-
PLOYER
CONTRIBUTIONS.—The limitation which 
would (but for this paragraph) apply under this sub-
section to the taxpayer for any taxable year shall be 
reduced (but not below zero) by the amount which 
would (but for section 106(b)) be includible in the 
taxpayer’s gross income for such taxable year.’’. 
(e) REDUCTION
OF
PERMITTED
DEDUCTIBLES 
UNDER HIGH DEDUCTIBLE HEALTH PLANS.—
(1) IN GENERAL.—Subparagraph (A) of section 
220(c)(2) of such Code (defining high deductible 
health plan) is amended—
(A) by striking ‘‘$1,500’’ in clause (i) and 
inserting ‘‘$1,000’’; and 
(B) by striking ‘‘$3,000’’ in clause (ii) and 
inserting ‘‘$2,000’’.
(2) CONFORMING AMENDMENT.—Subsection (g) 
of section 220 of such Code is amended to read as 
follows: 
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable 
year beginning in a calendar year after 1998, each 
dollar amount in subsection (c)(2) shall be increased 
by an amount equal to—
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year in which such taxable year begins by sub-
stituting ‘calendar year 1997’ for ‘calendar year 
1992’ in subparagraph (B) thereof. 
‘‘(2) SPECIAL
RULES.—In the case of the 
$1,000 amount in subsection (c)(2)(A)(i) and the 
$2,000 amount in subsection (c)(2)(A)(ii), para-
graph (1)(B) shall be applied by substituting ‘cal-
endar year 2002’ for ‘calendar year 1997’. 
‘‘(3) ROUNDING.—If any increase under para-
graph (1) or (2) is not a multiple of $50, such in-
crease shall be rounded to the nearest multiple of 
$50.’’. 
(f) PROVIDING INCENTIVES FOR PREFERRED PRO-
VIDER ORGANIZATIONS TO OFFER MEDICAL SAVINGS AC-
COUNTS.—Clause (ii) of section 220(c)(2)(B) of such Code 
is amended by striking ‘‘preventive care if’’ and all that 
follows and inserting ‘‘preventive care.’’
(g) MEDICAL SAVINGS ACCOUNTS MAY BE OFFERED 
UNDER CAFETERIA PLANS.—Subsection (f) of section 
125 of such Code is amended by striking ‘‘106(b),’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 5. REPEAL OF 7.5 PERCENT THRESHOLD ON DEDUC-
TION FOR MEDICAL EXPENSES. 
(a) IN GENERAL.—Subsection (a) of section 213 of 
the Internal Revenue Code of 1986 (relating to deduction 
for medical expenses) is amended by striking ‘‘to the ex-
tent that such expenses exceed 7.5 percent of adjusted 
gross income’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
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