I 
109TH CONGRESS 
2D SESSION 
H. R. 5743 
To amend the Internal Revenue Code of 1986 to improve and expand the 
availability of health savings accounts, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 29, 2006 
Mr. RYAN of Wisconsin (for himself, Mr. CANTOR, and Ms. HART) 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 improve 
and expand the availability of health 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; AMENDMENT OF 1986 CODE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘HSA Improvement and Expansion Act of 2006’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
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shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
SEC. 2. FINDINGS. 
The Congress finds the following: 
(1) The Medicare Prescription Drug, Improve-
ment, and Modernization Act of 2003 (Public Law 
108–173) authorizes health savings accounts (re-
ferred to in this section as ‘‘HSAs’’) into which indi-
viduals may make annual contributions of not more 
than $2,700, and families may make annual con-
tributions of not more than $5,450, to permit spend-
ing by individuals for their health care needs. 
(2) Federal law provides for obtaining health 
insurance coverage through a low premium health 
plan offered with a tax-favored HSA that typically 
costs substantially less than traditional health insur-
ance. 
(3) Giving individuals more direct control over 
their health care spending will encourage more pru-
dent use of health care services, help make the 
health care system more responsive to the needs of 
consumers, and improve access to health coverage 
for the uninsured. 
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(4) A broad range of improvements to the Fed-
eral laws governing HSAs are necessary to make 
them more attractive to consumers and employers. 
(5) The number of people covered in January 
2006 by products combining an HSA with a low pre-
mium health plan was 3,168,000, more than triple 
the 1,031,000 reported in March 2005. 
(6) HSAs have become an important option for 
consumers and employers who have struggled to af-
ford health insurance coverage. 
(7) According to a January 2006 census, 31 
percent of new enrollees in HSAs and low premium 
health plans in the individual market were previously 
uninsured. 
(8) HSAs combined with low premium health 
plans can provide an affordable and accessible health 
insurance option for individuals of all ages. 
(9) 50 percent of all people covered by HSAs 
and low premium health plans in the individual mar-
ket, including dependents covered under family 
plans, are 40 years of age or older. 
(10) Many States currently have in effect laws 
and regulations that require insurers to provide spe-
cific benefit coverage in the health insurance plans 
they offer, preventing individuals and small business 
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from enrolling in low premium health plans and 
making them ineligible for HSAs. 
SEC. 3. ACCELERATED FUNDING FOR HSAS THROUGH DIS-
TRIBUTIONS FROM BALANCES IN HEALTH 
REIMBURSEMENT AND FLEXIBLE SPENDING 
ARRANGEMENTS AND FROM INDIVIDUAL RE-
TIREMENT PLANS. 
(a) ONE-TIME FSA AND HRA ROLLOVERS
TO 
HSAS.— 
(1) IN GENERAL.—A plan shall not fail to be 
treated as a flexible spending arrangement or health 
reimbursement arrangement under section 105 or 
106 of the Internal Revenue Code of 1986 merely 
because— 
(A) such plan provides for a contribution 
to the health savings account (as defined in sec-
tion 223 of such Code) of the employee which 
meets the requirements of paragraph (2), and 
(B) such plan thereafter terminates with 
respect to such employee. 
(2) REQUIREMENTS.—A contribution meets the 
requirements of this paragraph if— 
(A) in the case of a flexible spending ar-
rangement (as defined in section 106(c)(2) of 
such Code) in existence on June 1, 2006, such 
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contribution is the remaining balance in such 
arrangement as of the last day of the plan year 
ending in or before the taxable year in which 
such contribution is made, 
(B) in the case of a health reimbursement 
arrangement in existence on June 1, 2006, such 
contribution is the remaining balance of the 
amount to be received in reimbursements under 
such arrangement as of the last day of the plan 
year ending in or before the taxable year in 
which such contribution is made, and 
(C) such contribution is made by the em-
ployer directly to the health savings account of 
the employee not later than 60 days after the 
end of the plan year of such flexible spending 
arrangement or health reimbursement arrange-
ment. 
(3) TREATMENT
AS
ROLLOVER
CONTRIBU-
TION.—For purposes of sections 223 and 4973 of 
such Code, a contribution which meets the require-
ments of paragraph (2) shall be treated as a rollover 
contribution described in section 223(f)(5) of such 
Code. 
(4) TAX TREATMENT RELATING TO CONTRIBU-
TIONS.—For purposes of this title— 
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(A) INCOME TAX.—Gross income shall not 
include the amount of any contribution under 
this subsection. 
(B) EMPLOYMENT TAXES.—Amounts con-
tributed to a health savings account under this 
subsection shall be treated as a payment de-
scribed in section 106(d) of such Code. 
(C) COMPARABILITY EXCISE TAX.—Section 
4980G of such Code shall not apply to contribu-
tions made under this subsection. 
(5) TERMINATION.—This paragraph shall not 
apply to any taxable year beginning after December 
31, 2011. 
(b) ONE-TIME DISTRIBUTION FROM INDIVIDUAL RE-
TIREMENT PLANS TO FUND HSAS.— 
(1) IN GENERAL.—Section 402 (relating to tax-
ability of beneficiary of employees’ trust) is amended 
by adding at the end the following new subsection: 
‘‘(l) HEALTH SAVINGS ACCOUNT FUNDING DIS-
TRIBUTION FROM INDIVIDUAL RETIREMENT PLANS.— 
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible individual and who elects the ap-
plication of this subsection for a taxable year, gross 
income of the employee for the taxable year does not 
include a qualified HSA funding distribution to the 
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extent such distribution is otherwise includible in 
gross income (determined after the application of 
paragraph (4)). 
‘‘(2) QUALIFIED
HSA
FUNDING
DISTRIBU-
TION.—For purposes of this subsection, the term 
‘qualified HSA funding distribution’ means a dis-
tribution from an individual retirement plan of the 
employee to the extent that such distribution is con-
tributed to the health savings account of the em-
ployee not later than the 60th day after the day on 
which the employee receives such distribution or in 
a direct trustee-to-trustee transfer. 
‘‘(3) LIMITATIONS.— 
‘‘(A) 
MAXIMUM
DOLLAR
LIMITATIONS 
BASED ON OUT-OF POCKET LIMITS IN EFFECT 
AT TIME OF CONTRIBUTION.—The amount ex-
cluded from gross income by paragraph (1) 
shall not exceed— 
‘‘(i) in the case of an individual who 
has self-only coverage under a high deduct-
ible health plan as of the first day of the 
month in which the qualified HSA funding 
distribution is contributed to the health 
savings account of the employee, the 
amount in effect for the taxable year under 
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subclause (I) of section 223(c)(2)(A)(ii), 
and 
‘‘(ii) in the case of an individual who 
has family coverage under a high deduct-
ible health plan as of the first day of the 
month in which the qualified HSA funding 
distribution is contributed to the health 
savings account of the employee, the 
amount in effect for the taxable year under 
subclause (II) of section 223(c)(2)(A)(ii). 
‘‘(B) ONE-TIME TRANSFER.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), an individual may 
make an election under paragraph (1) only 
for one qualified HSA funding distribution 
during the lifetime of the individual. Such 
an election, once made, shall be irrev-
ocable. 
‘‘(ii) CONVERSION
FROM
SELF-ONLY 
TO
FAMILY
COVERAGE.—If a qualified 
HSA funding distribution is made during a 
month during which an individual has self- 
only coverage under a high deductible 
health plan as of the first day of the 
month, the individual may elect to make 
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an additional qualified HSA funding dis-
tribution during a subsequent month dur-
ing which the individual has family cov-
erage under a high deductible health plan 
as of the first day of the subsequent 
month, except that the limitation otherwise 
applicable under subparagraph (A)(ii) to 
the distribution during such subsequent 
month shall be reduced by the amount of 
the earlier qualified HSA funding distribu-
tion. 
‘‘(4) APPLICATION OF SECTION 72.—Notwith-
standing section 72, in determining the extent to 
which an amount is treated as includible in gross in-
come for purposes of paragraph (1), the aggregate 
amount distributed from an eligible retirement plan 
in a taxable year shall be treated as includible in 
gross income to the extent that such amount does 
not exceed the aggregate amount which would have 
been so includible if all amounts distributed from all 
eligible retirement plans were treated as 1 contract 
for purposes of determining the inclusion of such 
distribution under section 72. Proper adjustments 
shall be made in applying section 72 to other dis-
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tributions in such taxable year and subsequent tax-
able years. 
‘‘(5) DEFINITIONS.—For purposes of this sub-
section— 
‘‘(A) ELIGIBLE RETIREMENT PLAN.—The 
term ‘eligible retirement plan’ means an indi-
vidual retirement plan (as defined in section 
7701(a)(37)), including an individual retire-
ment plan which is designated as a Roth IRA. 
‘‘(B) ELIGIBLE
INDIVIDUAL.—The term 
‘eligible individual’ has the meaning given such 
term by section 223(c)(1). 
‘‘(6) RELATED
PLANS
TREATED
AS
1.—For 
purposes of this subsection, all eligible retirement 
plans of an employer shall be treated as a single 
plan.’’. 
(2) COORDINATION WITH LIMITATION ON CON-
TRIBUTIONS TO HSAS.—Section 223(b)(4) (relating 
to coordination with other contributions) is amended 
by striking ‘‘and’’ at the end of subparagraph (A), 
by striking the period at the end of subparagraph 
(B) and inserting ‘‘, and’’, and by inserting after 
subparagraph (B) the following new subparagraph: 
‘‘(C) the aggregate amount contributed to 
health savings accounts of such individual for 
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such taxable year under section 402(l) (and 
such amount shall not be allowed as a deduc-
tion under subsection (a)).’’. 
(3) 10-PERCENT PENALTY ON EARLY DISTRIBU-
TIONS NOT TO APPLY.—Section 72(t)(2)(A) of such 
Code (relating to subsection not to apply to certain 
distributions) is amended by striking ‘‘or’’ at the 
end of clause (vi), by striking the period at the end 
of clause (vii) and inserting ‘‘, or’’, and by inserting 
after clause (vii) the following new clause: 
‘‘(viii) a qualified HSA funding dis-
tribution (as defined by section 402(l)).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 4. PROVISIONS RELATING TO ELIGIBILITY TO CON-
TRIBUTE TO HSAS. 
(a) INDIVIDUALS ELIGIBLE FOR REIMBURSEMENT 
UNDER
SPOUSE’S
FLEXIBLE
SPENDING
ARRANGE-
MENT.—Section 223(c)(1) (defining eligible individual) is 
amended by adding at the end the following new subpara-
graph: 
‘‘(C) SPECIAL RULE FOR CERTAIN FLEXI-
BLE SPENDING ARRANGEMENTS.—For purposes 
of subparagraph (A)(ii), an individual shall not 
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be treated as covered under a health plan de-
scribed in such subparagraph merely because 
the individual is covered under a flexible spend-
ing arrangement (within the meaning of section 
106(c)(2)) which is maintained by an employer 
of the spouse of the individual, but only if— 
‘‘(i) the employer is not also the em-
ployer of the individual, and 
‘‘(ii) the individual certifies to the em-
ployer and to the Secretary (in such form 
and manner as the Secretary may pre-
scribe) that the individual and the individ-
ual’s spouse will not accept reimbursement 
under the arrangement for any expenses 
for medical care provided to the indi-
vidual.’’. 
(b) INDIVIDUALS OVER AGE 65 AUTOMATICALLY EN-
ROLLED IN MEDICARE PART A.—Section 223(b)(7) (re-
lating to contribution limitation on medicare eligible indi-
viduals) is amended by adding at the end the following 
new sentence: ‘‘This paragraph shall not apply to any indi-
vidual during any period the individual’s only entitlement 
to such benefits is an entitlement to hospital insurance 
benefits under part A of title XVIII of such Act pursuant 
to an automatic enrollment for such hospital insurance 
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benefits under the regulations under section 226(a)(1) of 
such Act.’’ 
(c) INDIVIDUALS ELIGIBLE FOR CERTAIN VETERANS 
BENEFITS.—Section 223(c)(1) (defining eligible indi-
vidual), as amended by subsection (a), is amended by add-
ing at the end the following new subparagraph: 
‘‘(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.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 5. PROVISIONS RELATING TO CONTRIBUTION AND 
LOW PREMIUM HEALTH PLAN LIMITS. 
(a) INCREASE
IN
CONTRIBUTION
LIMITS
FOR 
HSAS.— 
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(1) INCREASE IN MONTHLY LIMIT.— 
(A) IN GENERAL.—Paragraph (2) of sec-
tion 223(b) (relating to monthly limitation) is 
amended to read as follows: 
‘‘(2) MONTHLY LIMITATION.—In the case of an 
eligible individual who has coverage under a high de-
ductible health plan, the monthly limitation for any 
month of such coverage is 1⁄12 of— 
‘‘(A) in the case of an eligible individual 
who has self-only coverage under a high deduct-
ible health plan as of the first day of such 
month, $2,700, and 
‘‘(B) in the case of an eligible individual 
who has family coverage under a high deduct-
ible health plan as of the first day of such 
month, $5,450.’’. 
(B) CONFORMING AMENDMENTS.— 
(i) 
Section 
223(d)(1)(A)(ii)(I) 
is 
amended 
by 
striking 
‘‘subsection 
(b)(2)(B)(ii)’’ and inserting ‘‘subsection 
(b)(2)(B)’’. 
(ii) Section 223(c)(2)(D) is amended 
to read as follows: 
‘‘(D) 
SPECIAL
RULE
FOR
NETWORK 
PLANS.—In the case of a plan using a network 
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of providers, such plan shall not fail to be treat-
ed as a high deductible health plan by reason 
of having an out-of-pocket limitation for serv-
ices provided outside of such network which ex-
ceeds the applicable limitation under subpara-
graph (A)(ii).’’. 
(2) INCREASE IN LIMIT FOR INDIVIDUALS BE-
COMING ELIGIBLE INDIVIDUALS AFTER THE BEGIN-
NING OF THE YEAR.—Section 223(b) (relating to 
limitations) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) INCREASE IN LIMIT FOR INDIVIDUALS BE-
COMING ELIGIBLE INDIVIDUALS AFTER THE BEGIN-
NING OF THE YEAR.—An individual who first be-
comes an eligible individual during a calendar year 
in a month after January of the calendar year shall, 
for purposes of computing the limitation under para-
graph (1) for any taxable year, be treated as having 
been an eligible individual during each of the months 
in such calendar year preceding such first month 
(and as having been enrolled in each of those 
months in the same high deductible health plan the 
individual was enrolled in for such first month).’’. 
(3) APPLICATION OF SPECIAL RULES FOR MAR-
RIED
INDIVIDUALS.—Paragraph (5) of section 
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223(b) (relating to special rule for married individ-
uals) is amended to read as follows: 
‘‘(5) SPECIAL RULES FOR MARRIED INDIVID-
UALS.— 
‘‘(A) IN GENERAL.—In the case of individ-
uals who are married to each other and who are 
both eligible individuals, the limitation under 
paragraph (1) for each spouse shall be equal to 
the spouse’s applicable share of the excess (if 
any) of— 
‘‘(i) the dollar amount in effect under 
paragraph (2)(B) (without regard to any 
additional contribution amounts under 
paragraph (3)), over 
‘‘(ii) the aggregate amount paid to 
Archer MSAs of such spouses for the tax-
able year. 
‘‘(B) APPLICABLE SHARE.—For purposes 
of subparagraph (A), a spouse’s applicable 
share is one-half of the limitation under sub-
paragraph (A) unless both spouses agree on a 
different division.’’ 
(4) SELF-ONLY COVERAGE.—Section 223(c)(4) 
(defining family coverage) is amended to read as fol-
lows: 
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‘‘(4) COVERAGE.— 
‘‘(A) FAMILY COVERAGE.—The term ‘fam-
ily coverage’ means any coverage other than 
self-only coverage. 
‘‘(B) SELF-ONLY
COVERAGE.—If more 
than 1 individual is covered by a high deduct-
ible health plan but only 1 of the individuals is 
an eligible individual, the coverage shall be 
treated as self-only coverage.’’. 
(b) FAMILY PLAN MAY HAVE INDIVIDUAL ANNUAL 
DEDUCTIBLE LIMIT.—Section 223(c)(2) (defining high 
deductible health plan) is amended by adding at the end 
the following new subparagraph: 
‘‘(E) SPECIAL
RULE
FOR
FAMILY
COV-
ERAGE.—A health plan providing family cov-
erage shall not fail to meet the requirements of 
subparagraph (A)(i)(II) merely because the 
plan elects to provide both— 
‘‘(i) an aggregate annual deductible 
limit for all individuals covered by the plan 
which is not less than the amount in effect 
under subparagraph (A)(i)(II), and 
‘‘(ii) an annual deductible limit for 
each individual covered by the plan which 
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is not less than the amount in effect under 
subparagraph (A)(i)(I).’’. 
(c) COST-OF-LIVING ADJUSTMENTS COMPUTED EAR-
LIER IN THE CALENDAR YEAR.—Paragraph (1) of section 
223(g) (relating to cost-of-living adjustment) is amended 
by adding at the end the following new flush sentence: 
‘‘In the case of any taxable year beginning after 
2006, section 1(f)(4) shall be applied for purposes of 
this paragraph by substituting ‘March 31’ for ‘Au-
gust 31’ and the Secretary shall publish the adjusted 
amounts under subsections (b)(2) and (c)(2)(A) for 
taxable years beginning in any calendar year no 
later than June 1 of the preceding calendar year.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 6. DEFINITION OF QUALIFIED MEDICAL EXPENSES. 
(a) PREMIUMS FOR LOW PREMIUM HEALTH PLANS 
TREATED
AS QUALIFIED MEDICAL EXPENSES.—Sub-
paragraph (C) of section 223(d)(2) is amended by striking 
‘‘or’’ at the end of clause (iii), by striking the period at 
the end of clause (iv) and inserting ‘‘, or’’, and by adding 
at the end the following new clause: 
‘‘(v) a high deductible health plan, but 
only if the expenses are for coverage for a 
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month with respect to which the account 
beneficiary is an eligible individual by rea-
son of the coverage under the plan.’’. 
(b) SPECIAL RULE
FOR CERTAIN MEDICAL EX-
PENSES INCURRED BEFORE ESTABLISHMENT
OF AC-
COUNT.—Paragraph (2) of section 223(d) is amended by 
adding at the end the following new subparagraph: 
‘‘(D) CERTAIN
MEDICAL
EXPENSES
IN-
CURRED BEFORE ESTABLISHMENT OF ACCOUNT 
TREATED AS QUALIFIED.—An expense shall not 
fail to be treated as a qualified medical expense 
solely because such expense was incurred before 
the establishment of the health savings account 
if such expense was incurred— 
‘‘(i) during either— 
‘‘(I) the taxable year in which the 
health savings account was estab-
lished, or 
‘‘(II) the preceding taxable year 
in the case of a health savings ac-
count established after the taxable 
year in which such expense was in-
curred but before the time prescribed 
by law for filing the return for such 
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taxable year (not including extensions 
thereof), and 
‘‘(ii) for medical care of an individual 
during a period that such individual was 
an eligible individual. 
For purposes of clause (ii), an individual shall 
be treated as an eligible individual for any por-
tion of a month 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.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
Æ 
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