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relating to section 36 and inserting the following 
new items: 
‘‘Sec. 36. Health insurance costs. 
‘‘Sec. 37. Overpayments of tax.’’. 
(3) The table of sections for chapter 77 of such 
Code is amended by inserting after the item relating 
to section 7527 the following new item: 
‘‘Sec. 7527A. Advance payment of credit for health insurance costs.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2004. 
SEC. 502. EXCLUSION FOR EMPLOYER PAYMENTS MADE TO 
COMPENSATE EMPLOYEES WHO ELECT NOT 
TO PARTICIPATE IN EMPLOYER-SUBSIDIZED 
HEALTH PLANS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
items specifically excluded from gross income) is amended 
by inserting after section 139A the following new section: 
‘‘SEC. 139B. TREATMENT OF COMPENSATING PAYMENTS 
MADE FOR EMPLOYEES WHO ELECT NOT TO 
PARTICIPATE 
IN 
EMPLOYER-SUBSIDIZED 
HEALTH PLANS. 
‘‘(a) IN GENERAL.—Gross income of an eligible em-
ployee shall not include the amount of any compensating
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coverage payment made by an employer of such employee 
for such employee’s benefit. 
‘‘(b) ELIGIBLE EMPLOYEE.—For purposes of this 
section, the term ‘eligible employee’ means any employee 
who is eligible to participate in any subsidized health plan 
of an employer for any period and who elects not to par-
ticipate in any subsidized health plan of such employer 
for such period. 
‘‘(c) COMPENSATING
COVERAGE
PAYMENT.—For 
purposes of this section, the term ‘compensating coverage 
payment’ means— 
‘‘(1) any payment made by the employer for 
qualified health insurance specified by the employee 
(for any period for which the employee is described 
in subsection (b)) which covers all of the individuals 
who, but for the election referred to in subsection 
(b), would be covered under the subsidized health 
plan of the employer, and 
‘‘(2) any payment made by the employer to any 
Archer MSA or health savings account of such em-
ployee or spouse for a period for which the employee 
is covered by qualified health insurance. 
‘‘(d) QUALIFIED HEALTH INSURANCE.—For pur-
poses of this section, the term ‘qualified health insurance’ 
has the meaning given such term in section 36(c).
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‘‘(e) EMPLOYER PARTICIPATION.— 
‘‘(1) IN GENERAL.—This section shall apply to 
a compensating coverage payment made by an em-
ployer for an employee’s benefit only if— 
‘‘(A) the employer, and all other employers 
which are members of any controlled group 
which includes such employer, agree to make 
such payments to all their eligible employees, 
‘‘(B) the amount of such payment is not 
less than the employer health plan contribution 
for such period with respect to the employee, 
and 
‘‘(C) the employer permits the election re-
ferred to in subsection (b) to be made by em-
ployees— 
‘‘(i) at the commencement of employ-
ment with the employer, and 
‘‘(ii) during open enrollment periods 
(not less frequently than annually) of at 
least 30 days. 
‘‘(2) EXCEPTION FOR CERTAIN EMPLOYEES.— 
Paragraph (1) shall not apply to— 
‘‘(A) any employee who is covered under a 
subsidized health plan of another employer of