I 
115TH CONGRESS 
2D SESSION 
H. R. 5138 
To amend the Internal Revenue Code of 1986 to improve access to health 
care through modernized health savings accounts. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 1, 2018 
Mr. KELLY of Pennsylvania (for himself, Mr. BLUMENAUER, Mr. PAULSEN, 
Mr. KIND, Ms. SEWELL of Alabama, and Mr. FITZPATRICK) 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 
access to health care through modernized health savings 
accounts. 
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 ‘‘Bipartisan HSA Im-
provement Act of 2018’’. 
SEC. 2. EXCEPTED BENEFITS ALLOWED AS PERMITTED IN-
SURANCE. 
(a) IN GENERAL.—Paragraph (3) of section 223(c) 
of the Internal Revenue Code of 1986 is amended— 
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(1) by redesignating subparagraphs (B) and 
(C) as subparagraphs (C) and (D), respectively; and 
(2) by inserting the following new subpara-
graph: 
‘‘(B) insurance consisting of coverage for 
any excepted benefits described in section 
9832(c),’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years after the date of 
the enactment of this Act. 
SEC. 3. ON-SITE EMPLOYEE CLINICS AND RETAIL CLINICS. 
(a) IN GENERAL.—Paragraph (1) of section 223(c) 
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph: 
‘‘(D) SPECIAL
RULE
FOR
QUALIFIED 
ITEMS AND SERVICES.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A)(ii), an individual shall 
not be treated as covered under a health 
plan for purposes of subparagraph (A)(ii) 
merely because the individual is eligible to 
receive, or receives, qualified items and 
services at— 
‘‘(I) a healthcare facility located 
at a facility owned or leased by the 
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employer of the individual (or of the 
individual’s spouse), or operated pri-
marily for the benefit of such employ-
er’s employees, or 
‘‘(II) a retail health clinic. 
‘‘(ii) QUALIFIED ITEMS AND SERVICES 
DEFINED.—For purposes of this subpara-
graph, the term ‘qualified items and serv-
ices’ means the following: 
‘‘(I) Primary care including phys-
ical examination. 
‘‘(II) Immunizations, including 
injections of antigens provided by em-
ployees. 
‘‘(III) Drugs or biologicals other 
than a prescribed drug (as such term 
is defined in section 213(d)(3)). 
‘‘(IV) Treatment for injuries oc-
curring in the course of employment. 
‘‘(V) Tests for conditions or in-
fectious diseases. 
‘‘(VI) Management of medically 
complex chronic conditions. 
‘‘(VII) Drug testing. 
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‘‘(VIII) 
Hearing 
or 
vision 
screenings and related services. 
‘‘(IX) Other similar items and 
services. 
‘‘(iii) RETAIL
HEALTH
CLINIC
DE-
FINED.—For purposes of this subpara-
graph, the term ‘retail health clinic’ means 
a health care facility located within a su-
permarket, pharmacy, or similar retail es-
tablishment that offers urgent care by a li-
censed healthcare provider. 
‘‘(iv) AGGREGATION.—For purposes 
of clause (i), all persons treated as a single 
employer under subsection (b), (c), (m), or 
(o) of section 414 shall be treated as a sin-
gle employer.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to months in taxable years begin-
ning after the date of enactment of this Act. 
SEC. 4. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A 
HEALTH FLEXIBLE SPENDING ACCOUNT. 
(a) CONTRIBUTIONS PERMITTED IF SPOUSE HAS A 
HEALTH
FLEXIBLE
SPENDING
ACCOUNT.—Subpara-
graph (B) of section 223(c)(1) of the Internal Revenue 
Code of 1986 is amended by striking ‘‘and’’ at the end 
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of clause (ii), by striking the period at the end of clause 
(iii) and inserting ‘‘, and’’, and by inserting after clause 
(iii) the following: 
‘‘(iv) coverage under a health flexible 
spending arrangement of the spouse of the 
individual.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 5. DEPENDENTS TO INCLUDE CHILDREN UP TO AGE 
26. 
(a) IN GENERAL.—Subparagraph (A) of section 
223(d)(2) of the Internal Revenue Code of 1986 is amend-
ed by striking ‘‘and any dependent (as defined in section 
152, determined without regard to subsections (b)(1), 
(b)(2), and (d)(1)(B) thereof) of such individual’’ in sub-
paragraph (A) and inserting ‘‘any dependent (as defined 
in section 152, determined without regard to subsections 
(b)(1), (b)(2), and (d)(1)(B) thereof) of such individual, 
and any child (as defined in section 152(f)(A)) of such 
individual who has not attained the age of 27 before the 
end of such individual’s taxable year’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to qualified medical 
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expenses incurred in taxable years beginning after the 
date of the enactment of this Act. 
SEC. 6. FSA AND HRA INTERACTION WITH HSAS. 
(a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 
PARTICIPANTS.—Subparagraph (B) of section 223(c)(1) 
of the Internal Revenue Code of 1986, as amended by this 
Act, is amended by striking ‘‘and’’ at the end of clause 
(iii), by striking the period at the end of clause (iv) and 
inserting ‘‘, and’’, and by inserting after clause (iv) the 
following new clause: 
‘‘(v) coverage under a health flexible 
spending arrangement or a health reim-
bursement arrangement in the plan year a 
qualified HSA distribution as described in 
section 106(e) is made on behalf of the in-
dividual if, after the qualified HSA dis-
tribution is made and for the remaining 
duration of the plan year, the coverage 
provided under the arrangement is con-
verted solely to one or more of the fol-
lowing: 
‘‘(I) POST-DEDUCTIBLE
FSA
OR 
HRA.—A health flexible spending ar-
rangement or a health reimbursement 
arrangement that does not pay or re-
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‘‘(IV) LIMITED PURPOSE HRA.— 
A health reimbursement arrangement 
that, after the qualified HSA distribu-
tion is made, pays or reimburses bene-
fits for permitted insurance or cov-
erage described in clause (ii) (but not 
for long-term care services). 
‘‘(V) 
RETIREMENT
HRA.—A 
health reimbursement arrangement 
that, after the qualified HSA distribu-
tion is made, pays or reimburses only 
those medical expenses incurred after 
an individual’s retirement (and no ex-
penses incurred before retirement). 
‘‘(VI) 
SUSPENDED
HRA.—A 
health reimbursement arrangement 
that, after the qualified HSA distribu-
tion is made, is suspended, pursuant 
to an election made on or before the 
date the individual elects a qualified 
HSA distribution or, if later, on the 
date of the individual enrolls in an 
HSA-qualified health plan, that does 
not pay or reimburse, at any time, 
any medical expense incurred during 
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the suspension period except as de-
scribed in the preceding subclauses of 
this clause.’’. 
(b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF-
FECT FLEXIBLE SPENDING ARRANGEMENT.—Paragraph 
(1) of section 106(e) of such Code is amended to read 
as follows: 
‘‘(1) IN GENERAL.—A plan shall not fail to be 
treated as— 
‘‘(A) a health flexible spending arrange-
ment under this section, section 105, or section 
125, 
‘‘(B) a health reimbursement arrangement 
under this section or section 105, or 
‘‘(C) an accident or health plan, 
merely because such plan provides for a qualified 
HSA distribution.’’. 
(c) FSA BALANCES AT YEAR END SHALL NOT FOR-
FEIT.—Paragraph (2) of section 125(d) of such Code is 
amended by adding at the end the following new subpara-
graph: 
‘‘(E) EXCEPTION FOR QUALIFIED HSA DIS-
TRIBUTIONS.—Subparagraph 
(A) 
shall 
not 
apply to the extent that there is an amount re-
maining in a health flexible spending account at 
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the end of a plan year that an individual elects 
to contribute to a health savings account pursu-
ant to a qualified HSA distribution (as defined 
in section 106(e)(2)).’’. 
(d) SIMPLIFICATION OF LIMITATIONS ON FSA AND 
HRA ROLLOVERS.—Paragraph (2) of section 106(e) of 
such Code is amended to read as follows: 
‘‘(2) QUALIFIED HSA DISTRIBUTION.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
HSA distribution’ means a distribution from a 
health flexible spending arrangement or health 
reimbursement arrangement directly to a health 
savings account of the employee to the extent 
that such distribution does not exceed the lesser 
of— 
‘‘(i) the balance in such arrangement 
as of the date of such distribution, or 
‘‘(ii) the amount determined under 
subparagraph (B). 
Such term shall not include more than 1 dis-
tribution with respect to any arrangement. 
‘‘(B) DOLLAR LIMITATIONS.— 
‘‘(i) DISTRIBUTIONS FROM A HEALTH 
FLEXIBLE
SPENDING
ARRANGEMENT.—A 
qualified HSA distribution from a health 
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flexible spending arrangement shall not ex-
ceed the applicable amount. 
‘‘(ii) DISTRIBUTIONS FROM A HEALTH 
REIMBURSEMENT
ARRANGEMENT.—A 
qualified HSA distribution from a health 
reimbursement arrangement shall not ex-
ceed— 
‘‘(I) the applicable amount di-
vided by 12, multiplied by 
‘‘(II) the number of months dur-
ing which the individual is a partici-
pant in the health reimbursement ar-
rangement. 
‘‘(iii) 
APPLICABLE
AMOUNT.—For 
purposes of this subparagraph, the applica-
ble amount is— 
‘‘(I) $2,250 in the case of an eli-
gible individual who has self-only cov-
erage under an HSA-qualified health 
plan at the time of such distribution, 
and 
‘‘(II) $4,500 in the case of an eli-
gible individual who has family cov-
erage under an HSA-qualified health 
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plan at the time of such distribu-
tion.’’. 
(e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE 
TO MAINTAIN HSA-QUALIFIED HEALTH PLAN COV-
ERAGE.—Subsection (e) of section 106 of such Code is 
amended— 
(1) by striking subparagraph (A) of paragraph 
(4) and redesignating subparagraphs (B) and (C) of 
such paragraph as subparagraphs (A) and (B) 
thereof, respectively; and 
(2) by striking paragraph (3) and redesignating 
paragraphs (4) (as so amended) and (5) as para-
graphs (3) and (4), respectively. 
(f) LIMITED PURPOSE FSAS
AND HRAS.—Sub-
section (e) of section 106 of such Code, as amended by 
this section, is amended by adding at the end the following 
new paragraph: 
‘‘(5) LIMITED PURPOSE FSAS AND HRAS.—A 
plan shall not fail to be a health flexible spending 
arrangement, a health reimbursement arrangement, 
or an accident or health plan under this section or 
section 105 merely because the plan converts cov-
erage for individuals who enroll in an HSA-qualified 
health plan described in section 223(c)(2) to cov-
erage described in subclause (I), (II), (III), (IV), 
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(V), or (VI) of section 223(c)(1)(B)(iv). Coverage 
for such individuals may be converted as of the date 
of enrollment in the HSA-qualified health plan, 
without regard to the period of coverage under the 
health flexible spending arrangement or health reim-
bursement arrangement, and without requiring any 
change in coverage to individuals who do not enroll 
in an HSA-qualified health plan.’’. 
(g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST- 
OF-LIVING.—Subsection (e) of section 106 of such Code, 
as amended by this section, is amended by adding at the 
end the following new paragraph: 
‘‘(6) COST-OF-LIVING ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2018, each of the dollar amounts in paragraph 
(2)(B)(iii) shall be increased by an amount 
equal to such dollar amount, multiplied by the 
cost-of-living adjustment determined under sec-
tion 1(f)(3) for the calendar year in which such 
taxable year begins by substituting ‘calendar 
year 2017’ for ‘calendar year 1992’ in subpara-
graph (B) thereof. 
‘‘(B) ROUNDING.—If any increase under 
paragraph (1) is not a multiple of $50, such in-
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crease shall be rounded to the nearest multiple 
of $50.’’. 
(h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 
Subparagraph (B) of section 223(c)(1) of such Code, as 
amended by this section, is amended by striking ‘‘and’’ 
at the end of clause (iv), by striking the period at the end 
of clause (v) and inserting ‘‘, and’’, and by inserting after 
clause (v) the following new clause: 
‘‘(iv) any coverage (including prospec-
tive coverage) under a health plan that is 
not an HSA-qualified health plan which is 
disclaimed in writing, at the time of the 
creation or organization of the health sav-
ings account, including by execution of a 
trust 
described 
in 
subsection 
(d)(1) 
through a governing instrument that in-
cludes such a disclaimer, or by acceptance 
of an amendment to such a trust that in-
cludes such a disclaimer.’’. 
(i) 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. CHRONIC DISEASE PREVENTION. 
(a) IN GENERAL.—Section 223(c)(2) of the Internal 
Revenue Code of 1986 is amended by redesignating sub-
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paragraph (D) as subparagraph (E) and by inserting after 
subparagraph (C) the following new subparagraph: 
‘‘(D) SAFE HARBOR FOR ABSENCE OF DE-
DUCTIBLE
FOR
CARE
RELATED
TO
CHRONIC 
CONDITIONS.—A plan shall not fail to be treat-
ed as a high deductible health plan by reason 
of failing to have a deductible for care and pre-
scription medications related to the treatment 
of medically complex chronic conditions which— 
‘‘(i) are substantially disabling or life 
threatening, 
‘‘(ii) have a high risk of hospitaliza-
tion or other significant adverse health 
outcomes, and 
‘‘(iii) require specialized delivery sys-
tems across domains of care.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to coverage for months beginning 
after the date of the enactment of this Act. 
SEC. 8. CERTAIN AMOUNTS PAID FOR PHYSICAL ACTIVITY, 
FITNESS, 
AND 
EXERCISE 
TREATED 
AS 
AMOUNTS PAID FOR MEDICAL CARE. 
(a) IN GENERAL.—Section 213(d)(1) of the Internal 
Revenue Code of 1986 is amended by striking ‘‘or’’ at the 
end of subparagraph (C), by striking the period at the end 
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of subparagraph (D) and inserting ‘‘, or’’, and by inserting 
after subparagraph (D) the following new subparagraph: 
‘‘(E) for qualified sports and fitness ex-
penses.’’. 
(b) QUALIFIED SPORTS AND FITNESS EXPENSES.— 
Section 213(d) of such Code, as amended by this Act, is 
amended by adding at the end the following paragraph: 
‘‘(13) QUALIFIED
SPORTS
AND
FITNESS
EX-
PENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
sports and fitness expenses’ means amounts 
paid exclusively for the sole purpose of partici-
pating in a physical activity including— 
‘‘(i) for membership at a fitness facil-
ity, 
‘‘(ii) for participation or instruction in 
a program of physical exercise or physical 
activity, and 
‘‘(iii) for equipment for use in a pro-
gram (including a self-directed program) of 
physical exercise or physical activity. 
‘‘(B) OVERALL DOLLAR LIMITATION.—The 
aggregate amount treated as qualified sports 
and fitness expenses with respect to any tax-
payer for any taxable year shall not exceed 
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$1,000 ($2,000 in the case of a joint return or 
a head of household (as defined in section 
2(b))). 
‘‘(C) FITNESS
FACILITY
DEFINED.—For 
purposes of subparagraph (A)(i), the term ‘fit-
ness facility’ means a facility— 
‘‘(i) providing instruction in a pro-
gram of physical exercise, offering facilities 
for the preservation, maintenance, encour-
agement, or development of physical fit-
ness, or serving as the site of such a pro-
gram of a State or local government, 
‘‘(ii) which is not a private club owned 
and operated by its members, 
‘‘(iii) which does not offer golf, hunt-
ing, sailing, or riding facilities, 
‘‘(iv) whose health or fitness facility is 
not incidental to its overall function and 
purpose, and 
‘‘(v) which is fully compliant with the 
State of jurisdiction and Federal anti-dis-
crimination laws. 
‘‘(D) TREATMENT OF EXERCISE VIDEOS, 
ETC.—Videos, books, and similar materials 
shall be treated as described in subparagraph 
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(A)(ii) if the content of such materials con-
stitute instruction in a program of physical ex-
ercise or physical activity. 
‘‘(E) LIMITATIONS
RELATED
TO
SPORTS 
AND FITNESS EQUIPMENT.—Amounts paid for 
equipment described in subparagraph (A)(iii) 
shall be treated as a qualified sports and fitness 
expense only— 
‘‘(i) if such equipment is utilized ex-
clusively for participation in fitness, exer-
cise, sport, or other physical activity pro-
grams, 
‘‘(ii) if such equipment is not apparel 
or footwear, and 
‘‘(iii) in the case of any item of sports 
equipment (other than exercise equip-
ment), with respect to so much of the 
amount paid for such item as does not ex-
ceed $250. 
‘‘(F) PROGRAMS WHICH INCLUDE COMPO-
NENTS OTHER THAN PHYSICAL EXERCISE AND 
PHYSICAL ACTIVITY.—Rules similar to the rules 
of section 213(d)(6) shall apply in the case of 
any program that includes physical exercise or 
physical activity and also other components. 
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For purposes of the preceding sentence, travel 
and accommodations shall be treated as an 
other component.’’. 
(c) 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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