I
104TH CONGRESS
1ST SESSION
H. R. 1818
To amend the Internal Revenue Code of 1986 to allow a deduction for
contributions to a medical savings account by any individual who is
covered under a catastrophic coverage health plan.
IN THE HOUSE OF REPRESENTATIVES
JUNE 13, 1995
Mr. ARCHER (for himself, Mr. JACOBS, Mr. THOMAS, Mr. DELAY, Mr.
CRANE, Mr. SHAW, Mr. BUNNING of Kentucky, Mr. HOUGHTON, Mr.
HERGER, Mr. MCCRERY, Mr. HANCOCK, Mr. CAMP, Mr. RAMSTAD, Mr.
ZIMMER, Mr. NUSSLE, Mr. SAM JOHNSON of Texas, Ms. DUNN of Wash-
ington, Mr. COLLINS of Georgia, Mr. PORTMAN, Mr. ENGLISH of Penn-
sylvania, Mr. ENSIGN, Mr. CHRISTENSEN, Mr. SOLOMON, Mr. YOUNG of
Alaska, Mr. MYERS of Indiana, Mr. DORNAN, Mr. SMITH of Texas, Mr.
ROHRABACHER, Mr. FROST, Mr. HALL of Texas, Mr. BURTON of Indi-
ana, Mr. LIPINSKI, Mr. TORRICELLI, Mrs. VUCANOVICH, Mr. SAXTON,
Mr. CALLAHAN, Mr. GALLEGLY, Mr. PICKETT, Mr. UPTON, Mr.
POSHARD, Mr. STEARNS, Mr. BARTLETT of Maryland, Mr. BREWSTER,
Mr. CRAPO, Mr. HILLEARY, Mr. INGLIS
of South Carolina, Mr.
KNOLLENBERG, Mr. MANZULLO, Mr. ROYCE, Mr. TALENT, Mr.
CHAMBLISS, Mr. CHRYSLER, Mr. GANSKE, Mr. JONES, Mr. LARGENT,
Mr. THORNBERRY, Mr. WATTS of Oklahoma, Mr. WELLER, Mr. WHITE,
Mr. WICKER, Mr. HOKE, and Mrs. JOHNSON of Connecticut) 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 allow a
deduction for contributions to a medical savings account
by any individual who is covered under a catastrophic
coverage health plan.
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 ‘‘Family Medical Sav-
ings and Investment Act of 1995’’.
SEC. 2. MEDICAL SAVINGS ACCOUNTS.
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
additional itemized deductions for individuals) is amended
by redesignating section 220 as section 221 and by insert-
ing after section 219 the following new section:
‘‘SEC. 220. MEDICAL SAVINGS ACCOUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during
the taxable year, there shall be allowed as a deduction for
the taxable year an amount equal to the aggregate amount
paid in cash during such taxable year by such individual
to a medical savings account of such individual.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the amount allowable as a
deduction under subsection (a) to an individual for
the taxable year shall not exceed the lesser of—
‘‘(A) $2,500, or
‘‘(B) the deductible under the catastrophic
health plan covering such individual.
If the catastrophic health plan covering such individ-
ual provides coverage for any other eligible individ-
ual who is the spouse or any dependent (as defined
in section 152) of the taxpayer, subparagraph (A)
shall be applied by substituting ‘$5,000’ for
‘$2,500’.
‘‘(2) PRORATION OF LIMITATION.—
‘‘(A) IN GENERAL.—The limitation under
paragraph (1) shall be the sum of the monthly
limitations for months during the taxable year
that the individual is an eligible individual if—
‘‘(i) such individual is not an eligible
individual for all months of the taxable
year,
‘‘(ii) the deductible under the cata-
strophic health plan covering such individ-
ual is not the same throughout such tax-
able year, or
‘‘(iii) such limitation is determined
using the last sentence of paragraph (1)
for some but not all months during such
taxable year.
‘‘(B) MONTHLY LIMITATION.—The month-
ly limitation for any month shall be an amount
equal to 1⁄12 of the limitation which would (but
for this paragraph and paragraph (3)) be deter-
mined under paragraph (1) if the facts and cir-
cumstances as of the first day of such month
that such individual is covered under a cata-
strophic health plan were true for the entire
taxable year.
‘‘(3) COORDINATION WITH EXCLUSION FOR EM-
PLOYER
CONTRIBUTIONS, INCLUDING
TRANSFERS
FROM
FLEXIBLE
SPENDING
ARRANGEMENTS.—No
deduction shall be allowed under this section for any
amount paid for any taxable year to a medical sav-
ings account of an individual if—
‘‘(A) any amount is paid to any medical
savings account of such individual which is ex-
cludable from gross income under section
106(b) for such year, or
‘‘(B) in a case described in paragraph
(4)(B), any amount is paid to any medical sav-
ings account of either spouse which is so ex-
cludable for such year.
‘‘(4) SPECIAL
RULE
FOR
MARRIED
INDIVID-
UALS.—
‘‘(A) IN GENERAL.—This subsection shall
be applied separately for each married individ-
ual and without regard to any community prop-
erty laws.
‘‘(B) SPECIAL RULE.—If individuals who
are married to each other are covered under the
same 
catastrophic 
health 
plan, 
then 
the
amounts applicable under subparagraphs (A)
and (B) of paragraph (1) shall be divided equal-
ly between them unless they agree on a dif-
ferent division.
‘‘(5) DENIAL
OF
DEDUCTION
TO
DEPEND-
ENTS.—No deduction shall be allowed under this
section to any individual with respect to whom a de-
duction under section 151 is allowable to another
taxpayer for a taxable year beginning in the cal-
endar year in which such individual’s taxable year
begins.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means, with respect to any month, any
individual—
‘‘(A) who is covered under a catastrophic
health plan at any time during such month, and
‘‘(B) who is not, while covered under a cat-
astrophic health plan, covered under any health
plan—
‘‘(i) which is not a catastrophic health
plan, and
‘‘(ii) which provides coverage (other
than permitted coverage) for any services
which are covered under the catastrophic
health plan.
‘‘(2) CATASTROPHIC HEALTH PLAN.—The term
‘catastrophic health plan’ means any health plan
which provides no compensation for an individual’s
expenses covered by the plan (other than for per-
mitted coverage) for any calendar year to the extent
such expenses for such calendar year do not exceed
$1,800 ($3,600 if the catastrophic health plan cover-
ing the taxpayer provides coverage for more than 1
individual) or such higher amounts as may be speci-
fied by the plan.
‘‘(3) PERMITTED COVERAGE.—The term ‘per-
mitted coverage’ means—
‘‘(A) coverage only for accidents, dental
care, vision care, disability income, or long-term
care insurance,
‘‘(B) Medicare supplemental health insur-
ance,
‘‘(C) coverage issued as a supplement to li-
ability insurance,
‘‘(D) liability insurance, including general
liability insurance and automobile liability in-
surance,
‘‘(E) worker’s compensation or similar in-
surance,
‘‘(F) automobile medical-payment insur-
ance,
‘‘(G) coverage for a specified disease or ill-
ness, and
‘‘(H) a hospital or fixed indemnity policy.
‘‘(d) MEDICAL SAVINGS ACCOUNT.—For purposes of
this section—
‘‘(1) MEDICAL SAVINGS ACCOUNT.—The term
‘medical savings account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the account holder, but only if the written governing
instrument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (f)(3), no con-
tribution will be accepted unless it is in cash.
‘‘(B) The trustee is a bank (as defined in
section 408(n)), an insurance (as defined in
section 816), or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts.
‘‘(D) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(E) The interest of an individual in the
balance in his account is nonforfeitable.
‘‘(2) QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
medical expenses’ means, with respect to an ac-
count holder, amounts paid by such holder—
‘‘(i) for medical care (as defined in
section 213(d)) for such individual, the
spouse of such individual, and any depend-
ent (as defined in section 152) of such in-
dividual, but only to the extent such
amounts are not compensated for by insur-
ance or otherwise, or
‘‘(ii) for long-term care insurance for
such individual, spouse, or dependent.
‘‘(B) HEALTH PLAN COVERAGE MAY NOT
BE PURCHASED FROM ACCOUNT.—
‘‘(i) IN
GENERAL.—Such term shall
not include any amount paid for coverage
under a health plan unless such plan is a
catastrophic health plan.
‘‘(ii) EXCEPTION.—Clause (i) shall
not apply to any amount paid for long-
term care insurance.
‘‘(3) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
medical savings account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers).
‘‘(B) Section 219(f)(3) (relating to time
when contributions deemed made).
subparagraph, all medical savings accounts of
the account holder shall be treated as 1 ac-
count.
‘‘(2) ACCOUNT ASSETS TREATED AS DISTRIB-
UTED IN THE CASE OF PROHIBITED TRANSACTIONS
OR ACCOUNT PLEDGED AS SECURITY FOR LOAN.—
Rules similar to the rules of paragraphs (2) and (4)
of section 408(e) shall apply to medical savings ac-
counts, and any amount treated as distributed under
such rules shall be treated as not used to pay quali-
fied medical expenses.
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) INCLUSION OF AMOUNTS NOT USED FOR
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or
distributed out of a medical savings account
which is not used exclusively to pay the quali-
fied medical expenses of the account holder
shall be included in the gross income of such
holder to the extent such amount does not ex-
ceed the excess of—
‘‘(i) the aggregate contributions to
such account which were allowed as a de-
duction under this section or which were
excluded under section 106(b), over
‘‘(ii) the aggregate prior payments or
distributions from such account which were
includible in gross income under this para-
graph.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A)—
‘‘(i) all medical savings accounts of
the account holder shall be treated as 1 ac-
count,
‘‘(ii) all payments and distributions
during any taxable year shall be treated as
1 distribution, and
‘‘(iii) any distribution of property
shall be taken into account at its fair mar-
ket value on the date of the distribution.
‘‘(2) PENALTY FOR DISTRIBUTIONS NOT USED
FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter for any taxable year in which there
is a payment or distribution from a medical
savings account which is not used exclusively to
pay the qualified medical expenses of the ac-
count holder shall be increased by 10 percent of
the amount of such payment or distribution
which is includible in gross income under para-
graph (1).
‘‘(B) DISABILITY OR DEATH CASES.—Sub-
paragraph (A) shall not apply if the payment or
distribution is made after the account holder
becomes disabled within the meaning of section
72(m)(7) or dies.
‘‘(3) ROLLOVERS.—Paragraph (1) shall not
apply to any amount paid or distributed out of a
medical savings account to the account holder if the
entire amount received (including money and any
other property) is paid into another medical savings
account for the benefit of such holder not later than
the 60th day after the day on which he received the
payment or distribution.
‘‘(4) COORDINATION WITH MEDICAL EXPENSE
DEDUCTION.—For purposes of section 213, any pay-
ment or distribution out of a medical savings ac-
count for qualified medical expenses shall not be
treated as an expense paid for medical care to the
extent of the amount of such payment or distribu-
tion which is excludable from gross income solely by
reason of paragraph (1)(A).
‘‘(g) COST-OF-LIVING ADJUSTMENT.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1996, each
dollar amount in subsection (b)(1) or in subsection
(c)(2) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the medical care cost adjustment for
such calendar year.
If any increase under the preceding sentence is not
a multiple of $50, such increase shall be rounded to
the nearest multiple of $50.
‘‘(2) MEDICAL CARE COST ADJUSTMENT.—For
purposes of paragraph (1), the medical care cost ad-
justment for any calendar year is the percentage (if
any) by which—
‘‘(A) the medical care component of the
Consumer Price Index (as defined in section
1(f)(5)) for August of the preceding calendar
year, exceeds
‘‘(B) such component for August of 1995.
‘‘(h) REPORTS.—The trustee of a medical savings ac-
count shall make such reports regarding such account to
the Secretary and to the account holder with respect to
contributions, distributions, and such other matters as the
Secretary may require under regulations. The reports re-
quired by this subsection shall be filed at such time and
in such manner and furnished to such individuals at such
time and in such manner as may be required by those reg-
ulations.’’
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a)
of section 62 of such Code is amended by inserting after
paragraph (15) the following new paragraph:
‘‘(16) MEDICAL SAVINGS ACCOUNTS.—The de-
duction allowed by section 220.’’
(c) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO
MEDICAL SAVINGS ACCOUNTS.—
(1) EXCLUSION FROM INCOME TAX.—The text
of section 106 of such Code (relating to contribu-
tions by employer to accident and health plans) is
amended to read as follows:
‘‘(a) GENERAL RULE.—Gross income of an employee
does not include employer-provided coverage under an ac-
cident or health plan.
‘‘(b) CONTRIBUTIONS
TO MEDICAL SAVINGS AC-
COUNTS.—
‘‘(1) IN GENERAL.—In the case of an employee
who is an eligible individual, gross income does not
include amounts contributed by such employee’s em-
ployer to any medical savings account of such em-
ployee. For purposes of the preceding sentence, the