if applicable, the employer contribu-
tion or credit allocated to the indi-
vidual for the taxable year under the 
flexible spending arrangement (as de-
fined in section 106(c)(2)), plus 
‘‘(III) the amounts that the indi-
vidual is permitted, under the terms 
of the plan, to receive in reimburse-
ments for the taxable year under the 
health reimbursement arrangement, 
does not exceed 
‘‘(ii) the sum of the annual deductible 
and the other annual out-of-pocket ex-
penses (other than for premiums) required 
to be paid under the plan by the eligible 
individual for covered benefits. 
‘‘(B) EXCEPTIONS FOR DISREGARDED COV-
ERAGE.—For purposes of subparagraph (A)— 
‘‘(i) CERTAIN
FLEXIBLE
SPENDING 
ARRANGEMENTS.—Any flexible spending 
arrangement salary reduction amounts or 
employer contributions or credits that are 
restricted by the employer to use for cov-
erage described in paragraph (1)(B) shall 
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not be taken into account under subpara-
graph (A)(i)(II). 
‘‘(ii) CERTAIN
HEALTH
REIMBURSE-
MENT
ARRANGEMENTS.—Any reimburse-
ments from a health reimbursement ar-
rangement for coverage described in para-
graph (1)(B) shall not be taken into ac-
count under subparagraph (A)(i)(III). 
‘‘(C) TERMINATION.—Coverage shall not 
be treated as meeting the requirements of this 
paragraph for any taxable year beginning after 
December 31, 2011.’’. 
(c) 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. 
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(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 April ll, 2006, 
such 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 April ll, 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-
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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— 
(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). 
(C) COMPARABILITY EXCISE TAX.—Section 
4980G shall not apply to contributions made 
under this subsection. 
(5) TERMINATION.—This paragraph shall not 
apply to any taxable year beginning after December 
31, 2011. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2006. 
SEC. 8. CERTAIN EXPENSES TREATED AS QUALIFIED MED-
ICAL EXPENSES. 
(a) PREMIUMS FOR NON-GROUP HIGH DEDUCTIBLE 
HEALTH PLANS TREATED AS QUALIFIED MEDICAL EX-
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PENSES.—Subparagraph (C) of section 223(d)(2) of the 
Internal Revenue Code of 1986 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) in the case of any individual who 
meets the requirements of subsection 
(c)(1)(A)(ii) (after application of sub-
section (c)(1)(B)) and section 224(c)(2), a 
high deductible health plan.’’. 
(b) SPECIAL RULE
FOR CERTAIN MEDICAL EX-
PENSES INCURRED BEFORE ESTABLISHMENT
OF AC-
COUNT.—Paragraph (2) of section 223(d) of such Code 
is amended by adding at the end the following new sub-
paragraph: 
‘‘(E) 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— 
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