‘‘(4) PRE-PAID
PHYSICIAN
FEES.—The term 
‘medical care’ shall include amounts paid by patients 
to their primary physician in advance for the right 
to receive medical services on an as-needed basis.’’. 
(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. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 
INCURRED BEFORE ESTABLISHMENT OF AC-
COUNT. 
(a) IN GENERAL.—Section 223(d) of the Internal 
Revenue Code of 1986, as amended by the preceding pro-
visions of this Act, is amended by redesignating paragraph 
(5) as paragraph (6) and by inserting after paragraph (4) 
the following new paragraph: 
‘‘(5) TREATMENT OF ACCOUNT ESTABLISHED 
BEFORE
TAX
RETURN
DUE
FOR
TAX
YEAR.—For 
purposes of this section, if, before the time pre-
scribed by law for filing the return of tax for a tax-
able year (not including extensions thereof), a tax-
payer— 
‘‘(A) establishes a health savings account, 
‘‘(B) makes contributions to a health sav-
ings account on account of such taxable year, or 
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‘‘(C) makes payments or distributions from 
a health savings account for such taxable year, 
the health savings account shall be deemed to be es-
tablished on the last day of such taxable year and 
such contributions and distributions shall be deemed 
to have been made on account of such taxable year 
if the taxpayer elects the application of this para-
graph for such taxable year.’’. 
(b) CONFORMING AMENDMENT.—Section 223(d)(6) 
of such Code, as redesignated by subsection (a), is amend-
ed by striking subparagraph (B) and redesignating sub-
paragraphs (C) through (E) as subparagraphs (B) 
through (D), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to health savings ac-
counts established, and contributions to and distributions 
from health savings accounts after, the date of the enact-
ment of this Act. 
SEC. 9. MEDICARE RECIPIENTS MADE ELIGIBLE FOR HSAS. 
(a) MEDICARE RECIPIENTS MAY CONTRIBUTE TO 
HSAS.—Section 223(b) of the Internal Revenue Code of 
1986 is amended by striking paragraph (7). 
(b) MEDICARE BENEFICIARIES PARTICIPATING
IN 
MEDICARE ADVANTAGE MSA MAY CONTRIBUTE THEIR 
OWN MONEY TO THEIR MSA.—Section 138(b) of such 
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Code is amended by striking paragraph (2) and by redes-
ignating paragraphs (3) and (4) as paragraphs (2) and 
(3), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 10. FSA FUNDS MAY BE USED FOR LONG-TERM CARE 
INSURANCE PREMIUMS. 
(a) IN GENERAL.—Subsection (c) of section 106 of 
the Internal Revenue Code of 1986 is amended by redesig-
nating paragraph (2) as paragraph (3) and by amending 
so much of such subsection as precedes such paragraph 
(3) to read as follows: 
‘‘(c) 
LONG-TERM
CARE
BENEFITS
PROVIDED 
THROUGH FLEXIBLE SPENDING ARRANGEMENTS.— 
‘‘(1) IN GENERAL.—Gross income of an em-
ployee shall not include employer-provided coverage 
for qualified long-term care services (as defined in 
section 7702B(c)) to the extent that such coverage 
is provided through a flexible spending or similar ar-
rangement. 
‘‘(2) PREMIUMS FOR LONG-TERM CARE.—Quali-
fied medical expenses for which reimbursement may 
be made by distributions from a flexible spending ar-
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rangement shall include amounts paid for long-term 
care coverage.’’. 
(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. 11. REPEAL OF LIMITATION ON DEDUCTIONS MAKING 
NON-PRESCRIPTION 
DRUGS 
NON-QUALI-
FYING 
DISTRIBUTIONS 
FROM 
TAX-PRE-
FERRED ACCOUNTS. 
(a) HSAS.—Section 223(d)(2)(A) of the Internal 
Revenue Code of 1986 is amended by striking the last sen-
tence. 
(b) ARCHER MSAS.—Section 220(d)(2)(A) of such 
Code is amended by striking the last sentence. 
(c) HEALTH FLEXIBLE SPENDING ARRANGEMENTS 
AND HEALTH REIMBURSEMENT ARRANGEMENTS.—Sec-
tion 106 of such Code is amended by striking subsection 
(f). 
(d) EFFECTIVE DATES.— 
(1) 
DISTRIBUTIONS
FROM
SAVINGS
AC-
COUNTS.—The amendments made by subsections (a) 
and (b) shall apply to amounts paid with respect to 
taxable years beginning after the date of the enact-
ment of this Act. 
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(2) REIMBURSEMENTS.—The amendment made 
by subsection (c) shall apply to expenses incurred 
with respect to taxable years beginning after the 
date of the enactment of this Act. 
SEC. 12. REPEAL OF ADDITIONAL TAX FROM DISTRIBU-
TIONS FROM HSAS AND MSAS. 
(a) HSAS.—Section 223(f)(4)(A) of the Internal 
Revenue Code of 1986 is amended by striking ‘‘20 per-
cent’’ and inserting ‘‘10 percent’’. 
(b) ARCHER MSAS.—Section 220(f)(4)(A) of such 
Code is amended by striking ‘‘20 percent’’ and inserting 
‘‘15 percent’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions made after the 
date of the enactment of this Act. 
SEC. 13. REPEAL OF LIMITATION ON HEALTH FLEXIBLE 
SPENDING ARRANGEMENTS UNDER CAFE-
TERIA PLANS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 is amended— 
(1) by striking subsection (i), and 
(2) by redesignating subsections (j), (k), and (l) 
as subsections (i), (j), and (k), respectively. 
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(b) 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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