deductible for the family as a whole, the re-
quirement of subparagraph (A)(i) shall be 
treated as met if (without regard to this sub-
paragraph)— 
‘‘(i) the individual deductible meets 
the requirement of subparagraph (A)(i)(I), 
or 
‘‘(ii) the family deductible meets the 
requirement of subparagraph (A)(i)(II).’’. 
(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. 6. FSA AND HRA TERMINATION TO FUND HSAS. 
(a) ELIGIBLE INDIVIDUALS INCLUDE FSA AND HRA 
PARTICIPANTS.—Section 223(c)(1)(B) is amended— 
(1) by striking ‘‘and’’ at the end of clause (ii), 
(2) by striking the period at the end of clause 
(iii) and inserting ‘‘, and’’, and 
(3) by inserting after clause (iii) the following 
new clause: 
‘‘(iv) 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-
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dividual if after the qualified HSA dis-
tribution is made and for the remaining 
duration of the plan year, the coverage 
provided under the health flexible spending 
arrangement or health reimbursement ar-
rangement is converted to— 
‘‘(I) coverage that does not pay 
or reimburse any medical expense in-
curred before the minimum annual de-
ductible under section 223(c)(2)(A)(i) 
(prorated for the period occurring 
after the qualified HSA distribution is 
made) is satisfied, 
‘‘(II) coverage that, after the 
qualified HSA distribution is made, 
does not pay or reimburse any med-
ical expense incurred after the quali-
fied HSA distribution is made other 
than preventive care as defined in sec-
tion 223(c)(2)(C), 
‘‘(III) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses benefits for cov-
erage 
described 
in 
section 
223(c)(1)(B)(ii) (but not through in-
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surance or for long-term care serv-
ices), 
‘‘(IV) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses benefits for per-
mitted insurance as defined in section 
223(c)(1)(B)(i) or coverage described 
in section 223(c)(1)(B)(ii) (but not 
for long-term care services), 
‘‘(V) coverage that, after the 
qualified HSA distribution is made, 
pays or reimburses only those medical 
expenses incurred after an individual’s 
retirement (and no expenses incurred 
before retirement), or 
‘‘(VI) coverage that, after the 
qualified HSA distribution is made, is 
suspended, pursuant to an election 
made on or before the date the indi-
vidual elects a qualified HSA distribu-
tion or, if later, on the date of the in-
dividual enrolls in a high deductible 
health plan (as defined in section 
223(c)(2)), that does not pay or reim-
burse, at any time, any medical ex-
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pense incurred during the suspension 
period except as defined in subclauses 
(I) through (V) above.’’. 
(b) QUALIFIED HSA DISTRIBUTION SHALL NOT AF-
FECT
FLEXIBLE
SPENDING
ARRANGEMENT.—Section 
106(e)(1) is amended to read as follows: 
‘‘(1) IN GENERAL.—A plan shall not fail to be 
treated as a health flexible spending arrangement 
under this section, section 105, or section 125, or as 
a health reimbursement arrangement under this sec-
tion or section 105, merely because such plan pro-
vides for a qualified HSA distribution.’’. 
(c) FSA BALANCES AT YEAR END SHALL NOT FOR-
FEIT.—Section 125(d)(2) is amended by adding at the end 
the following new subparagraph: 
‘‘(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 
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)).’’. 
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(d) SIMPLIFICATION OF LIMITATIONS ON FSA AND 
HRA ROLLOVERS.—Section 106(e)(2) (relating to quali-
fied HSA distribution) 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 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 
flexible spending arrangement shall not ex-
ceed the applicable amount. 
‘‘(ii) DISTRIBUTIONS FROM A HEALTH 
REIMBURSEMENT
ARRANGEMENT.—A 
qualified HSA distribution from a health 
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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 a high deductible 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 a high deductible health 
plan at the time of such distribu-
tion.’’. 
(e) ELIMINATION OF ADDITIONAL TAX FOR FAILURE 
TO MAINTAIN HIGH DEDUCTIBLE HEALTH PLAN COV-
ERAGE.—Section 106(e) is amended— 
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(1) by striking paragraph (3) and redesignating 
paragraphs (4) and (5) as paragraphs (3) and (4), 
respectively, and 
(2) by striking subparagraph (A) of paragraph 
(3), as so redesignated, and redesignating subpara-
graphs (B) and (C) of such paragraph as subpara-
graphs (A) and (B) thereof, respectively. 
(f) LIMITED PURPOSE FSAS AND HRAS.—Section 
106(e), 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 or health reimbursement arrangement 
under this section or section 105 merely because the 
plan converts coverage for individuals who enroll in 
a high deductible health plan described in section 
223(c)(2) 
to 
coverage 
described 
in 
section 
223(c)(1)(B)(iv). Coverage for such individuals may 
be converted as of the date of enrollment in the high 
deductible health plan, without regard to the period 
of coverage under the health flexible spending ar-
rangement or health reimbursement arrangement, 
and without requiring any change in coverage to in-
dividuals who do not enroll in a high deductible 
health plan.’’. 
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(g) DISTRIBUTION AMOUNTS ADJUSTED FOR COST- 
OF-LIVING.—Section 106(e), as amended by this section, 
is amended by adding at the end the following new para-
graph: 
‘‘(6) COST-OF-LIVING ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning after December 31, 
2010, 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 2009’ for ‘calendar year 1992’ in subpara-
graph (B) thereof. 
‘‘(B) ROUNDING.—If any increase under 
subparagraph (A) is not a multiple of $50, such 
increase shall be rounded to the nearest mul-
tiple of $50.’’. 
(h) DISCLAIMER OF DISQUALIFYING COVERAGE.— 
Section 223(c)(1)(B), as amended by this section, is 
amended— 
(1) by striking ‘‘and’’ at the end of clause (iii), 
(2) by striking the period at the end of clause 
(iv) and inserting ‘‘, and’’, and 
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(3) by inserting after clause (iv) the following 
new clause: 
‘‘(v) any coverage (including prospec-
tive coverage) under a health plan that is 
not a high deductible 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. PURCHASE OF HEALTH INSURANCE FROM HSA AC-
COUNT. 
(a) IN GENERAL.—Paragraph (2) of section 223(d) 
(defining qualified medical expenses) is amended to read 
as follows: 
‘‘(2) QUALIFIED MEDICAL EXPENSES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
medical expenses’ means, with respect to an ac-
count beneficiary, amounts paid by such bene-
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ficiary for medical care (as defined in section 
213(d)) for any individual covered by a high de-
ductible health plan of the account beneficiary, 
but only to the extent such amounts are not 
compensated for by insurance or otherwise. 
‘‘(B) HEALTH
INSURANCE
MAY
NOT
BE 
PURCHASED FROM ACCOUNT.—Except as pro-
vided in subparagraph (C), subparagraph (A) 
shall not apply to any payment for insurance. 
‘‘(C) 
EXCEPTIONS.—Subparagraph 
(B) 
shall not apply to any expense for coverage 
under— 
‘‘(i) a health plan during any period 
of continuation coverage required under 
any Federal law, 
‘‘(ii) a qualified long-term care insur-
ance contract (as defined in section 
7702B(b)), 
‘‘(iii) a health plan during any period 
in which the individual is receiving unem-
ployment compensation under any Federal 
or State law, 
‘‘(iv) a high deductible health plan, or 
‘‘(v) any health insurance under title 
XVIII of the Social Security Act, other 
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than a Medicare supplemental policy (as 
defined in section 1882 of such Act).’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply with respect to insurance pur-
chased after the date of the enactment of this Act in tax-
able years beginning after such date. 
SEC. 8. CERTAIN EXERCISE EQUIPMENT AND PHYSICAL 
FITNESS PROGRAMS TREATED AS MEDICAL 
CARE. 
(a) IN GENERAL.—Subsection (d) of section 213 is 
amended by adding at the end the following new para-
graph: 
‘‘(12) EXERCISE
EQUIPMENT
AND
PHYSICAL 
FITNESS PROGRAMS.— 
‘‘(A) IN
GENERAL.—The term ‘medical 
care’ shall include amounts paid— 
‘‘(i) to purchase or use equipment 
used in a program (including a self-di-
rected program) of physical exercise, 
‘‘(ii) to participate, or receive instruc-
tion, in a program of physical exercise, and 
‘‘(iii) for membership dues in a fitness 
club the primary purpose of which is to 
provide access to equipment and facilities 
for physical exercise. 
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‘‘(B) LIMITATION.—Amounts treated as 
medical care under subparagraph (A) shall not 
exceed $1,200 with respect to any individual for 
any taxable year.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
Æ 
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