‘‘(c) SPECIAL
RULES
RELATING
TO
FLEXIBLE
SPENDING ARRANGEMENTS FOR HEALTH.—
‘‘(1) CARRYOVER PERMITTED.—
‘‘(A) IN GENERAL.—For purposes of this
title, a flexible spending arrangement for health
shall not cease to be treated as such an ar-
rangement, and no amount shall be includible
in the gross income of the participant in such
arrangement, solely because the maximum
amount of reimbursement otherwise available to
a participant under such arrangement for any
year is increased by the carryover amount.
‘‘(B) CARRYOVER AMOUNT.—For purposes
of this paragraph, the term ‘carryover amount’
means, for any participant, for any year, and
with respect to any flexible spending arrange-
ment, the excess (if any) of—
‘‘(i) the maximum amount of reim-
bursement available to such participant
under such arrangement for the preceding
year (determined after the application of
this paragraph), over
‘‘(ii) the actual amount of reimburse-
ment to which such participant is entitled
under such arrangement for such preced-
ing year by reason of covered claims in-
curred.
In no event shall the carryover amount exceed
the sum of the premiums paid for coverage
under such arrangement with respect to such
participant for such year and such preceding
year.
‘‘(2) REIMBURSEMENT FOR LONG-TERM CARE
INSURANCE
PREMIUMS
AND
(DURING
UNEMPLOY-
MENT)
FOR
HEALTH
INSURANCE
PREMIUMS.—For
purposes of this title, a flexible spending arrange-
ment for health shall not cease to be treated as such
an arrangement, and no amount shall be includible
in the gross income of the participant in such ar-
rangement, solely because such arrangement—
‘‘(A) treats premium payments for any
qualified long-term care insurance contract (as
defined in section 7702B(b)) for the taxpayer
and the taxpayer’s family members as reim-
bursable expenses, or
‘‘(B) treats premium payments for medical
insurance for the taxpayer and the taxpayer’s
family members as reimbursable expenses if
such payments are made—
‘‘(i) after separation of the taxpayer
from employment, and
‘‘(ii) to obtain insurance for the pe-
riod beginning on or after the date of such
separation and ending on or before the
earlier of—
‘‘(I) the date which is 18 months
after the date of such separation, or
‘‘(II) the date on which the tax-
payer becomes employed full-time.
‘‘(3) DEFINITIONS AND SPECIAL RULE REGARD-
ING INSURANCE PREMIUMS.—For purposes of para-
graph (2)—
‘‘(A) FAMILY MEMBER.—The term ‘family
member’ means, with respect to any taxpayer—
‘‘(i) the spouse of the taxpayer,
‘‘(ii) any child (within the meaning of
section 151) of the taxpayer, if such child
has not attained the age of 19 at the close
of the calendar year in which the taxable
year of the taxpayer begins, and
‘‘(iii) any parent or stepparent of the
taxpayer or of the taxpayer’s spouse.
‘‘(B) MEDICAL
INSURANCE.—The term
‘medical insurance’ means insurance covering
medical care referred to in subparagraph (A) or
(B) of section 213(d)(1).
‘‘(C) LIMITATION ON LONG-TERM CARE IN-
SURANCE PREMIUMS.—The rule of the last sen-
tence of section 213(d)(1) and the rules of sec-
tion 213(d)(10) (relating to eligible long-term
care premiums) shall apply.
‘‘(4) FLEXIBLE
SPENDING
ARRANGEMENT.—
For purposes of this subsection, a flexible spending
arrangement is a benefit program which provides
employees with coverage under which—
‘‘(A) specified incurred expenses may be
reimbursed (subject to reimbursement maxi-
mums and other reasonable conditions), and
‘‘(B) the maximum amount of reimburse-
ment which is reasonably available to a partici-
pant for such coverage is less than 500 percent
of the value of such coverage.
In the case of an insured plan, the maximum
amount reasonably available shall be determined on
the basis of the underlying coverage.
‘‘(5) COORDINATION
WITH
CAFETERIA
PLAN
PROVISIONS.—Section 125(a) shall not fail to apply
to a participant in a plan, and a plan shall not fail
to be treated as a cafeteria plan, solely because a
flexible spending arrangement available under the
plan—
‘‘(A) increases the maximum amount of re-
imbursement otherwise available by the carry-
over amount, as described in paragraph (1), or
‘‘(B) treats premium payments as reim-
bursable expenses as described paragraph (2).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to years beginning after the date
of the enactment of this Act.
Æ