‘‘(B) such tax for such calendar year which
would be imposed on—
‘‘(i) wages or compensation (as the
case may be) of such employee, if such
wages or compensation were reduced by
‘‘(ii) the total amount of the em-
ployer-provided coverage under an accident
or health plan which would have been ex-
cludable from the gross income of such em-
ployee under section 106 but for section
106(d).
‘‘(3) QUALIFIED EMPLOYEE.—The term ‘quali-
fied employee’ means an individual who is covered
continuously during the coverage period by em-
ployer-provided health coverage of the employer.
‘‘(4) 
EMPLOYER-PROVIDED
HEALTH
COV-
ERAGE.—The term ‘employer-provided health cov-
erage’ means an accident or health plan provided by
an employer which is excludable from gross income
under section 106 (or would be so excludable but for
section 106(d)).
‘‘(5) COVERAGE PERIOD.—The term ‘coverage
period’ means, with respect to the calendar year
ending in or with the taxable year of the employer,
the period—
‘‘(A) beginning on January 1, 2002, and
‘‘(B) ending on the earlier of—
‘‘(i) the last day of such calendar
year, or
‘‘(ii) the day before the first day in
such calendar year that such person is not
covered by employer-provided coverage of
such employer.
‘‘(6) WAGES AND COMPENSATION.—The terms
‘wages’ and ‘compensation’ shall have the meaning
given to such terms by sections 3121(a) and
3231(e), respectively.
‘‘(c) SPECIAL RULES.—
‘‘(1) SPECIAL
RULE
CONCERNING
SELF-EM-
PLOYED.—The term ‘employer’ shall not include an
individual who is an employee within the meaning of
section 401(c)(1).
‘‘(2) CERTAIN RULES MADE APPLICABLE.—For
purposes of this section, rules similar to the rules of
paragraphs (1) and (2) of section 41(f) shall apply.
‘‘(d) NOTICE OF VALUE OF HEALTH INSURANCE
COVERAGE.—No credit shall be allowed under subsection
(a) to an employer for taxable years beginning in 2003
unless such employer notifies (in the manner the Secretary
shall provide) each individual who is an employee of the
employer during calendar year 2002 of the aggregate
value of the applicable premiums (as defined by section
4980B(f)(4)) provided to the employee during such cal-
endar year.’’.
(b) CURRENT YEAR BUSINESS CREDIT CALCULA-
TION.—Section 38(b) of such Code (relating to current
year business credit) is amended by striking ‘‘plus’’ at the
end of paragraph (14), by striking the period at the end
of paragraph (15) and inserting ‘‘, plus’’, and by adding
at the end the following:
‘‘(16) the former health exclusion credit deter-
mined under section 45G(a).’’.
(c) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 of such Code (relating to carryback and
carryforward of unused credits) is amended by adding at
the end the following:
‘‘(11) NO CARRYBACK OF FORMER HEALTH EX-
CLUSION
CREDIT
BEFORE
EFFECTIVE
DATE.—No
amount of unused business credit available under
section 45G may be carried back to a taxable year
beginning on or before the date of the enactment of
this paragraph.’’.
(d) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
of such Code is amended by inserting after the item relat-
ing to section 45F the following:
‘‘Sec. 45G. Credit for certain employment taxes with respect to
formerly excludable health insurance costs.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
SEC. 6. ADDITIONAL PROVISIONS.
(a) TERMINATION OF EXCLUSION FROM GROSS IN-
COME FOR EMPLOYER-PROVIDED HEALTH CARE COV-
ERAGE.—Section 106 of the Internal Revenue Code of
1986 (relating to contributions by employer to accident
and health plans) is amended by adding at the end the
following new subsection:
‘‘(d) INCLUSION
OF
INSURANCE
CONSTITUTING
MEDICAL CARE (OTHER THAN LONG-TERM CARE INSUR-
ANCE).—
‘‘(1) IN
GENERAL.—Subsection (a) shall not
apply to—
‘‘(A) 
any 
employer-provided 
coverage
under an accident or health plan which con-
stitutes medical care, and
‘‘(B) any employer contribution to an Ar-
cher MSA which is treated by subsection (b) as
employer-provided coverage for medical ex-
penses under an accident or health plan.
‘‘(2) EXCEPTION FOR INDIVIDUALS ENTITLED
TO MEDICARE.—Paragraph (1) shall not apply to
any employee who, as of the time such employer-pro-
vided coverage was provided, is entitled to any bene-
fits under title XVIII of the Social Security Act.
‘‘(3) MEDICAL CARE DEFINED.—For purposes
of paragraph (1), the term ‘medical care’ has the
meaning given to such term in section 213(d) deter-
mined without regard to—
‘‘(A) paragraph (1)(C) thereof, and
‘‘(B) so much of paragraph (1)(D) thereof
as relates to qualified long-term care insurance.
‘‘(4) SPECIAL RULE FOR VALUATION OF INCLU-
SION
OF
EMPLOYER-PROVIDED
HEALTH
COV-
ERAGE.—The amount included in gross income by
reason of paragraph (1) shall be the cost to the em-
ployer of the employer-provided coverage under an
accident or health plan with respect to the employee
for the calendar year. Such cost shall be the applica-
ble premium (as defined by section 4980B(f)(4)).’’.
(b) DISALLOWANCE OF DEDUCTION FOR HEALTH
INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.—
Section 162(l) of such Code is amended by adding at the
end the following new paragraph:
‘‘(6) 
TERMINATION
OF
DEDUCTION
FOR
HEALTH INSURANCE.—In the case of taxable years
beginning after December 31, 2002, this subsection
shall only apply to amounts paid for qualified long-
term care insurance contracts.’’.
(c) MEDICAL CARE DEDUCTION LIMITED TO QUALI-
FIED LONG-TERM CARE AND INDIVIDUALS ENTITLED TO
MEDICARE.—Section 213 of such Code (relating to med-
ical, dental, etc., expenses) is amended by adding at the
end the following new subsection:
‘‘(f) TERMINATION.—
‘‘(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), subsection (a) shall not apply to
any taxable year beginning after December 31,
2002.
‘‘(2) EXCEPTION FOR INDIVIDUALS ENTITLED
TO MEDICARE.—Paragraph (1) shall not apply to ex-
penses paid for medical care provided for any indi-
vidual who, as of the time such medical care was
provided, is entitled to any benefits under title
XVIII of the Social Security Act.
‘‘(3) EXCEPTION FOR QUALIFIED LONG-TERM
CARE.—Paragraph (1) shall not apply to expenses
paid for medical care described in paragraph (1)(C)
of subsection (d) and so much of paragraph (1)(D)
subsection (d) thereof) be includible in the tax-
payer’s gross income for such taxable year.’’.
(3) PENALTY FOR EXCESS CONTRIBUTIONS.—
(A) Paragraph (1) of section 4973(d) of
such Code is amended to read as follows:
‘‘(1) the aggregate amount contributed for the
taxable year to the accounts (other than rollover
contributions described in section 220(f)(5)) for
which a credit is not allowed under section
35(c)(1)(B), and’’.
(B) Clause (i) of section 4973(d)(2)(B) of
such Code is amended to read as follows:
‘‘(i) the maximum amount allowable
as a deduction under section 220(b)(1)
(determined without regard to section
220(k)) for the taxable year, over’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2002.
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