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‘‘(k) PREVENTATIVE HEALTH CARE.—By allowing
medical expenses payable from a medical care savings ben-
efit to be those permitted under section 213(d) of the In-
ternal Revenue Code, participating employees are encour-
aged to use this benefit to promote good health, to use
preventative medical and health procedures, and to seek
appropriate consultative and second opinions.
‘‘(l) NONDUPLICATION OF BENEFITS.—Policies is-
sued as a part of a medical care savings benefit shall not
be required to duplicate expenses that may be proper ex-
penses covered by the medical care savings benefit. Addi-
tionally, the Qualified Higher Deductible Plan may pro-
vide that the deductible specified in the insurance policy
may be increased by the amount of any benefits payable
by any other health benefits program or plan.’’.
SEC. 3. MEDICAL CARE SAVINGS ACCOUNT.
(a) IN GENERAL.—Chapter 1 (relating to normal
taxes and surcharge) is amended by adding after section
408 the following new section:
‘‘SEC. 408A. MEDICAL CARE SAVINGS ACCOUNTS.
‘‘(a) MEDICAL CARE SAVINGS ACCOUNTS.—For pur-
poses of this section, the term ‘medical care savings ac-
count’ (which may also be referred to as a ‘Medical IRA’)
means a trust created or organized in the United States
for the exclusive benefit of an individual, the individual’s
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dependents (as defined in section 152) or beneficiaries,
but only if the written instrument creating the trust meets
the following requirements:
‘‘(1) No contribution will be accepted unless it
is in cash.
‘‘(2) The trustee is a bank (as defined in sub-
section (d)), insurance company (as defined in sec-
tion 816), or such other person who demonstrates to
the satisfaction of the Secretary that the manner in
which such other person will administer the trust
will be consistent with the requirements of this sec-
tion.
‘‘(3) No part of the trust funds will be invested
in life insurance contracts.
‘‘(4) The interest of an individual in the bal-
ance of the account is nonforfeitable.
‘‘(5) The assets of the trust will not be commin-
gled with other property except in a common trust
fund or common investment fund.
‘‘(b) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) EXEMPTION
FROM
TAX.—Any medical
care savings account is exempt from taxation under
this subtitle unless such account has ceased to be a
medical care savings account by reason of paragraph
(2) or (3): Provided, however, That earnings on such
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account shall be taxable. Notwithstanding the pre-
ceding sentence, any such account is subject to the
taxes imposed by section 511 (relating to imposition
of tax on unrelated business income of charitable,
etc. organizations).
‘‘(2) LOSS OF EXEMPTION OF ACCOUNT WHERE
EMPLOYEE
ENGAGES
IN
PROHIBITED
TRANS-
ACTION.—
‘‘(A) IN GENERAL.—If, during any taxable
year of the individual for whose benefit any
medical care savings account is established,
that individual, dependent, or his beneficiary
engages in any transaction prohibited by section
4975 with respect to such account, such ac-
count ceases to be a medical care savings ac-
count as of the first day of such taxable year.
For purposes of this paragraph the individual
for whose benefit any account was established is
treated as the creator of such account.
‘‘(B) ACCOUNT TREATED AS DISTRIBUTING
ALL ITS ASSETS.—In any case in which any ac-
count ceases to be a medical savings account by
reason of subparagraph (A) as of the first day
of any taxable year, section 511 shall apply as
if there were a distribution on such first day in
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an amount equal to the fair market value (on
such first day) of all assets in the account (on
such first day).
‘‘(3) EFFECT OF PLEDGING ACCOUNT AS SECU-
RITY.—If, during any taxable year of the individual
for whose benefit a medical care savings account is
established, that individual uses the account or any
portion thereof as security for a loan, the portion so
used is treated as distributed to that individual.
‘‘(4) COMMINGLING MEDICAL CARE SAVINGS AC-
COUNT
AMOUNTS
IN
CERTAIN
COMMON
TRUST
FUNDS
AND
COMMON
INVESTMENT
FUNDS.—Any
common trust fund or common investment fund of
individual medical care savings account assets which
is exempt from taxation under this subtitle does not
cease to be exempt on account of the participation
or inclusion of assets of a trust exempt from tax-
ation under section 501(a) which is described in sec-
tion 401(a).
‘‘(c) TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, any amount paid or distrib-
uted out of a medical savings account shall be in-
cluded in gross income by the distributee.
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‘‘(2) 
DISTRIBUTIONS
FOR
MEDICAL
EX-
PENSES.—Distributions from a medical care savings
account shall not be taxable to the distributee, for
amounts paid directly or indirectly for medical ex-
penses as defined in section 213(d).
‘‘(3) 10 PERCENT ADDITIONAL TAX FOR EARLY
WITHDRAWALS.—Distributions described in para-
graph 1 and not described in paragraph 2 shall be
subject to an additional 10 percent tax for distribu-
tions made prior to age 591⁄2 of the distributee.
‘‘(4) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion which shall not be included in the gross income
of the distributee if it meets the requirements of
subparagraphs (A) and (B).
‘‘(A) IN
GENERAL.—Paragraph (1) does
not apply to any amount paid or distributed out
of a medical care savings account to the individ-
ual for whose benefit the account is maintained
if the entire amount received is paid into a
medical care savings account for the benefit of
such individual not later than the sixtieth day
after the day on which he receives the payment
or distribution.
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‘‘(B) LIMITATION.—This paragraph does
not apply to any amount described in para-
graph (A) received by an individual from a
medical savings account if at any time during
the one-year period ending on the day of such
receipt such individual received any other
amount described in that subparagraph from a
medical care savings account which was not in-
cludible in his gross income because of the ap-
plication of this paragraph.
‘‘(C) DENIAL OF ROLLOVER TREATMENT
FOR INHERITED ACCOUNTS, ETC.—
‘‘(i) IN GENERAL.—In the case of an
inherited medical savings account—
‘‘(I) this paragraph shall not
apply to any amount received by an
individual from such an account (and
no amount transferred from such ac-
count to another medical care savings
account shall be excluded from gross
income by reason of such transfer),
and
‘‘(II) such inherited account shall
not be treated as a medical care sav-
ings account for purposes of determin-
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ing whether any other amount is a
rollover contribution.
‘‘(ii) INHERITED MEDICAL CARE SAV-
INGS ACCOUNT.—
‘‘(I) the individual for whose ben-
efit the account is maintained ac-
quired such account by reason of the
death of another individual, and
‘‘(II) such individual was not the
surviving spouse of such other individ-
ual.
‘‘(d) BANK.—For purposes of subsection (a)(2), the
term ‘bank’ means—
‘‘(1) a bank (as defined in section 581),
‘‘(2) an insured credit union (within the mean-
ing of section 101(6) of the Federal Credit Union
Act), and
‘‘(3) a corporation which, under the laws of the
State of its incorporation, is subject to supervision
and examination by the Commissioner of Banking or
other officer of such State in charge of the adminis-
tration of the banking laws of such State.’’.
SEC. 4. EFFECTIVE DATES.
The amendments made by this Act shall apply to
years beginning after December 31, 1993.
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SEC. 5. OVERALL EFFECT ON TAX DEDUCTIBILITY.
This Act is not intended to change the Code’s current
tax treatment of employer-provided coverage under acci-
dent and health plans.
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