‘‘(1) IN GENERAL.—The term ‘coverage month’ 
means, with respect to an individual, any month if— 
‘‘(A) as of the first day of such month 
such individual is covered by qualified health in-
surance, and 
‘‘(B) the premium for coverage under such 
insurance for such month is paid by the tax-
payer. 
‘‘(2) GROUP HEALTH PLAN COVERAGE.— 
‘‘(A) IN
GENERAL.—The term ‘coverage 
month’ shall not include any month for which 
such individual participates in any group health 
plan (within the meaning of section 5000 with-
out regard to section 5000(d)). 
‘‘(B) EXCEPTION
FOR
CERTAIN
PER-
MITTED
COVERAGE.—Subparagraph (A) shall 
not apply to an individual if the individual’s 
only coverage under a group health plan for a 
month is coverage described in clause (i) or (ii) 
of section 223(c)(1)(B). 
‘‘(3) EMPLOYER-PROVIDED
COVERAGE.—The 
term ‘coverage month’ shall not include any month 
during a taxable year if any amount is not includible 
in the gross income of the taxpayer for such year
under section 106 (other than coverage described in 
clause (i) or (ii) of section 223(c)(1)(B)). 
‘‘(4) MEDICARE, MEDICAID, AND SCHIP.—The 
term ‘coverage month’ shall not include any month 
with respect to an individual if, as of the first day 
of such month, such individual— 
‘‘(A) is entitled to any benefits under part 
A of title XVIII of the Social Security Act or 
is enrolled under part B of such title, or 
‘‘(B) is enrolled in the program under title 
XIX or XXI of such Act (other than under sec-
tion 1928 of such Act). 
‘‘(5) CERTAIN
OTHER
COVERAGE.—The term 
‘coverage month’ shall not include any month with 
respect to an individual if, at any time during such 
month, any benefit is provided to such individual 
under— 
‘‘(A) chapter 89 of title 5, United States 
Code, or 
‘‘(B) chapter 55 of title 10, United States 
Code. 
‘‘(6) PRISONERS.—The term ‘coverage month’ 
shall not include any month with respect to an indi-
vidual if, as of the first day of such month, such in-
dividual is imprisoned under Federal, State, or local 
authority. 
‘‘(7) INSUFFICIENT
PRESENCE
IN
UNITED 
STATES.—The term ‘coverage month’ shall not in-
clude any month during a taxable year with respect 
to an individual if such individual is present in the 
United States on fewer than 183 days during such 
year 
(determined 
in 
accordance 
with 
section 
7701(b)(7)). 
‘‘(d) QUALIFIED HEALTH INSURANCE.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified health 
insurance’ means health insurance coverage (as de-
fined in section 9832(b)(1)) which— 
‘‘(A) is coverage described in paragraph 
(2), and 
‘‘(B) meets the requirements of paragraph 
(3). 
‘‘(2) ELIGIBLE COVERAGE.—Coverage described 
in this paragraph is the following: 
‘‘(A) Coverage under individual health in-
surance. 
‘‘(B) Coverage through a private sector 
health care coverage purchasing pool.
‘‘(C) Coverage through a State health care 
coverage purchasing pool. 
‘‘(D) Coverage under a State high risk 
pool described in subparagraph (C) of section 
35(e)(1). 
‘‘(E) Coverage, after December 31, 2006, 
under an eligible State buyin program. 
‘‘(3) REQUIREMENTS.—The requirements of 
this paragraph are as follows: 
‘‘(A) COST LIMITS.—The coverage meets 
the requirements of section 223(c)(2)(A)(ii). 
‘‘(B) MAXIMUM
BENEFITS.—Under the 
coverage, the annual and lifetime maximum 
benefits are not less than $700,000. 
‘‘(C) BROAD COVERAGE.—The coverage in-
cludes inpatient and outpatient care, emergency 
benefits, and physician care. 
‘‘(D) GUARANTEED RENEWABILITY.—Such 
coverage is guaranteed renewable by the pro-
vider. 
‘‘(4) ELIGIBLE STATE BUYIN PROGRAM.—For 
purposes of paragraph (2)(E)— 
‘‘(A) IN
GENERAL.—The term ‘eligible 
State buyin program’ means a State program 
under which an individual who—
‘‘(i) is not eligible for assistance under 
the State medicaid program under title 
XIX of the Social Security Act, 
‘‘(ii) is not eligible for assistance 
under the State children’s health insurance 
program under title XXI of such Act, or 
‘‘(iii) is not a State employee, 
is able to buy health insurance coverage 
through a purchasing arrangement entered into 
between the State and a private sector health 
care purchasing group or health plan. 
‘‘(B) REQUIREMENTS.—Subparagraph (A) 
shall only apply to a State program if— 
‘‘(i) the program uses private sector 
health care purchasing groups or health 
plans, and 
‘‘(ii) the State maintains separate risk 
pools for participants under the State pro-
gram. 
‘‘(C) SUBSIDIES.— 
‘‘(i) IN GENERAL.—A State program 
shall not fail to be treated as an eligible 
State buyin program merely because the 
State subsidizes the costs of an individual
in buying health insurance coverage under 
the program. 
‘‘(ii) EXCEPTION.—Clause (i) shall 
not apply if the State subsidy under the 
program for any adult for any consecutive 
12-month period exceeds the applicable 
dollar amount. 
‘‘(iii) 
APPLICABLE
DOLLAR 
AMOUNT.— 
‘‘(I) IN GENERAL.—For purposes 
of clause (ii), the applicable dollar 
amount is $2,000. 
‘‘(II) REDUCTION.—In the case 
of a family with annual income in ex-
cess of 133 percent of the applicable 
poverty line (as determined in accord-
ance with criteria established by the 
Director of the Office of Management 
and Budget) but not in excess of 200 
percent of such line, the dollar 
amount under clause (i) shall be rat-
ably reduced (but not below $500) for 
each dollar of such excess. In the case 
of a family with annual income in ex-
cess of 200 percent of such line, the 
applicable dollar amount shall be zero. 
‘‘(e) ARRANGEMENTS
UNDER
WHICH
INSURERS 
CONTRIBUTE TO HSA.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, health insurance shall not be treated as quali-
fied health insurance if the insurer makes contribu-
tions to a health savings account of the taxpayer un-
less such insurance is provided under an arrange-
ment described in paragraph (2). 
‘‘(2) ARRANGEMENTS DESCRIBED.— 
‘‘(A) AMOUNTS PAID FOR COVERAGE EX-
CEED MONTHLY LIMITATION.—In the case of 
amounts paid under an arrangement for health 
insurance for a coverage month in excess of the 
amount in effect under subsection (b)(2)(A) for 
such month, an arrangement is described in 
this subparagraph if under the arrangement— 
‘‘(i) the aggregate amount contributed 
by the insurer to any health savings ac-
count of the taxpayer does not exceed 90 
percent of the excess of— 
‘‘(I) the amount paid by the tax-
payer for qualified health insurance
under such arrangement for such 
month, over 
‘‘(II) the amount in effect under 
subsection (b)(2)(A) for such month, 
and 
‘‘(ii) the amount contributed by the 
insurer to a qualified health savings ac-
count of the taxpayer, reduced by the 
amount of the excess under clause (i), does 
not exceed 27 percent of the amount in ef-
fect under subsection (b)(2)(A) for such 
month. 
‘‘(B) AMOUNTS PAID FOR COVERAGE LESS 
THAN MONTHLY LIMITATION.—In the case of 
an arrangement under which the amount paid 
for qualified health insurance for a coverage 
month does not exceed the amount in effect 
under subsection (b)(2)(A) for such month, an 
arrangement is described in this subparagraph 
if— 
‘‘(i) under the arrangement the value 
of the insured benefits (excluding over-
head) exceeds 65 percent of the amount 
paid for qualified health insurance for such 
month, and
‘‘(ii) the amount contributed by the 
insurer to a qualified health savings ac-
count of the taxpayer does not exceed 27 
percent of the amount in effect under sub-
section (b)(2)(A) for such month. 
‘‘(3) QUALIFIED HEALTH SAVINGS ACCOUNT.— 
The term ‘qualified health savings account’ has the 
meaning given such term by section 36(c)(2). 
‘‘(f) DEPENDENTS.—For purposes of this section— 
‘‘(1) DEPENDENT
DEFINED.—The term ‘de-
pendent’ has the meaning given to such term by sec-
tion 152 (determined without regard to subsections 
(b)(1), (b)(2), and (d)(1)(B) thereof). 
‘‘(2) SPECIAL RULE FOR DEPENDENT CHILD OF 
DIVORCED PARENTS.—An individual who is a child 
to whom section 152(e) applies shall be treated as 
a dependent of the custodial parent for a coverage 
month unless the custodial and noncustodial parent 
provide otherwise. 
‘‘(3) DENIAL OF CREDIT TO DEPENDENTS.—No 
credit shall be allowed under this section to any indi-
vidual with respect to whom a deduction under sec-
tion 151(c) is allowable to another taxpayer for a 
taxable year beginning in the calendar year in which 
such individual’s taxable year begins.