I 
108TH CONGRESS 
1ST SESSION H. R. 2596
To amend the Internal Revenue Code of 1986 to allow a deduction to 
individuals for amounts contributed to health savings security accounts 
and health savings accounts, to provide for the disposition of unused 
health benefits in cafeteria plans and flexible spending arrangements, 
and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 25, 2003
Mr. THOMAS introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 to allow a 
deduction to individuals for amounts contributed to 
health savings security accounts and health savings ac-
counts, to provide for the disposition of unused health 
benefits in cafeteria plans and flexible spending arrange-
ments, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Health Savings and 
Affordability Act of 2003’’.
SEC. 2. HEALTH SAVINGS SECURITY ACCOUNTS AND 
HEALTH SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
additional itemized deductions for individuals) is amended 
by redesignating section 223 as section 225 and by insert-
ing after section 222 the following new sections: 
‘‘SEC. 223. HEALTH SAVINGS SECURITY ACCOUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during 
the taxable year, there shall be allowed as a deduction for 
the taxable year an amount equal to the aggregate amount 
paid in cash during such taxable year by such individual 
to a health savings security account of such individual. 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to an individual for 
the taxable year shall not exceed the sum of the 
monthly limitations for months during such taxable 
year that the individual is an eligible individual. 
‘‘(2) MONTHLY LIMITATION.—The monthly lim-
itation for any month is 1⁄12 of—
‘‘(A) $2,000, in the case of an eligible indi-
vidual who—
‘‘(i) has self-only coverage under a 
minimum deductible plan as of the first 
day of such month, or 
‘‘(ii) is uninsured as of the first day 
of such month and is not described in sub-
paragraph (B)(ii) with respect to the tax-
able year which includes such month, 
‘‘(B) $4,000, in the case of an eligible indi-
vidual who—
‘‘(i) has family coverage under a min-
imum deductible plan as of the first day of 
such month, or 
‘‘(ii) is uninsured as of the first day 
of such month and, with respect to the tax-
able year which includes such month— 
‘‘(I) is entitled to a deduction for 
a dependent under section 151(c) (or 
would be so entitled but for paragraph 
(2) or (4) of section 152(e)), or 
‘‘(II) files a joint return, and 
‘‘(C) zero in any other case. 
‘‘(3) ADDITIONAL
CONTRIBUTIONS
FOR
INDI-
VIDUALS 55 OR OLDER.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who has attained the age of 55 before
the close of the taxable year, paragraph (2) 
shall be applied by increasing the $2,000 
amount in paragraph (2)(A) and the $4,000 
amount in paragraph (2)(B) by the additional 
contribution amount. 
‘‘(B) 
ADDITIONAL
CONTRIBUTION 
AMOUNT.—For purposes of this section, the ad-
ditional contribution amount is the amount de-
termined in accordance with the following table:
‘‘For taxable years 
The additional 
beginning in: 
contribution amount is: 
2004 .........................................................................................
$500
2005 .........................................................................................
$600
2006 .........................................................................................
$700
2007 .........................................................................................
$800
2008 .........................................................................................
$900
2009 and thereafter .................................................................
$1,000.
‘‘(4) LIMITATION BASED ON ADJUSTED GROSS 
INCOME.—
‘‘(A) SELF-ONLY
COVERAGE.—The dollar 
amount in paragraph (2)(A) (as increased 
under paragraph (3)) shall be reduced (but not 
below zero) by an amount which bears the same 
ratio to such dollar amount as—
‘‘(i) the amount (if any) by which the 
taxpayer’s adjusted gross income for such 
taxable year exceeds $75,000 ($150,000 in 
the case of a joint return), bears to
‘‘(ii) $10,000 ($20,000 in the case of 
a joint return). 
‘‘(B) 
FAMILY
COVERAGE.—The 
dollar 
amount in paragraph (2)(B) (as increased 
under paragraph (3)) shall be reduced (but not 
below zero) by an amount which bears the same 
ratio to such dollar amount as—
‘‘(i) the amount (if any) by which the 
taxpayer’s adjusted gross income for such 
taxable year exceeds $150,000, bears to 
‘‘(ii) $20,000. 
‘‘(C) NO REDUCTION BELOW $200 UNTIL 
COMPLETE
PHASE-OUT.—No dollar amount 
shall be reduced below $200 under subpara-
graph (A) or (B) unless (without regard to this 
subparagraph) such limitation is reduced to 
zero. 
‘‘(D) ROUNDING.—Any amount deter-
mined under this paragraph which is not a mul-
tiple of $10 shall be rounded to the next lowest 
$10. 
‘‘(E) ADJUSTED GROSS INCOME.—For pur-
poses of this paragraph, adjusted gross income 
shall be determined—
‘‘(i) without regard to this section or 
section 911, and 
‘‘(ii) after application of sections 86, 
135, 137, 219, 221, 222, and 469. 
‘‘(5) COORDINATION WITH OTHER CONTRIBU-
TIONS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of— 
‘‘(A) the aggregate amount paid during 
such taxable year to Archer MSAs of such indi-
vidual, 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings accounts of 
such individual, and 
‘‘(C) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual by persons other than 
such individual. 
‘‘(6) SPECIAL RULES FOR MARRIED INDIVID-
UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI-
VIDUALS.—Rules similar to the rules of paragraphs 
(3), (6), and (7) of section 220(b) shall apply for 
purposes of this section. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any 
individual unless such individual is covered, as 
of the first day of such month, under any 
health plan which is not a minimum deductible 
plan. 
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A) shall be ap-
plied without regard to— 
‘‘(i) coverage for any benefit provided 
by permitted insurance, and 
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability, 
dental care, vision care, or long-term care. 
‘‘(2) MINIMUM DEDUCTIBLE PLAN.—
‘‘(A) IN GENERAL.—The term ‘minimum 
deductible plan’ means a health plan— 
‘‘(i) in the case of self-only coverage, 
which has an annual deductible which is 
not less than $500, and 
‘‘(ii) in the case of family coverage, 
which has an annual deductible which is 
not less than twice the dollar amount in
clause (i) (as increased under subpara-
graph (B)). 
‘‘(B) COST-OF-LIVING
ADJUSTMENT
FOR 
ANNUAL DEDUCTIBLES.—
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 2004, the $500 amount in subpara-
graph (A)(i) shall be increased by an 
amount equal to—
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which such 
taxable year begins by substituting 
‘calendar year 2003’ for ‘calendar 
year 1992’ in subparagraph (B) there-
of. 
‘‘(ii) ROUNDING.—If any increase 
under clause (i) is not a multiple of $50, 
such increase shall be rounded to the near-
est multiple of $50. 
‘‘(C) SPECIAL RULES.— 
‘‘(i) 
EXCLUSION
OF
CERTAIN 
PLANS.—Such term does not include a
health plan if substantially all of its cov-
erage is coverage described in paragraph 
(1)(B). 
‘‘(ii) SAFE HARBOR FOR ABSENCE OF 
PREVENTIVE CARE DEDUCTIBLE.—A plan 
shall not fail to be treated as a minimum 
deductible plan by reason of failing to have 
a deductible for preventive care. 
‘‘(3) UNINSURED.—An individual shall be treat-
ed as uninsured if such individual is not covered by 
insurance which constitutes medical care. The pre-
ceding sentence shall be applied without regard to 
the coverage described in paragraph (1)(B). 
‘‘(4) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ has the meaning given such term 
in section 220(c)(3). 
‘‘(5) FAMILY
COVERAGE.—The term ‘family 
coverage’ has the meaning given such term in sec-
tion 220(c)(5). 
‘‘(6) ARCHER MSA.—The term ‘Archer MSA’ 
has the meaning given such term in section 220(d). 
‘‘(7) HEALTH SAVINGS ACCOUNT.—The term 
‘health savings account’ has the meaning given such 
term in section 224(d).
‘‘(d) HEALTH SAVINGS SECURITY ACCOUNT.—For 
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘health savings 
security account’ means a trust created or organized 
in the United States as a health savings security ac-
count exclusively for the purpose of paying the quali-
fied medical expenses of the account beneficiary, but 
only if the written governing instrument creating the 
trust meets the following requirements: 
‘‘(A) Except in the case of a rollover con-
tribution from an Archer MSA, or a health sav-
ings security account, which is not includible in 
gross income, no contribution will be accepted— 
‘‘(i) unless it is in cash and is contrib-
uted by—
‘‘(I) the account beneficiary, 
‘‘(II) a member of the family of 
the account beneficiary, or 
‘‘(III) an employer of the account 
beneficiary, and 
‘‘(ii) to the extent such contribution, 
when added to previous contributions to 
the trust for the calendar year, exceeds the 
highest annual limitation which could 
apply to an individual under subsection (b)
for a taxable year beginning in such cal-
endar year. 
‘‘(B) The trustee is a bank (as defined in 
section 408(n)), an insurance company (as de-
fined in section 816), or another person who 
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person 
will administer the trust will be consistent with 
the requirements of this section. 
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts. 
‘‘(D) The assets of the trust will not be 
commingled with other property except in a 
common trust fund or common investment 
fund. 
‘‘(E) The interest of an individual in the 
balance in his account is nonforfeitable. 
‘‘(2) MEMBER
OF
THE
FAMILY.—The term 
‘member of the family’ has the meaning given such 
term in section 2032A(e)(2). 
‘‘(3) QUALIFIED
MEDICAL
EXPENSES.—The 
term ‘qualified medical expenses’ has the meaning 
given such term in section 220(d)(2), except that—
‘‘(A) subparagraph (B)(i) thereof shall not 
apply to—
‘‘(i) insurance which constitutes a 
minimum deductible plan if no portion of 
the cost of such insurance is paid by an 
employer or former employer of the ac-
count beneficiary or the spouse of such 
beneficiary, and 
‘‘(ii) any health insurance (other than 
health insurance substantially all of its 
coverage is coverage described in sub-
section (c)(1)(B)) if the account bene-
ficiary has attained age 65, and 
‘‘(B) subparagraph (C) thereof shall not 
apply for purposes of this section. 
‘‘(4) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual on whose be-
half the health savings security account was estab-
lished. 
‘‘(5) CERTAIN RULES TO APPLY.—Rules similar 
to the following rules shall apply for purposes of this 
section: 
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers). 
‘‘(B) Section 219(f)(3) (relating to time 
when contributions deemed made).
‘‘(C) Except as provided in section 106(d), 
section 219(f)(5) (relating to employer pay-
ments). 
‘‘(D) Section 408(g) (relating to commu-
nity property laws). 
‘‘(E) Section 408(h) (relating to custodial 
accounts). 
‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND-
ING
ACCOUNTS
TREATED
AS
MADE
BY
THE
EM-
PLOYER.—Any contribution from a flexible spending 
account to a health savings security account which 
is not includible in the gross income of the employee 
by reason of section 125(h) shall be treated as a 
contribution made by the employer for purposes of 
this section. 
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A health savings security 
account is exempt from taxation under this subtitle 
unless such account has ceased to be a health sav-
ings security account. Notwithstanding the preceding 
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. or-
ganizations).
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 
to the rules of paragraphs (2) and (4) of section 
408(e) shall apply to health savings security ac-
counts, and any amount treated as distributed under 
such similar rules shall be treated as not used to pay 
qualified medical expenses. 
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL 
EXPENSES.—Any amount paid or distributed out of 
a health savings security account which is used ex-
clusively to pay qualified medical expenses of any ac-
count beneficiary shall not be includible in gross in-
come. 
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR 
QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—Any amount paid or 
distributed out of a health savings security ac-
count which is not used exclusively to pay the 
qualified medical expenses of the account bene-
ficiary shall be included in the gross income of 
such beneficiary in the manner provided under 
section 72. 
‘‘(B) SPECIAL RULES FOR APPLYING SEC-
TION 72.—For purposes of applying section 72 
to any amount described in subparagraph (A)—
‘‘(i) all health savings security ac-
counts shall be treated as 1 contract, 
‘‘(ii) all distributions during any tax-
able year shall be treated as 1 distribution, 
‘‘(iii) the value of the contract, income 
on the contract, and investment in the con-
tract shall be computed as of the close of 
the calendar year in which the taxable year 
begins, and 
‘‘(iv) such distributions shall be treat-
ed as made from contributions from mem-
bers of the family of the account bene-
ficiary to the extent that such distribution, 
when added to all previous distributions 
from the health savings security account 
taken into account under this clause, do 
not exceed the aggregate contributions 
from members of such family. 
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.— 
‘‘(A) IN
GENERAL.—If any excess con-
tribution is contributed for a taxable year to 
any health savings security account of an indi-
vidual, paragraph (2) shall not apply to dis-
tributions from the health savings security ac-
counts of such individual (to the extent such 
distributions do not exceed the aggregate excess 
contributions to all such accounts of such indi-
vidual for such year) if—
‘‘(i) such distribution is made on or 
before the last day prescribed by law (in-
cluding extensions of time) for filing the 
account beneficiary’s return for such tax-
able year, 
‘‘(ii) no deduction is allowed under 
this section with respect to such contribu-
tion, 
‘‘(iii) such distribution is accompanied 
by the amount of net income attributable 
to such excess contribution, and 
‘‘(iv) such distribution satisfies the re-
quirements of subparagraph (B). 
‘‘(B) RULES RELATED TO ORDERING.—
‘‘(i) DISTRIBUTIONS LIMITED TO CON-
TRIBUTIONS.—Subparagraph 
(A) 
shall 
apply to distributions to a person only to 
the extent of the contributions of such per-
son to such accounts during such taxable 
year.
‘‘(ii) CLASSES
OF
CONTRIBUTORS.—
Subparagraph (A) shall apply only to dis-
tributions of such contributions which are 
made in the following order: 
‘‘(I) first, to members of the fam-
ily of the account beneficiary, 
‘‘(II) second, to the account ben-
eficiary, 
‘‘(III) third, to employers of the 
account beneficiary with respect to 
contributions under section 125(h), 
and 
‘‘(IV) fourth, to employers of the 
account beneficiary with respect to 
contributions under section 106(d). 
‘‘(iii) LAST-IN
FIRST-OUT.—If dis-
tributions could be made to more than one 
person under any subclause of clause (ii), 
subparagraph (A) shall not apply to any 
such distribution unless such distribution 
is of the most recent excess contribution 
which has not been distributed to the con-
tributor. 
‘‘(C) TREATMENT OF NET INCOME.—Any 
net income described in subparagraph (A)(iii)
by 15 percent of the amount which is so includ-
ible. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if 
the payment or distribution is made after the 
account beneficiary becomes disabled within the 
meaning of section 72(m)(7) or dies. 
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS 
AFTER MEDICARE ELIGIBILITY.—Subparagraph 
(A) shall not apply to any payment or distribu-
tion after the date on which the account bene-
ficiary attains the age specified in section 1811 
of the Social Security Act. 
‘‘(5) ROLLOVER CONTRIBUTION.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall 
not apply to any amount paid or distributed 
from a health savings security account to the 
account beneficiary to the extent the amount 
received is paid into a health savings security 
account, or a health savings account, for the 
benefit of such beneficiary not later than the 
60th day after the day on which the beneficiary 
receives the payment or distribution. 
‘‘(B) LIMITATION.—This paragraph shall 
not apply to any amount described in subpara-
graph (A) received by an individual from a 
health savings security account if, at any time 
during the 1-year period ending on the day of 
such receipt, such individual received any other 
amount described in subparagraph (A) from a 
health savings security account which was not 
includible in the individual’s gross income be-
cause of the application of this paragraph. 
‘‘(6) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (6), (7), and (8) of section 
220(f) shall apply for purposes of this section. 
‘‘(g) REPORTS.—The Secretary may require the 
trustee of a health savings security account to make such 
reports regarding such account to the Secretary and to 
the account beneficiary with respect to contributions, dis-
tributions, and such other matters as the Secretary deter-
mines appropriate. The reports required by this subsection 
shall be filed at such time and in such manner and fur-
nished to such individuals at such time and in such man-
ner as may be required by the Secretary. 
‘‘(h) REGULATIONS.—The Secretary may issue regu-
lations to carry out the purposes of this section, including 
regulations regarding the proper treatment of distribu-
tions described in subsection (f)(3) and nondeductible con-
tributions by members of the family of the account bene-
ficiary. 
‘‘SEC. 224. HEALTH SAVINGS ACCOUNTS. 
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual for any month during 
the taxable year, there shall be allowed as a deduction for 
the taxable year an amount equal to the aggregate amount 
paid in cash during such taxable year by such individual 
to a health savings account of such individual. 
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount allowable as a 
deduction under subsection (a) to an individual for 
the taxable year shall not exceed the sum of the 
monthly limitations for months during such taxable 
year that the individual is an eligible individual. 
‘‘(2) MONTHLY LIMITATION.—The monthly lim-
itation for any month is the amount equal to 1⁄12 of 
the annual deductible (as of the first day of such 
month) of the individual’s coverage under the high 
deductible health plan. 
‘‘(3) COORDINATION WITH OTHER CONTRIBU-
TIONS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of—
‘‘(A) the aggregate amount paid during 
such taxable year to Archer MSAs of such indi-
vidual, 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual, and 
‘‘(C) the aggregate amount paid during 
such taxable year to health savings accounts of 
such individual by persons other than such indi-
vidual. 
‘‘(4) SPECIAL RULES FOR MARRIED INDIVID-
UALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDI-
VIDUALS.—Rules similar to the rules of paragraphs 
(3), (6), and (7) of section 220(b) shall apply for 
purposes of this section. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means, with respect to any month, any 
individual if—
‘‘(i) such individual is covered under a 
high deductible health plan as of the 1st 
day of such month, and
‘‘(ii) such individual is not, while cov-
ered under a high deductible health plan, 
covered under any health plan—
‘‘(I) which is not a high deduct-
ible health plan, and 
‘‘(II) which provides coverage for 
any benefit which is covered under the 
high deductible health plan. 
‘‘(B) 
CERTAIN
COVERAGE
DIS-
REGARDED.—Subparagraph (A)(ii) shall be ap-
plied without regard to— 
‘‘(i) coverage for any benefit provided 
by permitted insurance, and 
‘‘(ii) coverage (whether through insur-
ance or otherwise) for accidents, disability, 
dental care, vision care, or long-term care. 
‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—
‘‘(A) IN
GENERAL.—The term ‘high de-
ductible health plan’ means a health plan— 
‘‘(i) in the case of self-only coverage, 
which has an annual deductible which is 
not less than $1,000 and not more than 
$2,250, 
‘‘(ii) in the case of family coverage, 
which has an annual deductible which is
not less than $2,000 and not more than 
$4,500, and 
‘‘(iii) the annual out-of-pocket ex-
penses required to be paid under the plan 
(other than for premiums) for covered ben-
efits does not exceed— 
‘‘(I) $3,000 for self-only cov-
erage, and 
‘‘(II) $5,500 for family coverage. 
‘‘(B) COST-OF-LIVING ADJUSTMENT.—
‘‘(i) IN GENERAL.—In the case of any 
taxable year beginning in a calendar year 
after 1998, each dollar amount in subpara-
graph (A) shall be increased by an amount 
equal to—
‘‘(I) such dollar amount, multi-
plied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for the calendar year in which such 
taxable year begins by substituting 
‘calendar year 1997’ for ‘calendar 
year 1992’ in subparagraph (B) there-
of.
‘‘(ii) SPECIAL RULES.—In the case of 
the $1,000 amount in subparagraph (A)(i) 
and the $2,000 amount in subparagraph 
(A)(ii), subclause (i)(II) shall be applied by 
substituting ‘calendar year 2002’ for ‘cal-
endar year 1997’. 
‘‘(iii) ROUNDING.—If any increase 
under clause (i) or (ii) is not a multiple of 
$50, such increase shall be rounded to the 
nearest multiple of $50. 
‘‘(C) SPECIAL RULES.— 
‘‘(i) 
EXCLUSION
OF
CERTAIN 
PLANS.—Such term does not include a 
health plan if substantially all of its cov-
erage is coverage described in paragraph 
(1)(B). 
‘‘(ii) SAFE HARBOR FOR ABSENCE OF 
PREVENTIVE CARE DEDUCTIBLE.— A plan 
shall not fail to be treated as a high de-
ductible health plan by reason of failing to 
have a deductible for preventive care. 
‘‘(D) TREATMENT
OF
NETWORK
SERV-
ICES.—
‘‘(i) IN GENERAL.—In the case of a 
health plan which is a preferred provider
organization plan and which would (with-
out regard to services provided outside 
such organization’s network of providers 
described in clause (iii)(I)) be a high de-
ductible health plan, such plan shall not 
fail to be a high deductible health plan be-
cause—
‘‘(I) the annual deductible for 
services provided outside such network 
exceeds the applicable maximum dol-
lar amount in clause (i) or (ii) of sub-
paragraph (A), or 
‘‘(II) the annual out-of-pocket ex-
penses required to be paid for services 
provided outside such network exceeds 
the applicable dollar amount in sub-
paragraph (A)(iii). 
‘‘(ii) ANNUAL DEDUCTIBLE.—The an-
nual deductible taken into account under 
subsection (b)(2) with respect to a plan 
which is a high deductible health plan by 
reason of clause (i) shall be the annual de-
ductible for services provided within such 
network.
‘‘(iii) PREFERRED PROVIDER ORGANI-
ZATION PLAN DEFINED.—In this subpara-
graph, the term ‘preferred provider organi-
zation plan’ means a health plan that—
‘‘(I) has a network of providers 
that have agreed to a contractually 
specified reimbursement for covered 
benefits with the organization offering 
the plan, 
‘‘(II) provides for reimbursement 
for all covered benefits regardless of 
whether such benefits are provided 
within such network of providers, and 
‘‘(III) is offered by an organiza-
tion that is not licensed or organized 
under State law as a health mainte-
nance organization. 
‘‘(3) PERMITTED INSURANCE.—The term ‘per-
mitted insurance’ has the meaning given such term 
in section 220(c)(3). 
‘‘(4) FAMILY
COVERAGE.—The term ‘family 
coverage’ has the meaning given such term in sec-
tion 220(c)(5). 
‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ 
has the meaning given such term in section 220(d).
‘‘(6) HEALTH SAVINGS SECURITY ACCOUNT.—
The term ‘health savings security account’ has the 
meaning given such term in section 223(d). 
‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of 
this section—
‘‘(1) IN GENERAL.—The term ‘health savings 
account’ means a trust created or organized in the 
United States as a health savings account exclusively 
for the purpose of paying the qualified medical ex-
penses of the account beneficiary, but only if the 
written governing instrument creating the trust 
meets the following requirements: 
‘‘(A) Except in the case of a rollover con-
tribution from an Archer MSA, a health savings 
security account, or a health savings account, 
which is not includible in gross income, no con-
tribution will be accepted— 
‘‘(i) unless it is in cash and is contrib-
uted by—
‘‘(I) the account beneficiary, or 
‘‘(II) an employer of the account 
beneficiary, and 
‘‘(ii) to the extent such contribution, 
when added to previous contributions to 
the trust for the calendar year, exceeds the
highest annual limitation which could 
apply to an individual under subsection (b) 
for a taxable year beginning in such cal-
endar year. 
‘‘(B) The trustee is a bank (as defined in 
section 408(n)), an insurance company (as de-
fined in section 816), or another person who 
demonstrates to the satisfaction of the Sec-
retary that the manner in which such person 
will administer the trust will be consistent with 
the requirements of this section. 
‘‘(C) No part of the trust assets will be in-
vested in life insurance contracts. 
‘‘(D) The assets of the trust will not be 
commingled with other property except in a 
common trust fund or common investment 
fund. 
‘‘(E) The interest of an individual in the 
balance in his account is nonforfeitable. 
‘‘(2) QUALIFIED
MEDICAL
EXPENSES.—The 
term ‘qualified medical expenses’ has the meaning 
given such term in section 220(d)(2). 
‘‘(3) ACCOUNT
BENEFICIARY.—The term ‘ac-
count beneficiary’ means the individual on whose be-
half the health savings account was established.
‘‘(4) CERTAIN RULES TO APPLY.—Rules similar 
to the following rules shall apply for purposes of this 
section: 
‘‘(A) Section 219(d)(2) (relating to no de-
duction for rollovers). 
‘‘(B) Section 219(f)(3) (relating to time 
when contributions deemed made). 
‘‘(C) Except as provided in section 106(d), 
section 219(f)(5) (relating to employer pay-
ments). 
‘‘(D) Section 408(g) (relating to commu-
nity property laws). 
‘‘(E) Section 408(h) (relating to custodial 
accounts). 
‘‘(6) CONTRIBUTIONS FROM FLEXIBLE SPEND-
ING
ACCOUNTS
TREATED
AS
MADE
BY
THE
EM-
PLOYER.—Any contribution from a flexible spending 
account to a health savings account which is not in-
cludible in the gross income of the employee by rea-
son of section 125(h) shall be treated as a contribu-
tion made by the employer for purposes of this sec-
tion. 
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A health savings account is 
exempt from taxation under this subtitle unless such
account has ceased to be a health savings account. 
Notwithstanding the preceding sentence, any such 
account is subject to the taxes imposed by section 
511 (relating to imposition of tax on unrelated busi-
ness income of charitable, etc. organizations). 
‘‘(2) ACCOUNT TERMINATIONS.—Rules similar 
to the rules of paragraphs (2) and (4) of section 
408(e) shall apply to health savings accounts, and 
any amount treated as distributed under such rules 
shall be treated as not used to pay qualified medical 
expenses. 
‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL 
EXPENSES.—Any amount paid or distributed out of 
a health savings account which is used exclusively to 
pay qualified medical expenses of any account bene-
ficiary shall not be includible in gross income. 
‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR 
QUALIFIED MEDICAL EXPENSES.—Any amount paid 
or distributed out of a health savings account which 
is not used exclusively to pay the qualified medical 
expenses of the account beneficiary shall be included 
in the gross income of such beneficiary. 
‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE-
FORE DUE DATE OF RETURN.—
‘‘(A) IN
GENERAL.—If any excess con-
tribution is contributed for a taxable year to 
any health savings account of an individual, 
paragraph (2) shall not apply to distributions 
from the health savings accounts of such indi-
vidual (to the extent such distributions do not 
exceed the aggregate excess contributions to all 
such accounts of such individual for such year) 
if— 
‘‘(i) such distribution is made on or 
before the last day prescribed by law (in-
cluding extensions of time) for filing the 
account beneficiary’s return for such tax-
able year, 
‘‘(ii) no deduction is allowed under 
this section with respect to such contribu-
tion, 
‘‘(iii) such distribution is accompanied 
by the amount of net income attributable 
to such excess contribution, and 
‘‘(iv) such distribution satisfies the re-
quirements of subparagraph (B). 
‘‘(B) RULES RELATED TO ORDERING.—
‘‘(i) DISTRIBUTIONS LIMITED TO CON-
TRIBUTIONS.—Subparagraph 
(A) 
shall
apply to distributions to a person only to 
the extent of the contributions of such per-
son to such accounts during such taxable 
year. 
‘‘(ii) CLASSES
OF
CONTRIBUTORS.—
Subparagraph (A) shall apply only to dis-
tributions of such contributions which are 
made in the following order: 
‘‘(I) first, to the account bene-
ficiary, 
‘‘(II) second, to employers of the 
account beneficiary with respect to 
contributions under section 125(h), 
and 
‘‘(III) third, to employers of the 
account beneficiary with respect to 
contributions under section 106(d). 
‘‘(iii) LAST-IN
FIRST-OUT.—If dis-
tributions could be made to more than one 
person under any subclause of clause (ii), 
subparagraph (A) shall not apply to any 
such distribution unless such distribution 
is of the most recent excess contribution 
which has not been distributed to the con-
tributor.
‘‘(C) TREATMENT OF NET INCOME.—Any 
net income described in subparagraph (A)(iii) 
shall be included in the gross income of the per-
son receiving the distribution for the taxable 
year in which received. 
‘‘(D) EXCESS
CONTRIBUTION.—For pur-
poses of subparagraph (A), the term ‘excess 
contribution’ means any contribution (other 
than a rollover contribution from another health 
savings account, from a health savings security 
account, or from an Archer MSA, which is not 
includible in gross income) to the extent such 
contribution results in the aggregate contribu-
tions to health savings accounts of the account 
beneficiary for the taxable year to be in excess 
of the limitation under subsection (b) (deter-
mined without regard to paragraph (3)(C) 
thereof) which applies to such beneficiary for 
such year. 
‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT 
USED FOR QUALIFIED MEDICAL EXPENSES.— 
‘‘(A) IN GENERAL.—The tax imposed by 
this chapter on the account beneficiary for any 
taxable year in which there is a payment or dis-
tribution from a health savings account of such
beneficiary which is includible in gross income 
under paragraph (2) shall be increased by 15 
percent of the amount which is so includible. 
‘‘(B) EXCEPTION
FOR
DISABILITY
OR 
DEATH.—Subparagraph (A) shall not apply if 
the payment or distribution is made after the 
account beneficiary becomes disabled within the 
meaning of section 72(m)(7) or dies. 
‘‘(C) 
EXCEPTION
FOR
DISTRIBUTIONS 
AFTER MEDICARE ELIGIBILITY.—Subparagraph 
(A) shall not apply to any payment or distribu-
tion after the date on which the account bene-
ficiary attains the age specified in section 1811 
of the Social Security Act. 
‘‘(5) ROLLOVER CONTRIBUTION.—
‘‘(A) IN
GENERAL.—Paragraph (2) shall 
not apply to any amount paid or distributed 
from a health savings account to the account 
beneficiary to the extent the amount received is 
paid into a health savings account for the ben-
efit of such beneficiary not later than the 60th 
day after the day on which the beneficiary re-
ceives the payment or distribution. 
‘‘(B) LIMITATION.—This paragraph shall 
not apply to any amount described in subpara-
graph (A) received by an individual from a 
health savings account if, at any time during 
the 1-year period ending on the day of such re-
ceipt, such individual received any other amount 
described in subparagraph (A) from a health 
savings account which was not includible in the 
individual’s gross income because of the appli-
cation of this paragraph. 
‘‘(6) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (6), (7), and (8) of section 
220(f) shall apply for purposes of this section. 
‘‘(g) REPORTS.—The Secretary may require the 
trustee of a health savings account to make such reports 
regarding such account to the Secretary and to the ac-
count beneficiary with respect to contributions, distribu-
tions, and such other matters as the Secretary determines 
appropriate. The reports required by this subsection shall 
be filed at such time and in such manner and furnished 
to such individuals at such time and in such manner as 
may be required by the Secretary.’’. 
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 
of section 62 of such Code is amended by inserting after 
paragraph (18) the following new paragraphs:
‘‘(19) 
HEALTH
SAVINGS
SECURITY
AC-
COUNTS.—The deduction allowed by section 223. 
‘‘(20) HEALTH SAVINGS ACCOUNTS.—The de-
duction allowed by section 224.’’. 
(c) COORDINATION WITH ARCHER MSAS.—
(1) ROLLOVERS
FROM
ARCHER
MSAS
PER-
MITTED.—Subparagraph (A) of section 220(f)(5) of 
such Code (relating to rollover contribution) is 
amended by inserting ‘‘, a health savings security 
account (as defined in section 223(d)), or a health 
savings account (as defined in section 224(d)),’’ 
after ‘‘paid into an Archer MSA’’. 
(2) REDUCTION IN ARCHER MSA LIMITATION 
FOR CONTRIBUTIONS TO HEALTH SAVINGS SECURITY 
ACCOUNTS AND HEALTH SAVINGS ACCOUNTS.—Sub-
section (b) of section 220 of such Code (relating to 
limitations) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(8) COORDINATION
WITH
HEALTH
SAVINGS 
SECURITY
ACCOUNTS
AND
HEALTH
SAVINGS
AC-
COUNTS.—The limitation which would (but for this 
paragraph) apply under this subsection to the tax-
payer for any taxable year shall be reduced (but not 
below zero) by the sum of—
‘‘(A) the aggregate amount paid during 
such taxable year to health savings security ac-
counts of such individual, and 
‘‘(B) the aggregate amount paid during 
such taxable year to health savings accounts of 
such individual.’’. 
(d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO 
HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH 
SAVINGS ACCOUNTS.—
(1) EXCLUSION
FROM
INCOME
TAX.—Section 
106 of such Code (relating to contributions by em-
ployer to accident and health plans) is amended by 
adding at the end the following new subsections: 
‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS SECU-
RITY ACCOUNTS.— 
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible individual, amounts contributed by 
such employee’s employer to any health savings se-
curity account of such employee shall be treated as 
employer-provided coverage for medical expenses 
under an accident or health plan to the extent such 
amounts do not exceed the limitation under section 
223(b) (determined without regard to this sub-
section) which is applicable to such employee for 
such taxable year.
‘‘(2) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (2), (3), (4), and (5) of sub-
section (b) shall apply for purposes of this sub-
section. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘health 
savings security account’ have the respective mean-
ings given to such terms by section 223. 
‘‘(4) CROSS REFERENCE.—
‘‘For penalty on failure by employer to make com-
parable contributions to the health savings security 
accounts of comparable employees, see section 
4980G.
‘‘(e) CONTRIBUTIONS
TO HEALTH SAVINGS AC-
COUNTS.— 
‘‘(1) IN GENERAL.—In the case of an employee 
who is an eligible individual, amounts contributed by 
such employee’s employer to any health savings ac-
count of such employee shall be treated as employer-
provided coverage for medical expenses under an ac-
cident or health plan to the extent such amounts do 
not exceed the limitation under section 224(b) (de-
termined without regard to this subsection) which is 
applicable to such employee for such taxable year. 
‘‘(2) SPECIAL
RULES.—Rules similar to the 
rules of paragraphs (2), (3), (4), and (5) of sub-
section (b) shall apply for purposes of this sub-
section. 
‘‘(3) DEFINITIONS.—For purposes of this sub-
section, the terms ‘eligible individual’ and ‘health 
savings account’ have the respective meanings given 
to such terms by section 224. 
‘‘(4) CROSS REFERENCE.—
‘‘For penalty on failure by employer to make com-
parable contributions to the health savings ac-
counts 
of 
comparable 
employees, 
see 
section 
4980G.’’.
(2) EXCLUSION FROM EMPLOYMENT TAXES.—
(A) RAILROAD
RETIREMENT
TAX.—Sub-
section (e) of section 3231 of such Code is 
amended by adding at the end the following 
new paragraph: 
‘‘(11) HEALTH
SAVINGS
SECURITY
ACCOUNT 
AND HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—
The term ‘compensation’ shall not include any pay-
ment made to or for the benefit of an employee if 
at the time of such payment it is reasonable to be-
lieve that the employee will be able to exclude such 
payment from income under subsection (d) or (e) of 
section 106.’’. 
(B) UNEMPLOYMENT TAX.—Subsection (b) 
of section 3306 of such Code is amended by 
striking ‘‘or’’ at the end of paragraph (16), by
striking the period at the end of paragraph (17) 
and inserting ‘‘; or’’, and by inserting after 
paragraph (17) the following new paragraph: 
‘‘(18) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
to exclude such payment from income under sub-
section (d) or (e) of section 106.’’. 
(C) WITHHOLDING
TAX.—Subsection (a) 
of section 3401 of such Code is amended by 
striking ‘‘or’’ at the end of paragraph (20), by 
striking the period at the end of paragraph (21) 
and inserting ‘‘; or’’, and by inserting after 
paragraph (21) the following new paragraph: 
‘‘(22) any payment made to or for the benefit 
of an employee if at the time of such payment it is 
reasonable to believe that the employee will be able 
to exclude such payment from income under sub-
section (d) or (e) of section 106.’’
(3) EMPLOYER CONTRIBUTIONS REQUIRED TO 
BE SHOWN ON W–2.—Subsection (a) of section 6051 
of such Code is amended by striking ‘‘and’’ at the 
end of paragraph (10), by striking the period at the 
end of paragraph (11) and inserting a comma, and
by inserting after paragraph (11) the following new 
paragraphs: 
‘‘(12) the amount contributed to any health 
savings security account (as defined in section 
223(d)) of such employee or such employee’s spouse, 
and 
‘‘(13) the amount contributed to any health 
savings account (as defined in section 224(d)) of 
such employee or such employee’s spouse.’’. 
(4) PENALTY FOR FAILURE OF EMPLOYER TO 
MAKE
COMPARABLE
HEALTH
SAVINGS
ACCOUNT 
CONTRIBUTIONS.—
(A) IN
GENERAL.—Chapter 43 of such 
Code is amended by adding after section 4980F 
the following new section: 
‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COM-
PARABLE HEALTH SAVINGS ACCOUNT CON-
TRIBUTIONS. 
‘‘(a) GENERAL RULE.—In the case of an employer 
who makes a contribution to the health savings security 
account or the health savings account of any employee 
during a calendar year, there is hereby imposed a tax on 
the failure of such employer to meet the requirements of 
subsection (b) for such calendar year.
‘‘(b) RULES AND REQUIREMENTS.—Rules and re-
quirements similar to the rules and requirements of sec-
tion 4980E shall apply for purposes of this section. 
‘‘(c) REGULATIONS.—The Secretary shall issue regu-
lations to carry out the purposes of this section, including 
regulations providing special rules for employers who 
make contributions to more than one of the following types 
of accounts during the calendar year: 
‘‘(1) An Archer MSA. 
‘‘(2) A health savings security account. 
‘‘(3) A health savings account.’’. 
(B) CLERICAL AMENDMENT.—The table of 
sections for chapter 43 of such Code is amend-
ed by adding after the item relating to section 
4980F the following new item:
‘‘Sec. 4980G. Failure of employer to make comparable health savings account 
contributions.’’.
(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 
of such Code (relating to tax on excess contributions to 
certain tax-favored accounts and annuities) is amended—
(1) by striking ‘‘or’’ at the end of paragraph 
(3) of subsection (a), 
(2) by inserting after paragraph (4) of sub-
section (a) the following new paragraphs: 
‘‘(5) a health savings security account (within 
the meaning of section 223(d)), or
‘‘(6) a health savings account (within the mean-
ing of section 224(d))’’, and 
(4) by adding at the end the following new sub-
sections: 
‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS 
SECURITY ACCOUNTS.—For purposes of this section, in 
the case of health savings security accounts (within the 
meaning of section 223(d)), the term ‘excess contribu-
tions’ means the sum of—
‘‘(1) the aggregate amount contributed for the 
taxable year to the accounts (other than a rollover 
contribution from another health savings security ac-
count, or from an Archer MSA, which is not includ-
ible in gross income) which is in excess of the limita-
tion under section 223(b) (determined without re-
gard to paragraph (5)(C) thereof), and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by 
the sum of—
‘‘(A) the distributions out of the accounts 
which were included in gross income under sec-
tion 223(f)(2), and 
‘‘(B) the excess (if any) of—
‘‘(i) the sum of limitations described 
in paragraph (1), over
‘‘(ii) the amount contributed to the 
accounts for the taxable year. 
For purposes of this subsection, any contribution which 
is distributed out of the health savings security account 
in a distribution to which section 223(f)(3) applies shall 
be treated as an amount not contributed. 
‘‘(h) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS 
ACCOUNTS.—For purposes of this section, in the case of 
health savings accounts (within the meaning of section 
224(d)), the term ‘excess contributions’ means the sum 
of—
‘‘(1) the aggregate amount contributed for the 
taxable year to the accounts (other than a rollover 
contribution from another health savings account, a 
health savings security account, or from an Archer 
MSA, which is not includible in gross income) which 
is in excess of the limitation under section 224(b) 
(determined without regard to paragraph (3)(C) 
thereof), and 
‘‘(2) the amount determined under this sub-
section for the preceding taxable year, reduced by 
the sum of—
‘‘(A) the distributions out of the accounts 
which were included in gross income under sec-
tion 224(f)(2), and
‘‘(B) the excess (if any) of—
‘‘(i) the sum of limitations described 
in paragraph (1), over 
‘‘(ii) the amount contributed to the 
accounts for the taxable year. 
For purposes of this subsection, any contribution which 
is distributed out of the health savings account in a dis-
tribution to which section 224(f)(3) applies shall be treat-
ed as an amount not contributed.’’. 
(f) TAX ON PROHIBITED TRANSACTIONS.—
(1) Section 4975 of such Code (relating to tax 
on prohibited transactions) is amended by adding at 
the end of subsection (c) the following new para-
graphs: 
‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS SE-
CURITY ACCOUNTS.—An individual for whose benefit 
a health savings security account (within the mean-
ing of section 223(d)) is established shall be exempt 
from the tax imposed by this section with respect to 
any transaction concerning such account (which 
would otherwise be taxable under this section) if, 
with respect to such transaction, the account ceases 
to be a health savings security account by reason of 
the application of section 223(e)(2) to such account.
‘‘(7) SPECIAL RULE FOR HEALTH SAVINGS AC-
COUNTS.—An individual for whose benefit a health 
savings account (within the meaning of section 
224(d)) is established shall be exempt from the tax 
imposed by this section with respect to any trans-
action concerning such account (which would other-
wise be taxable under this section) if, with respect 
to such transaction, the account ceases to be a 
health savings account by reason of the application 
of section 224(e)(2) to such account.’’. 
(2) Paragraph (1) of section 4975(e) of such 
Code is amended by redesignating subparagraphs 
(E) and (F) as subparagraphs (G) and (H), respec-
tively, and by inserting after subparagraph (D) the 
following new subparagraphs: 
‘‘(E) a health savings security account de-
scribed in section 223(d), 
‘‘(F) a health savings account described in 
section 224(d),’’. 
(g) FAILURE TO PROVIDE REPORTS ON HEALTH 
SAVINGS ACCOUNTS.—Paragraph (2) of section 6693(a) 
of such Code (relating to reports) is amended by redesig-
nating subparagraphs (C) and (D) as subparagraphs (E) 
and (F), respectively, and by inserting after subparagraph 
(B) the following new subparagraphs:
‘‘(C) section 223(g) (relating to health sav-
ings security accounts), 
‘‘(D) section 224(g) (relating to health 
savings accounts),’’. 
(h) EXCEPTION FROM CAPITALIZATION OF POLICY 
ACQUISITION EXPENSES.—Subparagraph (B) of section 
848(e)(1) of such Code (defining specified insurance con-
tract) is amended by striking ‘‘and’’ at the end of clause 
(iii), by striking the period at the end of clause (iv) and 
inserting a comma, and by adding at the end the following 
new clauses: 
‘‘(v) any contract which is a health 
savings security account (as defined in sec-
tion 223(d)), and’’. 
‘‘(vi) any contract which is a health 
savings account (as defined in section 
224(d)).’’. 
(i) HEALTH SAVINGS SECURITY ACCOUNTS
AND 
HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER 
CAFETERIA PLANS.—Paragraph (2) of section 125(d) (re-
lating to cafeteria plan defined) is amended by adding at 
the end the following new subparagraph: 
‘‘(D) EXCEPTION
FOR
HEALTH
SAVINGS 
ACCOUNTS.—Subparagraph (A) shall not apply 
to a plan to the extent of amounts which a cov-
ered employee may elect to have the employer 
pay as contributions to a health savings secu-
rity account, or a health savings account, estab-
lished on behalf of the employee.’’. 
(j) INFORMATION REPORTING
BY PROVIDERS
OF 
HEALTH INSURANCE.—Subpart B of part III of sub-
chapter A of chapter 61 of such Code is amended by add-
ing at the end the following new section: 
‘‘SEC. 6050U. RETURNS RELATING TO PROVIDERS OF 
HEALTH INSURANCE. 
‘‘(a) REQUIREMENT OF REPORTING.—Under regula-
tions prescribed by the Secretary, every person who pro-
vides any individual with coverage under a plan which con-
stitutes medical care shall, at such time as the Secretary 
may prescribe, make the return described in subsection (b) 
with respect to such individual. 
‘‘(b) FORM AND MANNER OF RETURNS.—A return 
is described in this subsection if such return—
‘‘(1) is in such form as the Secretary may pre-
scribe, and 
‘‘(2) contains such information as the Secretary 
prescribes. 
‘‘(c) STATEMENTS TO BE FURNISHED TO INDIVID-
UALS WITH RESPECT TO WHOM INFORMATION IS RE-
QUIRED.—Every person required to make a return under
subsection (a) shall furnish to each individual whose name 
is required to be set forth in such return a written state-
ment showing— 
‘‘(1) the name and address of the person re-
quired to make such return and the phone number 
of the information contact for such person, and 
‘‘(2) the information required to be shown on 
the return with respect to such individual. 
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the 
year following the calendar year for which the return 
under subsection (a) is required to be made.’’. 
(k) CONFORMING AMENDMENTS.—
(1) The table of sections for part VII of sub-
chapter B of chapter 1 of such Code is amended by 
striking the last item and inserting the following:
‘‘Sec. 223. Health savings security accounts. 
‘‘Sec. 224. Health savings accounts. 
‘‘Sec. 225. Cross reference.’’.
(2)(A) 
Sections 
86(b)(2)(A), 
135(c)(4)(A), 
137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) 
are each amended by inserting ‘‘223,’’ after ‘‘222,’’. 
(B) Section 222(b)(2)(C)(i) is amended by in-
serting ‘‘223,’’ before ‘‘911’’. 
(C) Section 469(i)(3)(F)(iii) is amended by 
striking ‘‘and 222’’ and inserting ‘‘222, and 223’’.
(l) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
SEC. 3. DISPOSITION OF UNUSED HEALTH BENEFITS IN 
CAFETERIA PLANS AND FLEXIBLE SPENDING 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 125 of the Internal Rev-
enue Code of 1986 (relating to cafeteria plans) is amended 
by redesignating subsections (h) and (i) as subsections (i) 
and (j), respectively, and by inserting after subsection (g) 
the following: 
‘‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH 
BENEFITS.—
‘‘(1) IN GENERAL.—For purposes of this title, 
a plan or other arrangement shall not fail to be 
treated as a cafeteria plan solely because qualified 
benefits under such plan include a health flexible 
spending arrangement under which not more than 
$500 of unused health benefits may be—
‘‘(A) carried forward to the succeeding 
plan year of such health flexible spending ar-
rangement, 
‘‘(B) to the extent permitted by sections 
223 and 224, contributed on behalf of the em-
ployee to a health savings security account (as
defined in section 223(d)), or a health savings 
account (as defined in section 224(d)), main-
tained for the benefit of such employee, or 
‘‘(C) contributed to a qualified retirement 
plan (as defined in section 4974(c)), or an eligi-
ble deferred compensation plan (as defined in 
section 457(b)) of an eligible employer de-
scribed in section 457(e)(1)(A), but only to the 
extent such amount would not be allowed as a 
deduction under—
‘‘(i) section 223 if made directly by 
the employee to a health savings security 
account of the employee (determined with-
out regard to any other contributions made 
by the employee), and 
‘‘(ii) section 224 if made directly by 
the employee to a health savings account 
of the employee (determined without re-
gard to any other contributions made by 
the employee). 
‘‘(2) SPECIAL RULES FOR TREATMENT OF CON-
TRIBUTIONS TO RETIREMENT PLANS.—For purposes 
of this title, contributions under paragraph (1)(C)—
‘‘(A) shall be treated as elective deferrals 
(as defined in section 402(g)(3)) in the case of
contributions to a qualified cash or deferred ar-
rangement (as defined in section 401(k)) or to 
an annuity contract described in section 403(b), 
‘‘(B) shall be treated as employer contribu-
tions to which the employee has a nonforfeitable 
right in the case of a plan (other than a plan 
described in subparagraph (A)) which is de-
scribed in section 401(a) which includes a trust 
exempt from tax under section 501(a), 
‘‘(C) shall be treated as deferred com-
pensation in the case of contributions to an eli-
gible deferred compensation plan (as defined in 
section 457(b)), and 
‘‘(D) shall be treated in the manner des-
ignated for purposes of section 408 or 408A in 
the case of contributions to an individual retire-
ment plan. 
‘‘(3) HEALTH FLEXIBLE SPENDING ARRANGE-
MENT.—For purposes of this subsection, the term 
‘health flexible spending arrangement’ means a flexi-
ble spending arrangement (as defined in section 
106(c)) that is a qualified benefit and only permits 
reimbursement for expenses for medical care (as de-
fined in section 213(d)(1) (without regard to sub-
paragraphs (C) and (D) thereof).
‘‘(4) UNUSED
HEALTH
BENEFITS.—For pur-
poses of this subsection, with respect to an em-
ployee, the term ‘unused health benefits’ means the 
excess of—
‘‘(A) the maximum amount of reimburse-
ment allowable to the employee during a plan 
year under a health flexible spending arrange-
ment, taking into account any election by the 
employee, over 
‘‘(B) the actual amount of reimbursement 
during such year under such arrangement.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 4. EXCEPTION TO INFORMATION REPORTING RE-
QUIREMENTS RELATED TO CERTAIN HEALTH 
ARRANGEMENTS. 
(a) IN GENERAL.—Section 6041 (relating to infor-
mation at source) is amended by adding at the end the 
following new subsection: 
‘‘(f) SECTION
DOES
NOT
APPLY
TO
CERTAIN 
HEALTH ARRANGEMENTS.—This section shall not apply 
to any payment for medical care (as defined in section 
213(d)) made under—
‘‘(1) a flexible spending arrangement (as de-
fined in section 106(c)(2)), or 
‘‘(2) a health reimbursement arrangement 
which is treated as employer-provided coverage 
under an accident or health plan for purposes of sec-
tion 106.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to payments made after December 
31, 2002.
Æ