I
105TH CONGRESS
2D SESSION
H. R. 4649
To amend the Internal Revenue Code of 1986 to provide for the establishment
of medical security accounts for individuals who are 40 years old or older.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 26, 1998
Mr. SNOWBARGER 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 provide
for the establishment of medical security accounts for
individuals who are 40 years old or older.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. MEDICAL SECURITY ACCOUNTS FOR INDIVID-
UALS WHO ARE 40 OR OLDER.
(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 222 as section 223 and by insert-
ing after section 221 the following new section:
‘‘SEC. 222. MEDICAL SECURITY ACCOUNTS FOR INDIVID-
UALS WHO ARE 40 OR OLDER.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual who is an eligible individual 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 medical
security account of such individual.
‘‘(b) LIMITATIONS.—For purposes of this section—
‘‘(1) IN GENERAL.—The amount allowable as a
deduction under subsection (a) to an individual for
the taxable year shall not exceed the lesser of—
‘‘(A) the limitation amount (one-half of
such amount in the case of an individual who
has attained age 56 before the end of the tax-
able year), or
‘‘(B) an amount equal to the compensation
includible in the individual’s gross income for
such taxable year.
‘‘(2) LIMITATION AMOUNT.—The term ‘limita-
tion amount’ means $5,000.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) MEDICAL SECURITY ACCOUNT.—The term
‘medical security account’ means a trust created or
organized in the United States exclusively for the
purpose of paying the qualified medical expenses of
the account holder, but only if the written governing
instrument creating the trust meets the following re-
quirements:
‘‘(A) Except in the case of a rollover con-
tribution described in subsection (e)(5), no con-
tribution will be accepted—
‘‘(i) unless it is in cash, or
‘‘(ii) to the extent such contribution,
when added to previous contributions to
the trust for the calendar year, exceeds the
limitation amount specified in subsection
(b)(2).
‘‘(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) ELIGIBLE INDIVIDUAL.—The term ‘eligible
individual’ means any individual who has attained
age 40 before the end of the taxable year.
‘‘(3) QUALIFIED
MEDICAL
EXPENSES.—The
term ‘qualified medical expenses’ means, with re-
spect to an account holder, amounts paid by such
holder for medical care (as defined in section
213(d)) for such individual, the spouse of such indi-
vidual, and any dependent (as defined in section
152) of such individual, but only to the extent such
amounts are not compensated for by insurance or
otherwise.
‘‘(4) ACCOUNT
HOLDER.—The term ‘account
holder’ means the individual on whose behalf the
medical security account was established.
‘‘(d) CERTAIN RULES TO APPLY.—Rules similar to
the following rules shall apply for purposes of this section:
‘‘(1) Section 219(d)(2) (relating to no deduc-
tion for rollovers).
‘‘(2) Section 219(f)(3) (relating to time when
contributions deemed made).
‘‘(3) Except as provided in section 106(b), sec-
tion 219(f)(5) (relating to employer payments).
‘‘(4) Section 408(g) (relating to community
property laws).
‘‘(5) Section 408(h) (relating to custodial ac-
counts).
‘‘(e) TAX TREATMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—A medical security account
is exempt from taxation under this subtitle unless
such account has ceased to be a medical security ac-
count. Notwithstanding the preceding sentence, any
such account is subject to the taxes imposed by sec-
tion 511 (relating to imposition of tax on unrelated
business 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 medical security 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 medical security account which is used exclusively
to pay—
‘‘(A) qualified medical expenses of any ac-
count holder who has attained age 55 before
the close of the taxable year, or
‘‘(B) for continuation coverage (within the
meaning of section 4980B(f)) under a group
health plan,
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 medical security account
which is not used exclusively to pay the qualified
medical expenses of the account holder shall be in-
cluded in the gross income of such holder.
‘‘(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 medical security account of an individual,
paragraph (2) shall not apply to distributions
from the medical security 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 received by
the individual on or before the last day
prescribed by law (including extensions of
time) for filing such individual’s return for
such taxable year, and
‘‘(ii) such distribution is accompanied
by the amount of net income attributable
to such excess contribution.
Any net income described in clause (ii) shall be
included in the gross income of the individual
for the taxable year in which it is received.
‘‘(B) EXCESS
CONTRIBUTION.—For pur-
poses of subparagraph (A), the term ‘excess
contribution’ means any contribution (other
than a rollover contribution) which is neither
excludable from gross income under section
106(b) nor deductible under this section.
‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT
USED FOR QUALIFIED MEDICAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by
this chapter on the account holder for any tax-
able year in which there is a payment or dis-
tribution from a medical security account of
such holder 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 holder 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 holder
attains the age specified in section 1811 of the
Social Security Act.
‘‘(5) ROLLOVER CONTRIBUTION.—An amount is
described in this paragraph as a rollover contribu-
tion if it meets the requirements of subparagraphs
(A), (B), and (C).
‘‘(A) IN
GENERAL.—Paragraph (2) shall
not apply to any amount paid or distributed
from a medical security account to the account
holder to the extent the amount received is paid
into a medical security account for the benefit
of such holder not later than the 60th day after
the day on which the holder receives the pay-
ment or distribution.