To amend the Internal Revenue Code of 1986 to provide for tax-favored retirement health savings accounts, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Retiree Health Account Act of 
2008''.

SEC. 2. RETIREMENT HEALTH ARRANGEMENT.

    (a) In General.--Section 401 of the Internal Revenue Code of 1986 
(relating to qualified pension, profit-sharing, and stock bonus plans) 
is amended by redesignating subsection (o) as subsection (p) and 
inserting after subsection (n) the following new subsection:
    ``(o) Retirement Health Plan.--
            ``(1) In general.--
                    ``(A) Treated in same manner as 401(k).--Except as 
                provided in this subsection, a retirement health 
                arrangement shall be treated for purposes of this title 
                in the same manner as an qualified cash or deferred 
                arrangement described in section 401(k)(2).
                    ``(B) Separate application of applicable rules.--
                Rules made applicable by reason of this paragraph shall 
                be applied separately with respect to retirement health 
                arrangements and other qualified cash or deferred 
                arrangements of the individual.
            ``(2) Retirement health arrangement.--For purposes of this 
        subsection, the term `retirement health arrangement' means a 
        cash or deferred arrangement described in section 401(k)(2) 
        which is designated (in such manner as the Secretary may 
        prescribe) at the time of establishment of the plan as a 
        retirement health arrangement.
            ``(3) Contributions after medicare eligibility.--Except in 
        the case of a rollover contribution described in paragraph 
        (5)(A), no contributions may be made to an employee's 
        retirement health arrangement during calendar years beginning 
        after the first month such employee is entitled to benefits 
        under title XVIII of the Social Security Act.
            ``(4) Treatment of distributions.--
                    ``(A) In general.--Any amounts distributed from a 
                retirement health arrangement shall be included in 
                gross income, unless such amount is used exclusively to 
                pay qualified medical retirement expenses of the 
                employee.
                    ``(B) Qualified retirement medical expense.--For 
                purposes of this section, the term `qualified 
                retirement medical expense' means, with respect to an 
                individual, amounts paid by such individual for medical 
                care (as defined in section 213(d)) of the individual, 
                the individual's spouse, or a dependent of the 
                individual, but only if such payments are made on or 
                after the date that the individual attains age 55.
                    ``(C) Hardship distributions.--Subparagraph (A) 
                shall not apply to any amount paid or distributed--
                            ``(i) on or after disability of the 
                        employee,
                            ``(ii) if such amount is used exclusively 
                        to pay for insurance covering medical care with 
                        respect to the individual, the individual's 
                        spouse, or a dependent of the individual during 
                        a period of unemployment of the individual, or
                            ``(iii) if such amount is used exclusively 
                        to pay for medical care under circumstances 
                        that, to the extent provided in regulations, 
                        constitute a hardship.
                    ``(D) Other distribution rules.--
                            ``(i) Plan termination.--Subparagraph (A) 
                        shall not apply to amounts paid or distributed 
                        on or after an event described in paragraph 
                        (10) of subsection (k).
                            ``(ii) Excess contributions.--Rules similar 
                        to the rules of section 401(k)(8) shall apply 
                        for purposes of this subsection.
                            ``(iii) No minimum distribution requirement 
                        prior to death.--Section 401(a)(9) and the 
                        incidental death benefit requirement of section 
                        401(a) shall not apply for purposes of this 
                        subsection.
                            ``(iv) After death of employee.--Rules 
                        similar to the rules of paragraph (8) of 
                        section 223(f) shall apply for purposes of this 
                        section.
            ``(5) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Rollover contributions.--An amount is 
                described in this subparagraph as a rollover 
                contribution if it meets the requirements of clauses 
                (i) and (ii).
                            ``(i) In general.--Paragraph (4)(A) shall 
                        not apply to any amount paid or distributed 
                        from a retirement health arrangement to the 
                        account holder to the extent the amount 
                        received is paid into a retirement health 
                        arrangement or individual health account (as 
                        defined in section 408B) for the benefit of 
                        such holder not later than the 60th day after 
                        the day on which the holder receives the 
                        payment or distribution.
                            ``(ii) Limitation.--This subparagraph shall 
                        not apply to any amount described in clause (i) 
                        received by an individual from a retirement 
                        health arrangement if, at any time during the 
                        1-year period ending on the day of such 
                        receipt, such individual received any other 
                        amount described in clause (i) from a 
                        retirement health arrangement which was not 
                        includible in the individual's gross income 
                        because of the application of this 
                        subparagraph.
                    ``(B) Coordination with medical expense 
                deduction.--For purposes of determining the amount of 
                the deduction under section 213, any payment or 
                distribution out of a retirement health arrangement 
                shall not be treated as an expense paid for medical 
                care, to the extent such payment or distribution was 
                not included in gross income.
                    ``(C) No exclusive plan requirement.--Section 
                401(k)(11)(A)(ii) shall not apply with respect to a 
                retirement health arrangement.
                    ``(D) Application of participation and 
                discrimination standards.--An employer may elect, at 
                such time and in such form and manner as the Secretary 
                shall by regulation prescribe, to treat any qualified 
                cash or deferred arrangement and retirement health 
                arrangement maintained by the employer as 1 arrangement 
                for purposes of meeting the requirements of section 
                401(k)(3)(A)(ii).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2008.

SEC. 3. INDIVIDUAL HEALTH ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 (relating to pension, profit-
sharing, stock bonus plans, etc.) is amended by inserting after section 
408A the following new section:

``SEC. 408B. INDIVIDUAL HEALTH ACCOUNTS.

    ``(a) In General.--
            ``(1) Treated in same manner as ira.--Except as provided in 
        this section, an individual health account shall be treated for 
        purposes of this title in the same manner as an individual 
        retirement plan.
            ``(2) Separate application of rules.--Rules made applicable 
        by reason of this paragraph shall be applied separately with 
        respect to individual health accounts and individual retirement 
        plans of the individual.
    ``(b) Individual Health Account.--For purposes of this title, the 
term `individual health account' means an individual retirement plan 
(as defined in section 7701(a)(37)) which is designated (in such manner 
as the Secretary may prescribe) at the time of establishment of the 
plan as an individual health account.
    ``(c) Contributions.--
            ``(1) Retirement health savings refund payment.--Section 
        408(a)(1) shall not apply with respect to a payment under 
        section 6431.
            ``(2) Contributions after medicare eligibility.--Except in 
        the case of a rollover contribution described in subsection 
        (e)(1), no contributions may be made to an employee's 
        retirement health arrangement during calendar years beginning 
        after the first month such employee is entitled to benefits 
        under title XVIII of the Social Security Act.
    ``(d) Treatment of Distributions.--
            ``(1) In general.--Any amounts distributed from an 
        individual health account shall be included in gross income, 
        unless such amount is used exclusively to pay qualified medical 
        retirement expenses of the account beneficiary.
            ``(2) Qualified retirement medical expense.--For purposes 
        of this section, the term `qualified retirement medical 
        expense' shall have the meaning given such term by section 
        401(o)(4) (relating to retirement health arrangements).
            ``(3) Hardship distributions.--Paragraph (1) shall not 
        apply to any amount paid or distributed--
                    ``(A) on or after disability (within the meaning of 
                section 72(m)(7)) of the account beneficiary,
                    ``(B) if such amount is used exclusively to pay for 
                insurance covering medical care with respect to the 
                individual, the individual's spouse, or a dependent of 
                the individual during a period of unemployment of the 
                account beneficiary, or
                    ``(C) if such amount is used exclusively to pay for 
                medical care under circumstances that, to the extent 
                provided in regulations, constitute a hardship.
            ``(4) Other distribution rules.--
                    ``(A) Excess contributions; transfer of account 
                incident to divorce.--Rules similar to the rules of 
                paragraphs (4) through (6) of section 408(d) shall 
                apply for purposes of this section.
                    ``(B) No minimum distribution requirement prior to 
                death.--Notwithstanding subsections (a)(6) and (b)(6), 
                section 401(a)(9) and the incidental death benefit 
                requirement of section 401(a) shall not apply for 
                purposes of this subsection.
                    ``(C) Treatment after death of account 
                beneficiary.--Rules similar to the rules of paragraph 
                (8) of section 223(f) shall apply for purposes of this 
                section.
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Rollover contributions.--An amount is described in 
        this paragraph as a rollover contribution if it meets the 
        requirements of clauses (i) and (ii).
                    ``(A) In general.--Paragraph (1) shall not apply to 
                any amount paid or distributed from an individual 
                health account to the account holder to the extent the 
                amount received is paid into an individual health 
                account or retirement health arrangement (as defined in 
                section 401(o)(2)) for the benefit of such holder not 
                later than the 60th day after the day on which the 
                holder receives the payment or distribution.
                    ``(B) Limitation.--This paragraph shall not apply 
                to any amount described in paragraph (A) received by an 
                individual from an individual health 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 an individual health 
                account which was not includible in the individual's 
                gross income because of the application of this 
                paragraph.
            ``(2) Coordination with medical expense deduction.--For 
        purposes of determining the amount of the deduction under 
        section 213, any payment or distribution out of an individual 
        health account shall not be treated as an expense paid for 
        medical care, to the extent such payment or distribution was 
        not included in gross income.
            ``(3) Account beneficiary.--The term `account beneficiary' 
        means the individual on whose behalf the retiree health savings 
        account is established.''.
    (b) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter D of chapter 1 of such Code is amended by 
inserting after the item relating to section 408A the following new 
item:

``Sec. 408B. Individual health accounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 4. PORTION OF SAVER'S CREDIT REFUNDABLE.

    (a) In General.--Section 25B of such Code (relating to elective 
deferrals and IRA contributions by certain individuals) is amended by 
adding at the end the following new subsection:
    ``(h) Portion of Credit Refundable.--
            ``(1) In general.--The aggregate credits allowed to a 
        taxpayer under subpart C shall be increased by the lesser of--
                    ``(A) $1,000, or
                    ``(B) the amount of the credit attributable to 
                qualified retirement savings contributions made by the 
                individual to individual health accounts and retirement 
                health arrangements which would be allowed under this 
                section (without regard to this subsection and the 
                limitation under section 26(a)(2) or subsection (g), as 
                the case may be).
The amount of the credit allowed under this subsection shall not be 
treated as a credit allowed under this subpart and shall reduce the 
amount of credit otherwise allowable under subsection (a) without 
regard to section 26(a)(2) or subsection (g), as the case may be.
            ``(2) Limitation.--The amount of the credit allowed under 
        this subsection for any taxable year shall not exceed an amount 
        equal to the excess (if any) of--
                    ``(A) $5,000, over
                    ``(B) the aggregate amount of credits allowed under 
                this subsection for all prior taxable years.
            ``(3) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2009, the $1,000 amount 
        contained in paragraph (1)(A) shall be increased by an amount 
        equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting 
                `calendar year 2008' for `calendar year 1992' in 
                subparagraph (B) thereof.
        Any increase determined under the preceding sentence shall be 
        rounded to the nearest multiple of $10.''.
    (b) Refund Payable to Health Account.--
            (1) In general.--Subchapter B of chapter 65 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new section:

``SEC. 6431. RETIREMENT HEALTH SAVINGS REFUND PAYMENT.

    ``(a) In General.--In the case of a credit allowed to an individual 
which is attributable to an increase under section 25B(h), the 
Secretary shall pay the amount of such credit into the designated 
retirement account of the individual.
    ``(b) Designated Retirement Account.--The term `designated 
retirement account' means any individual health account or retirement 
health arrangement of the individual--
            ``(1) which is designated (in such form and manner as the 
        Secretary may provide) on the individual's return of tax for 
        the taxable year to receive the payment under subsection (a), 
        and
            ``(2) which, under the terms of the account or arrangement, 
        accepts the payment described in paragraph (1).
    ``(c) Payment Not Treated as an Annual Addition.--For purposes of 
section 415(c) (relating to limitation for defined contribution plans), 
a payment under section 6431 shall not be treated as an annual 
addition.''.
            (2) Clerical amendment.--The table of sections for 
        subchapter B of chapter 65 of such Code is amended by adding at 
        the end the following new item:

``Sec. 6431. Retirement health savings refund payment.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

Summary: Retiree Health Account Act of 2008 - Amends the Internal Revenue Code to: (1) establish tax-exempt retirement health arrangements and individual health accounts to assist retirees in paying their medical expenses; (2) make a portion of the tax credit for retirement plan contributions refundable for contributions to retirement health savings accounts; and (3) direct the Secretary of the Treasury to pay refundable credit amounts to retirement health savings accounts.