Health Freedom and Flexibility Act
Bill: H.R.2808 | Sponsor: Rep. Rosendale Sr., Matthew M. (R-MT)
Policy area: Taxation

Summary:
Health Freedom and Flexibility Act
This bill revises provisions relating to health savings accounts (HSAs), including to

To amend the Internal Revenue Code of 1986 to make improvements to 
                        Health Savings Accounts.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Health Freedom and Flexibility 
Act''.

SEC. 2. REPEAL OF REQUIREMENT TO BE ENROLLED IN HEALTH PLAN.

    (a) In General.--Subsection (a) of section 223 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(a) Deduction Allowed.--In the case of an individual, 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 or on behalf 
of such individual to a health savings account of such individual.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 3. REPEAL OF LIMITATIONS; RETENTION OF DENIAL OF DEDUCTION TO 
              DEPENDENTS.

    (a) In General.--Subsection (b) of section 223 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(b) Denial of Deduction to Dependents.--No deduction shall be 
allowed under this section to any individual with respect to whom a 
deduction under section 151 is allowable to another taxpayer for a 
taxable year beginning in the calendar year in which such individual's 
taxable year begins.''.
    (b) Conforming Amendment.--Subsection (f) of section 223 of such 
Code is amended by striking paragraph (3) and by redesignating 
paragraphs (4) through (8) as paragraphs (3) through (7), respectively.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 4. REPEAL OF RULES RELATING TO ELIGIBLE INDIVIDUAL; HIGH 
              DEDUCTIBLE HEALTH PLAN.

    (a) In General.--Section 223 of the Internal Revenue Code of 1986 
is amended by striking subsections (c) and (g) and by redesignating 
subsections (d), (e), (f), and (h) as subsections (c), (d), (e), and 
(f), respectively.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 5. HEALTH SAVINGS ACCOUNT.

    (a) In General.--Subparagraph (A) of section 223(c)(1) of the 
Internal Revenue Code of 1986, as amended by the preceding sections of 
this Act, is amended to read as follows:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (e)(5) or section 220(f)(5), no 
                contribution will be accepted unless it is in cash.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 6. QUALIFIED MEDICAL EXPENSES.

    (a) Repeal of Purchase of Health Insurance Limitation.--Paragraph 
(2) of section 223(c) of the Internal Revenue Code of 1986, as 
redesignated by the preceding provisions of this Act, is amended to 
read as follows:
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account 
                beneficiary, amounts paid by such beneficiary for 
                medical care (as defined in section 213(d)) for such 
                individual, the spouse of such individual, any 
                dependent (as defined in section 152, determined 
                without regard to subsections (b)(1), (b)(2), and 
                (d)(1)(B) thereof) of such individual, but only to the 
                extent such amounts are not compensated for by 
                insurance or otherwise.
                    ``(B) Menstrual care products.--For purposes of 
                this paragraph--
                            ``(i) In general.--Amounts paid for 
                        menstrual care products shall be treated as 
                        paid for medical care.
                            ``(ii) Definition.--The term `menstrual 
                        care product' means a tampon, pad, liner, cup, 
                        sponge, or similar product used by individuals 
                        with respect to menstruation or other genital-
                        tract secretions.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 7. ALLOWANCE OF DISTRIBUTIONS FOR PRESCRIPTION AND OVER-THE-
              COUNTER MEDICINES AND DRUGS AND OTHER MEDICALLY NECESSARY 
              ITEMS.

    (a) HSAs.--Paragraph (2) of section 223(c) of the Internal Revenue 
Code of 1986, as redesignated by the preceding provisions of this Act, 
is amended by adding at the end the following:
                    ``(C) Prescription and over-the-counter medicines 
                and drugs and other medically necessary items.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        medical expenses' shall include an amount paid 
                        for any prescription or over-the-counter 
                        medicine or drug and medically necessary items.
                            ``(ii) Medically necessary items.--The term 
                        `medically necessary item' means any item for 
                        which a doctor or nurse certifies by a letter 
                        of medical necessity that the service or 
                        medication or item is for a medical diagnosis, 
                        treatment, or prevention of a medical diseases 
                        or condition.''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to amounts paid in taxable years ending after the date of the 
enactment of this Act.

SEC. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES INCURRED BEFORE 
              ESTABLISHMENT OF ACCOUNT.

    (a) In General.--Paragraph (2) of section 223(c) of the Internal 
Revenue Code of 1986, as redesignated by the preceding sections of this 
Act, is amended by adding at the end the following new subparagraph:
                    ``(D) Certain medical expenses incurred before 
                establishment of account treated as qualified.--An 
                expense shall not fail to be treated as a qualified 
                medical expense solely because such expense was 
                incurred before the establishment of the health savings 
                account if such expense was incurred--
                            ``(i) during either--
                                    ``(I) the taxable year in which the 
                                health savings account was established, 
                                or
                                    ``(II) the preceding taxable year, 
                                in the case of a health savings account 
                                established after the taxable year in 
                                which such expense was incurred but 
                                before the time prescribed by law for 
                                filing the return for such taxable year 
                                (not including extensions thereof), and
                            ``(ii) for medical care which (but for the 
                        fact that it was incurred before the 
                        establishment of the account) otherwise meets 
                        the requirements of the preceding 
                        subparagraphs.''.
    (b) Effective Date.--The amendment made by this subsection (a) 
shall apply to taxable years ending after the date of the enactment of 
this Act.

SEC. 9. DIRECT PRIMARY CARE; EXERCISE EQUIPMENT; DENTAL CARE ITEMS.

    (a) In General.--Paragraph (2) of section 223(c) of the Internal 
Revenue Code of 1986, as amended by the preceding sections of this Act, 
is amended by adding at the end the following new subparagraph:
                    ``(E) Direct primary care; exercise equipment; 
                dental care items.--For purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        medical expenses' shall include amounts paid--
                                    ``(I) amounts paid under a direct 
                                primary care service arrangement,
                                    ``(II) amounts paid for exercise 
                                equipment, and
                                    ``(III) amounts paid for dental 
                                care items.
                            ``(ii) Direct primary care service 
                        arrangement.--The term `direct primary care 
                        service arrangement' means, with respect to any 
                        individual, an arrangement under which such 
                        individual is provided medical care (as defined 
                        in section 213(d)) consisting solely of primary 
                        care services provided by primary care 
                        practitioners (as defined in section 
                        1833(x)(2)(A) of the Social Security Act, 
                        determined without regard to clause (ii) 
                        thereof), if the sole compensation for such 
                        care is a fixed periodic fee.
                            ``(iii) Exercise or fitness equipment.--The 
                        term `exercise or fitness equipment' means 
                        devices such as motorized treadmills, stair 
                        climbers or step machines, stationary bicycles, 
                        rowing machines, weight machines, circuit 
                        training equipment, cardiovascular equipment, 
                        strength equipment, or other similar equipment.
                            ``(iv) Dental care items.--The term `dental 
                        care items' includes manual or electric 
                        toothbrush, dental floss, and dental 
                        mouthwash.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years ending after the date of the enactment of this Act.

SEC. 10. PROHIBITION ON USE OF FUNDS FOR ELECTIVE ABORTIONS.

    (a) In General.--Paragraph (2) of section 223(c) of the Internal 
Revenue Code of 1986, as amended by the preceding sections of this Act, 
is amended by adding at the end the following new subparagraph:
                    ``(F) Prohibition on use of funds for elective 
                abortions.--For purposes of this paragraph--
                            ``(i) Payments for health insurance with 
                        abortion coverage.--The term `qualified medical 
                        expenses' shall not include amounts paid for 
                        insurance that includes coverage for abortions.
                            ``(ii) Payments for abortions.--The term 
                        `qualified medical expense' shall not include 
                        amounts paid for an abortion.
                            ``(iii) Abortion.--The term `abortion' 
                        means the use or prescription of any 
                        instrument, medicine, drug, or any other 
                        substance or device--
                                    ``(I) to intentionally kill the 
                                unborn child of a woman known to be 
                                pregnant, or
                                    ``(II) to intentionally terminate 
                                the pregnancy of a woman known to be 
                                pregnant, with an intention other 
                                than--
                                            ``(aa) after viability, to 
                                        produce a live birth and 
                                        preserve the life and health of 
                                        the child born alive, or
                                            ``(bb) to remove a dead 
                                        unborn child.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years ending after the date of the enactment of this Act.

SEC. 11. TREATMENT AFTER DEATH IF DESIGNATED BENEFICIARY IS SPOUSE OR 
              CHILD OF ACCOUNT BENEFICIARY.

    (a) In General.--Subparagraph (A) of section 223(e)(7) of the 
Internal Revenue Code of 1986, as redesignated by the preceding 
sections of this Act, is amended to read as follows:
                    ``(A) Treatment after death if designated 
                beneficiary is spouse or child of account 
                beneficiary.--If the account beneficiary's surviving 
                spouse or child acquires such beneficiary's interest in 
                a health savings account by reason of being the 
                designated beneficiary of such account at the death of 
                the account beneficiary, such health savings account 
                shall be treated as if the spouse or child (as the case 
                may be) were the account beneficiary.''.
    (b) Child Defined.--Paragraph (7) of section 223(e) of such Code, 
as so redesignated, is amended by adding at the end the following:
                    ``(C) Child.--For purposes of this paragraph, the 
                term `child' means, with respect to an account 
                beneficiary, an individual who bears a relationship to 
                the account beneficiary described in section 
                152(f)(1).''.
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to account beneficiaries dying in taxable years 
ending after the date of the enactment of this Act.

SEC. 12. ADMINISTRATIVE ERROR CORRECTION BEFORE DUE DATE OF RETURN.

    (a) In General.--Paragraph (3) of section 223(d) of the Internal 
Revenue Code of 1986, as amended and redesignated by the preceding 
sections of this Act, is amended by adding at the end the following new 
subparagraph:
                    ``(C) Exception for administrative errors corrected 
                before due date of return.--Subparagraph (A) shall not 
                apply if any payment or distribution is made to correct 
                an administrative, clerical, or payroll contribution 
                error and 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 
                        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) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 13. CONFORMING AMENDMENTS.

    (a) Section 26(b)(2) of the Internal Revenue Code of 1986 is 
amended--
            (1) by striking ``, 223(b)(8)(B)(i)(II),'' in subparagraph 
        (S), and
            (2) by striking ``223(f)(4)'' in subparagraph (U) and 
        inserting ``223(e)(3)''.
    (b) Section 106 of such Code is amended--
            (1) by amending subsection (d)(1) to read as follows:
            ``(1) In general.--In the case of an employee, amounts 
        contributed by such employee's employer to any health savings 
        account (as defined in section 223(c)) of such employee shall 
        be treated as employer-provided coverage for medical expenses 
        under an accident or health plan.'',
            (2) in subsection (e)--
                    (A) by striking paragraphs (3) and (4) and 
                redesignating paragraph (5) as paragraph (4),
                    (B) by inserting after paragraph (2) the following 
                new paragraph:
            ``(3) Treatment as rollover contribution.--A qualified HSA 
        distribution shall be treated as a rollover contribution 
        described in section 223(e)(4).'', and
                    (C) by striking ``to any eligible individual 
                covered under a high deductible health plan of the 
                employer'' in paragraph (4)(B)(ii) (as so redesignated) 
                and inserting ``to any employee with respect to whom a 
                health savings account has been established''.
    (c) Section 408 of such Code is amended--
            (1) in subsection (d)(9)(A) by striking ``who is an 
        eligible individual (as defined in section 223(c)) and''; and
            (2) in subsection (d)(9)(C)--
                    (A) by striking ``Limitations.--'' in the heading 
                and all that follows through ``(ii) One-time 
                transfer.--'' in clause (ii), and inserting ``One-time 
                transfer.--'',
                    (B) by redesignating subclauses (I) and (II) as 
                clauses (i) and (ii) and moving such clauses 2 ems to 
                the left, and
                    (C) by striking ``subclause (II)'' in clause (i), 
                as so redesignated, and inserting ``clause (ii)''.
    (d) Section 877A(g)(6) of such Code is amended by striking 
``223(f)(4)'' and inserting ``223(e)(3)''.
    (e) Section 4973 of such Code is amended by striking subsection (g) 
and by redesignating subsection (h) as subsection (g).
    (f) Section 4975 of such Code is amended--
            (1) in subsection (c)(6)--
                    (A) by striking ``section 223(d)'' and inserting 
                ``section 223(c)'', and
                    (B) by striking ``section 223(e)(2)'' and inserting 
                ``section 223(d)(2)'', and
            (2) in subsection (e)(1)(E), by striking ``section 223(d)'' 
        and inserting ``section 223(c)''.
    (g) Sections 35(g)(3), 220(f)(5)(A), 848(e)(1)(B)(v), 4973(a)(5), 
and 6051(a)(12) of such Code are each amended by striking ``section 
223(d)'' each place it appears and inserting ``section 223(c)''.
    (h) Section 4980G of such Code is amended--
            (1) by amending Subsection (b) to read as follows:
    ``(b) Rules and Requirements.--
            ``(1) In general.--An employer meets the requirements of 
        this subsection for any calendar year if the employer makes 
        available comparable contributions to the health savings 
        accounts of all comparable participating employees for each 
        coverage period during such calendar year.
            ``(2) Comparable contributions.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `comparable contributions' means 
                contributions--
                            ``(i) which are the same amount, or
                            ``(ii) if the employees are covered by a 
                        health plan, which are the same percentage of 
                        the annual deductible limit under the plan 
                        covering the employees.
                    ``(B) Part-year employees.--In the case of an 
                employee who is employed by the employer for only a 
                portion of the calendar year, a contribution to the 
                health savings account of such employee shall be 
                treated as comparable if it is an amount which bears 
                the same ratio to the comparable amount (determined 
                without regard to this subparagraph) as such portion 
                bears to the entire calendar year.
            ``(3) Comparable participating employees.--For purposes of 
        paragraph (1), the term `comparable participating employees' 
        means all employees who are covered (if at all) under the same 
        health plan of the employer and have the same category of 
        coverage. For purposes of the preceding sentence, the 
        categories of coverage are self-only and family coverage.
            ``(4) Part-time employees.--
                    ``(A) In general.--Paragraph (3) shall be applied 
                separately with respect to part-time employees and 
                other employees.
                    ``(B) Part-time employee.--For purposes of 
                subparagraph (A), the term `part-time employee' means 
                any employee who is customarily employed for fewer than 
                30 hours per week.'', and
            (2) in subsection (d) by striking ``section 4980E'' and 
        inserting ``this section''.
    (i) Section 6693(a)(2)(C) of such Code is amended by striking 
``section 223(h)'' and inserting ``section 223(f)''.
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