Title: Bipartisan HSA Improvement Act of 2018
Policy area: Taxation

Summary:
Bipartisan HSA Improvement Act of 2018
This bill amends the Internal Revenue Code to modify various requirements for health savings accounts (HSAs).
The bill allows:
The bill also:

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5138 Introduced in House (IH)]

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115th CONGRESS
  2d Session
                                H. R. 5138

To amend the Internal Revenue Code of 1986 to improve access to health 
            care through modernized health savings accounts.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             March 1, 2018

 Mr. Kelly of Pennsylvania (for himself, Mr. Blumenauer, Mr. Paulsen, 
 Mr. Kind, Ms. Sewell of Alabama, and Mr. Fitzpatrick) 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 improve access to health 
            care through modernized 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 ``Bipartisan HSA Improvement Act of 
2018''.

SEC. 2. EXCEPTED BENEFITS ALLOWED AS PERMITTED INSURANCE.

    (a) In General.--Paragraph (3) of section 223(c) of the Internal 
Revenue Code of 1986 is amended--
            (1) by redesignating subparagraphs (B) and (C) as 
        subparagraphs (C) and (D), respectively; and
            (2) by inserting the following new subparagraph:
                    ``(B) insurance consisting of coverage for any 
                excepted benefits described in section 9832(c),''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years after the date of the enactment of this Act.

SEC. 3. ON-SITE EMPLOYEE CLINICS AND RETAIL CLINICS.

    (a) In General.--Paragraph (1) of section 223(c) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
subparagraph:
                    ``(D) Special rule for qualified items and 
                services.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(ii), an individual shall not 
                        be treated as covered under a health plan for 
                        purposes of subparagraph (A)(ii) merely because 
                        the individual is eligible to receive, or 
                        receives, qualified items and services at--
                                    ``(I) a healthcare facility located 
                                at a facility owned or leased by the 
                                employer of the individual (or of the 
                                individual's spouse), or operated 
                                primarily for the benefit of such 
                                employer's employees, or
                                    ``(II) a retail health clinic.
                            ``(ii) Qualified items and services 
                        defined.--For purposes of this subparagraph, 
                        the term `qualified items and services' means 
                        the following:
                                    ``(I) Primary care including 
                                physical examination.
                                    ``(II) Immunizations, including 
                                injections of antigens provided by 
                                employees.
                                    ``(III) Drugs or biologicals other 
                                than a prescribed drug (as such term is 
                                defined in section 213(d)(3)).
                                    ``(IV) Treatment for injuries 
                                occurring in the course of employment.
                                    ``(V) Tests for conditions or 
                                infectious diseases.
                                    ``(VI) Management of medically 
                                complex chronic conditions.
                                    ``(VII) Drug testing.
                                    ``(VIII) Hearing or vision 
                                screenings and related services.
                                    ``(IX) Other similar items and 
                                services.
                            ``(iii) Retail health clinic defined.--For 
                        purposes of this subparagraph, the term `retail 
                        health clinic' means a health care facility 
                        located within a supermarket, pharmacy, or 
                        similar retail establishment that offers urgent 
                        care by a licensed healthcare provider.
                            ``(iv) Aggregation.--For purposes of clause 
                        (i), all persons treated as a single employer 
                        under subsection (b), (c), (m), or (o) of 
                        section 414 shall be treated as a single 
                        employer.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to months in taxable years beginning after the date of enactment 
of this Act.

SEC. 4. CONTRIBUTIONS PERMITTED IF SPOUSE HAS A HEALTH FLEXIBLE 
              SPENDING ACCOUNT.

    (a) Contributions Permitted if Spouse Has a Health Flexible 
Spending Account.--Subparagraph (B) of section 223(c)(1) of the 
Internal Revenue Code of 1986 is amended by striking ``and'' at the end 
of clause (ii), by striking the period at the end of clause (iii) and 
inserting ``, and'', and by inserting after clause (iii) the following:
                            ``(iv) coverage under a health flexible 
                        spending arrangement of the spouse of the 
                        individual.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 5. DEPENDENTS TO INCLUDE CHILDREN UP TO AGE 26.

    (a) In General.--Subparagraph (A) of section 223(d)(2) of the 
Internal Revenue Code of 1986 is amended by striking ``and any 
dependent (as defined in section 152, determined without regard to 
subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of such individual'' 
in subparagraph (A) and inserting ``any dependent (as defined in 
section 152, determined without regard to subsections (b)(1), (b)(2), 
and (d)(1)(B) thereof) of such individual, and any child (as defined in 
section 152(f)(A)) of such individual who has not attained the age of 
27 before the end of such individual's taxable year''.
    (b) Effective Date.--The amendments made by this section shall 
apply with respect to qualified medical expenses incurred in taxable 
years beginning after the date of the enactment of this Act.

SEC. 6. FSA AND HRA INTERACTION WITH HSAS.

    (a) Eligible Individuals Include FSA and HRA Participants.--
Subparagraph (B) of section 223(c)(1) of the Internal Revenue Code of 
1986, as amended by this Act, is amended by striking ``and'' at the end 
of clause (iii), by striking the period at the end of clause (iv) and 
inserting ``, and'', and by inserting after clause (iv) the following 
new clause:
                            ``(v) coverage under a health flexible 
                        spending arrangement or a health reimbursement 
                        arrangement in the plan year a qualified HSA 
                        distribution as described in section 106(e) is 
                        made on behalf of the individual if, after the 
                        qualified HSA distribution is made and for the 
                        remaining duration of the plan year, the 
                        coverage provided under the arrangement is 
                        converted solely to one or more of the 
                        following:
                                    ``(I) Post-deductible fsa or hra.--
                                A health flexible spending arrangement 
                                or a health reimbursement arrangement 
                                that does not pay or reimburse any 
                                medical expense incurred before the 
                                minimum annual deductible under 
                                paragraph (2)(A)(i) (prorated for the 
                                period occurring after the qualified 
                                HSA distribution is made) is satisfied.
                                    ``(II) Preventative care.--A health 
                                flexible spending arrangement or a 
                                health reimbursement arrangement that, 
                                after the qualified HSA distribution is 
                                made, does not pay or reimburse any 
                                medical expense incurred after the 
                                qualified HSA distribution is made 
                                other than preventive care as defined 
                                in paragraph (2)(C).
                                    ``(III) Limited purpose health 
                                fsa.--A health flexible spending 
                                arrangement that, after the qualified 
                                HSA distribution is made, pays or 
                                reimburses benefits for coverage 
                                described in clause (ii) (but not 
                                through insurance or for long-term care 
                                services).
                                    ``(IV) Limited purpose hra.--A 
                                health reimbursement arrangement that, 
                                after the qualified HSA distribution is 
                                made, pays or reimburses benefits for 
                                permitted insurance or coverage 
                                described in clause (ii) (but not for 
                                long-term care services).
                                    ``(V) Retirement hra.--A health 
                                reimbursement arrangement that, after 
                                the qualified HSA distribution is made, 
                                pays or reimburses only those medical 
                                expenses incurred after an individual's 
                                retirement (and no expenses incurred 
                                before retirement).
                                    ``(VI) Suspended hra.--A health 
                                reimbursement arrangement that, after 
                                the qualified HSA distribution is made, 
                                is suspended, pursuant to an election 
                                made on or before the date the 
                                individual elects a qualified HSA 
                                distribution or, if later, on the date 
                                of the individual enrolls in an HSA-
                                qualified health plan, that does not 
                                pay or reimburse, at any time, any 
                                medical expense incurred during the 
                                suspension period except as described 
                                in the preceding subclauses of this 
                                clause.''.
    (b) Qualified HSA Distribution Shall Not Affect Flexible Spending 
Arrangement.--Paragraph (1) of section 106(e) of such Code is amended 
to read as follows:
            ``(1) In general.--A plan shall not fail to be treated as--
                    ``(A) a health flexible spending arrangement under 
                this section, section 105, or section 125,
                    ``(B) a health reimbursement arrangement under this 
                section or section 105, or
                    ``(C) an accident or health plan,
        merely because such plan provides for a qualified HSA 
        distribution.''.
    (c) FSA Balances at Year End Shall Not Forfeit.--Paragraph (2) of 
section 125(d) of such Code is amended by adding at the end the 
following new subparagraph:
                    ``(E) Exception for qualified hsa distributions.--
                Subparagraph (A) shall not apply to the extent that 
                there is an amount remaining in a health flexible 
                spending account at the end of a plan year that an 
                individual elects to contribute to a health savings 
                account pursuant to a qualified HSA distribution (as 
                defined in section 106(e)(2)).''.
    (d) Simplification of Limitations on FSA and HRA Rollovers.--
Paragraph (2) of section 106(e) of such Code is amended to read as 
follows:
            ``(2) Qualified hsa distribution.--
                    ``(A) In general.--The term `qualified HSA 
                distribution' means a distribution from a health 
                flexible spending arrangement or health reimbursement 
                arrangement directly to a health savings account of the 
                employee to the extent that such distribution does not 
                exceed the lesser of--
                            ``(i) the balance in such arrangement as of 
                        the date of such distribution, or
                            ``(ii) the amount determined under 
                        subparagraph (B).
                Such term shall not include more than 1 distribution 
                with respect to any arrangement.
                    ``(B) Dollar limitations.--
                            ``(i) Distributions from a health flexible 
                        spending arrangement.--A qualified HSA 
                        distribution from a health flexible spending 
                        arrangement shall not exceed the applicable 
                        amount.
                            ``(ii) Distributions from a health 
                        reimbursement arrangement.--A qualified HSA 
                        distribution from a health reimbursement 
                        arrangement shall not exceed--
                                    ``(I) the applicable amount divided 
                                by 12, multiplied by
                                    ``(II) the number of months during 
                                which the individual is a participant 
                                in the health reimbursement 
                                arrangement.
                            ``(iii) Applicable amount.--For purposes of 
                        this subparagraph, the applicable amount is--
                                    ``(I) $2,250 in the case of an 
                                eligible individual who has self-only 
                                coverage under an HSA-qualified health 
                                plan at the time of such distribution, 
                                and
                                    ``(II) $4,500 in the case of an 
                                eligible individual who has family 
                                coverage under an HSA-qualified health 
                                plan at the time of such 
                                distribution.''.
    (e) Elimination of Additional Tax for Failure to Maintain HSA-
Qualified Health Plan Coverage.--Subsection (e) of section 106 of such 
Code is amended--
            (1) by striking subparagraph (A) of paragraph (4) and 
        redesignating subparagraphs (B) and (C) of such paragraph as 
        subparagraphs (A) and (B) thereof, respectively; and
            (2) by striking paragraph (3) and redesignating paragraphs 
        (4) (as so amended) and (5) as paragraphs (3) and (4), 
        respectively.
    (f) Limited Purpose FSAs and HRAs.--Subsection (e) of section 106 
of such Code, as amended by this section, is amended by adding at the 
end the following new paragraph:
            ``(5) Limited purpose fsas and hras.--A plan shall not fail 
        to be a health flexible spending arrangement, a health 
        reimbursement arrangement, or an accident or health plan under 
        this section or section 105 merely because the plan converts 
        coverage for individuals who enroll in an HSA-qualified health 
        plan described in section 223(c)(2) to coverage described in 
        subclause (I), (II), (III), (IV), (V), or (VI) of section 
        223(c)(1)(B)(iv). Coverage for such individuals may be 
        converted as of the date of enrollment in the HSA-qualified 
        health plan, without regard to the period of coverage under the 
        health flexible spending arrangement or health reimbursement 
        arrangement, and without requiring any change in coverage to 
        individuals who do not enroll in an HSA-qualified health 
        plan.''.
    (g) Distribution Amounts Adjusted for Cost-of-Living.--Subsection 
(e) of section 106 of such Code, as amended by this section, is amended 
by adding at the end the following new paragraph:
            ``(6) Cost-of-living adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2018, each of the 
                dollar amounts in paragraph (2)(B)(iii) shall be 
                increased by an amount equal to such dollar amount, 
                multiplied by the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                such taxable year begins by substituting `calendar year 
                2017' for `calendar year 1992' in subparagraph (B) 
                thereof.
                    ``(B) Rounding.--If any increase under paragraph 
                (1) is not a multiple of $50, such increase shall be 
                rounded to the nearest multiple of $50.''.
    (h) Disclaimer of Disqualifying Coverage.--Subparagraph (B) of 
section 223(c)(1) of such Code, as amended by this section, is amended 
by striking ``and'' at the end of clause (iv), by striking the period 
at the end of clause (v) and inserting ``, and'', and by inserting 
after clause (v) the following new clause:
                            ``(iv) any coverage (including prospective 
                        coverage) under a health plan that is not an 
                        HSA-qualified health plan which is disclaimed 
                        in writing, at the time of the creation or 
                        organization of the health savings account, 
                        including by execution of a trust described in 
                        subsection (d)(1) through a governing 
                        instrument that includes such a disclaimer, or 
                        by acceptance of an amendment to such a trust 
                        that includes such a disclaimer.''.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 7. CHRONIC DISEASE PREVENTION.

    (a) In General.--Section 223(c)(2) of the Internal Revenue Code of 
1986 is amended by redesignating subparagraph (D) as subparagraph (E) 
and by inserting after subparagraph (C) the following new subparagraph:
                    ``(D) Safe harbor for absence of deductible for 
                care related to chronic conditions.--A plan shall not 
                fail to be treated as a high deductible health plan by 
                reason of failing to have a deductible for care and 
                prescription medications related to the treatment of 
                medically complex chronic conditions which--
                            ``(i) are substantially disabling or life 
                        threatening,
                            ``(ii) have a high risk of hospitalization 
                        or other significant adverse health outcomes, 
                        and
                            ``(iii) require specialized delivery 
                        systems across domains of care.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to coverage for months beginning after the date of the enactment 
of this Act.

SEC. 8. CERTAIN AMOUNTS PAID FOR PHYSICAL ACTIVITY, FITNESS, AND 
              EXERCISE TREATED AS AMOUNTS PAID FOR MEDICAL CARE.

    (a) In General.--Section 213(d)(1) of the Internal Revenue Code of 
1986 is amended by striking ``or'' at the end of subparagraph (C), by 
striking the period at the end of subparagraph (D) and inserting ``, 
or'', and by inserting after subparagraph (D) the following new 
subparagraph:
                    ``(E) for qualified sports and fitness expenses.''.
    (b) Qualified Sports and Fitness Expenses.--Section 213(d) of such 
Code, as amended by this Act, is amended by adding at the end the 
following paragraph:
            ``(13) Qualified sports and fitness expenses.--
                    ``(A) In general.--The term `qualified sports and 
                fitness expenses' means amounts paid exclusively for 
                the sole purpose of participating in a physical 
                activity including--
                            ``(i) for membership at a fitness facility,
                            ``(ii) for participation or instruction in 
                        a program of physical exercise or physical 
                        activity, and
                            ``(iii) for equipment for use in a program 
                        (including a self-directed program) of physical 
                        exercise or physical activity.
                    ``(B) Overall dollar limitation.--The aggregate 
                amount treated as qualified sports and fitness expenses 
                with respect to any taxpayer for any taxable year shall 
                not exceed $1,000 ($2,000 in the case of a joint return 
                or a head of household (as defined in section 2(b))).
                    ``(C) Fitness facility defined.--For purposes of 
                subparagraph (A)(i), the term `fitness facility' means 
                a facility--
                            ``(i) providing instruction in a program of 
                        physical exercise, offering facilities for the 
                        preservation, maintenance, encouragement, or 
                        development of physical fitness, or serving as 
                        the site of such a program of a State or local 
                        government,
                            ``(ii) which is not a private club owned 
                        and operated by its members,
                            ``(iii) which does not offer golf, hunting, 
                        sailing, or riding facilities,
                            ``(iv) whose health or fitness facility is 
                        not incidental to its overall function and 
                        purpose, and
                            ``(v) which is fully compliant with the 
                        State of jurisdiction and Federal anti-
                        discrimination laws.
                    ``(D) Treatment of exercise videos, etc.--Videos, 
                books, and similar materials shall be treated as 
                described in subparagraph (A)(ii) if the content of 
                such materials constitute instruction in a program of 
                physical exercise or physical activity.
                    ``(E) Limitations related to sports and fitness 
                equipment.--Amounts paid for equipment described in 
                subparagraph (A)(iii) shall be treated as a qualified 
                sports and fitness expense only--
                            ``(i) if such equipment is utilized 
                        exclusively for participation in fitness, 
                        exercise, sport, or other physical activity 
                        programs,
                            ``(ii) if such equipment is not apparel or 
                        footwear, and
                            ``(iii) in the case of any item of sports 
                        equipment (other than exercise equipment), with 
                        respect to so much of the amount paid for such 
                        item as does not exceed $250.
                    ``(F) Programs which include components other than 
                physical exercise and physical activity.--Rules similar 
                to the rules of section 213(d)(6) shall apply in the 
                case of any program that includes physical exercise or 
                physical activity and also other components. For 
                purposes of the preceding sentence, travel and 
                accommodations shall be treated as an other 
                component.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.
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