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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.
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.