[House Report 114-809]
[From the U.S. Government Publishing Office]
114th Congress } { Rept. 114-809
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
VETERANS TRICARE CHOICE ACT OF 2016
_______
November 14, 2016.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 5458]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 5458) to provide for coordination between the
TRICARE program and eligibility for making contributions to a
health savings account, and for other purposes, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................3
A. Purpose and Summary................................. 3
B. Background and Need for Legislation................. 3
II. EXPLANATION OF THE BILL..........................................4
A. Coordination Between TRICARE Program and Eligibility
to Make Contributions to Health Savings Accounts
(sec. 2 of the bill and sec. 223 of the Code)...... 4
III. VOTES OF THE COMMITTEE...........................................7
IV. BUDGET EFFECTS OF THE BILL.......................................7
A. Committee Estimate of Budgetary Effects............. 7
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 7
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 8
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......9
A. Committee Oversight Findings and Recommendations.... 9
B. Statement of General Performance Goals and
Objectives......................................... 9
C. Information Relating to Unfunded Mandates........... 9
D. Applicability of House Rule XXI 5(b)................ 9
E. Tax Complexity Analysis............................. 9
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 10
G. Duplication of Federal Programs..................... 10
H. Disclosure of Directed Rule Makings................. 10
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........11
A. Text of Existing Law Amended or Repealed by the
Bill, as Reported.................................. 11
B. Changes in Existing Law Proposed by the Bill, as
Reported........................................... 20
VII. ADDITIONAL VIEWS................................................32
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Veterans TRICARE Choice Act of 2016''.
SEC. 2. COORDINATION BETWEEN TRICARE PROGRAM AND ELIGIBILITY TO MAKE
CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.
(a) In General.--Section 223(c)(1)(B) 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 adding at the end the following new clause:
``(iv) coverage under the TRICARE program
under chapter 55 of title 10, United States
Code, for any period with respect to which an
election is in effect under section 1097e of
such title providing that the individual is
ineligible to be enrolled in (and receive
benefits under) such program.''.
(b) Provisions Relating to Election of Ineligibility Under TRICARE.--
(1) In general.--Chapter 55 of title 10, United States Code,
is amended by inserting after section 1097d the following new
section:
``Sec. 1097e. TRICARE program: election of eligibility
``(a) Election.--Beginning January 1, 2017, a TRICARE-eligible
individual may elect at any time to be ineligible to enroll in (and
receive any benefits under) the TRICARE program.
``(b) Change of Election.--(1) If a TRICARE-eligible individual makes
an election under subsection (a), the TRICARE-eligible individual may
later elect to be eligible to enroll in the TRICARE program. An
election made under this subsection may be made only during a special
enrollment period.
``(2) The Secretary shall ensure that a TRICARE-eligible individual
who makes an election under subsection (a) may efficiently enroll in
the TRICARE program pursuant to an election under paragraph (1),
including by maintaining the individual, as appropriate, in the health
care enrollment system under section 1099 of this title in an inactive
manner.
``(c) Period of Election.--If a TRICARE-eligible individual makes an
election under subsection (a), such election shall be in effect
beginning on the date of such election and ending on the date that such
individual makes an election under subsection (b)(1) to enroll in the
TRICARE program.
``(d) Health Savings Account Participation.--(1) For provisions
allowing participation in a health savings account in connection with
coverage under a high deductible health plan during the period that the
election under subsection (a) is in effect, see section
223(c)(1)(B)(iv) of the Internal Revenue Code of 1986.
``(2) The Secretary shall submit to the Commissioner of Internal
Revenue the name of, and any other information that the Commissioner
may require with respect to, each TRICARE-eligible individual who makes
an election under subsection (a) or (b), not later than 90 days after
such election, for purposes of determining the eligibility of such
TRICARE-eligible individual for a health savings account described in
paragraph (1).
``(e) Records.--The Secretary shall ensure that a TRICARE-eligible
individual who makes an election under subsection (a) is maintained on
the Defense Enrollment Eligibility Reporting System, or successor
system, regardless of whether the individual is eligible for the
TRICARE program during the period of such election.
``(f) Provision of Information.--The Secretary shall provide to each
TRICARE-eligible individual who seeks to make an election under
subsection (a) information regarding--
``(1) health savings accounts in connection with coverage
under a high deductible health plan described in subsection
(d)(1), including a comparison of such health saving accounts
and the health care benefits the individual is eligible to
receive under the TRICARE program; and
``(2) changing such an election under subsection (b)(1).
``(g) Annual Report.--Not later than 60 days after the end of each
fiscal year, the Secretary shall submit to the congressional defense
committees a report on elections by TRICARE-eligible individuals under
this section that includes the following:
``(1) The number of TRICARE-eligible individuals, as of the
date of the submittal of the report, who are ineligible to
enroll in (and receive any benefits under) the TRICARE program
pursuant to an election under subsection (a).
``(2) The number of TRICARE-eligible individuals who made an
election described under subsection (a) but, as of the date of
the submittal of the report, are enrolled in the TRICARE
program pursuant to a change of election under subsection (b).
``(h) Definitions.--In this section:
``(1) The term `TRICARE-eligible individual' means an
individual who is--
``(A) eligible to be a covered beneficiary entitled
to health care benefits under the TRICARE program
(determined without regard to this section); and
``(B) not serving on active duty in the uniformed
services.
``(2) The term `special enrollment period' means the period
in which a beneficiary under the Federal Employees Health
Benefits program under chapter 89 of title 5 may enroll in or
change a plan under such program by reason of a qualifying
event or during an open enrollment season. For purposes of this
section, such qualifying events shall also include events
determined appropriate by the Secretary of Defense, including
events relating to a member of the armed forces being ordered
to active duty.''.
(2) Conforming amendment.--The table of sections at the
beginning of chapter 55 of such title is amended by inserting
after the item relating to section 1097d the following new
item:
``1097e. TRICARE program: election of eligibility.''.
(c) Effective Date.--The amendments made by subsection (a) shall
apply to months beginning after December 31, 2016.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 5458, as reported from the Committee on Ways
and Means, allows eligible individuals covered by TRICARE to
elect out of that coverage and thus, during that period, be
eligible to make contributions to their Health Savings Account
(``HSA'').
B. Background and Need for Legislation
Those who enroll in qualified high-deductible health plans
(``HDHP'') are permitted to open an HSA. These accounts allow
for pre-tax contributions, tax-free investment earnings, and
tax-free distributions for future qualified medical expenses.
TRICARE is the primary program by which the military health
system provides active and retired members of the armed forces
and their families with medical coverage. An individual who is
covered by an HDHP for a month and also covered under TRICARE
for the month is not eligible to make HSA contributions for the
month.
According to a 2015 census conducted by America's Health
Insurance Plans (AHIP), as of January 2015, 19.7 million people
were covered by an HDHP/HSA, a 2.3 million-person increase from
2014 levels. HDHPs/HSAs are an increasingly popular option for
workers--only four percent of workers were enrolled in such
coverage in 2005 compared to 24 percent in 2015. The current
inability for certain non-active duty, TRICARE-eligible
individuals to contribute to their HSAs limits their choices
and ability to save in a tax-preferred way for their health
care. The Committee believes those who have served this country
should have expanded options when it comes to financing their
health insurance.
C. Legislative History
Background
H.R. 5458 was introduced on June 13, 2016, and was referred
to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 5458, the
Veterans TRICARE Choice Act of 2016, on June 15, 2016, and
ordered the bill, as amended, favorably reported (with a quorum
being present).
Committee hearings
The policy issues surrounding access to consumer-directed
health care accounts, like HSAs, have been discussed at two
Ways and Means hearings during the 114th Congress:
Full Committee Hearing on the Tax Treatment
of Health Care (April 14, 2016); and
Subcommittee on Health Member Day Hearing on
Tax-Related Proposals to Improve Health Care (May 17,
2016).
II. EXPLANATION OF THE BILL
A. Coordination Between TRICARE Program and Eligibility To Make
Contributions to Health Savings Accounts (Sec. 2 of the Bill and Sec.
223 of the Code)
PRESENT LAW
Health savings accounts
An individual with a high deductible health plan and no
other health plan (other than a plan that provides certain
permitted insurance or permitted coverage) is generally
eligible to make deductible contributions to a health savings
account (``HSA''), subject to certain limits (an ``eligible
individual''). HSA contributions made on behalf of an eligible
individual by an employer are excludible from income and wages
for employment tax purposes. Eligibility for HSA contributions
is generally determined monthly, based on the individual's
status and health plan coverage as of the first day of the
month.
An individual with other coverage in addition to a high
deductible health plan is still eligible to make HSA
contributions if such other coverage is permitted insurance or
permitted coverage. Permitted insurance is: (1) insurance if
substantially all of the coverage provided under such insurance
relates to (a) liabilities incurred under worker's compensation
law, (b) tort liabilities, (c) liabilities relating to
ownership or use of property (e.g., auto insurance), or (d)
such other similar liabilities as the Secretary of the Treasury
may prescribe by regulations; (2) insurance for a specified
disease or illness; and (3) insurance that provides a fixed
payment per day (or other period) for hospitalization.
Permitted coverage is coverage (whether provided through
insurance or otherwise) for accidents, disability, dental care,
vision care, or long-term care. Coverage under certain health
flexible spending arrangements or health reimbursement
arrangements is also permitted.
TRICARE program
The Military Health System provides active duty and retired
members of the armed forces and their families (including
certain survivors and former spouses) with medical coverage,
primarily through the TRICARE program.\1\ The TRICARE program
offers various health plans, including a managed care option
and fee-for-service options. An individual may be covered by
TRICARE automatically without having to enroll in TRICARE. An
individual who is covered by a high deductible health plan for
a month and also covered under TRICARE for the month is not
eligible to make HSA contributions for the month.
---------------------------------------------------------------------------
\1\10 U.S.C. chapter 55.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee continues to believe that high deductible
health plans and the related HSAs will help reduce health care
costs. In some cases, an individual covered by a high
deductible health plan may become covered by TRICARE
automatically, ending his or her eligibility to make HSA
contributions. The individual may prefer to decline TRICARE
coverage in order to continue to make HSA contributions;
however, declining TRICARE coverage is not an option under
present law. The Committee wishes to provide individuals with
that option.
EXPLANATION OF PROVISION
HSA eligibility
Under the provision, for any period with respect to which
an individual has made an election of TRICARE ineligibility, as
described below, TRICARE coverage is disregarded in determining
whether the individual is eligible to make HSA contributions
for the period.
TRICARE program
The provision amends the provisions of the TRICARE program
to allow a TRICARE-eligible individual to elect to be
ineligible to enroll in and receive benefits under the TRICARE
program (referred to herein as an ``election of TRICARE
ineligibility''). For this purpose, a TRICARE-eligible
individual is an individual who is eligible to be a covered
beneficiary entitled to health care benefits under the TRICARE
program (determined without regard to an election of TRICARE
ineligibility) and is not serving on active duty. An election
of TRICARE ineligibility is in effect for the period beginning
on the date of the election and ending on the date the
individual makes an election to be eligible to enroll in the
TRICARE program, as described below.
If a TRICARE-eligible individual makes an election of
TRICARE ineligibility, the individual may later elect to be
eligible to enroll in the TRICARE program, but only during a
special enrollment period. A special enrollment period is
defined as the period in which a beneficiary under the Federal
Employees Health Benefits program\2\ may enroll in or change
plans by reason of a qualifying event or during an open
enrollment season. The Secretary of Defense is directed to
ensure that a TRICARE-eligible individual who makes an election
of TRICARE ineligibility may later efficiently enroll in the
TRICARE program, including by maintaining the individual, as
appropriate, in the TRICARE enrollment system in inactive
status.
---------------------------------------------------------------------------
\2\Provisions governing the Federal Employees Health Benefits
program are contained in 5 U.S.C. chapter 89 and provide special
enrollment periods in the case of certain events, such as marriage or
the birth of a child. The provision allows the Secretary of Defense to
include additional events, including events relating to a member of the
armed forces being ordered to active duty.
---------------------------------------------------------------------------
The Secretary of Defense is directed also to ensure that a
TRICARE-eligible individual who makes an election of TRICARE
ineligibility is maintained on the Defense Enrollment
Eligibility Reporting System (or a successor system),
regardless of whether the individual is eligible for the
TRICARE program during the period of the election.
Under the provision, the Secretary of Defense is required
to provide certain information to the Commissioner of Internal
Revenue (the ``Commissioner'') and to a TRICARE-eligible
individual seeking to make an election of TRICARE
ineligibility. Specifically, not later than 90 days after an
election of TRICARE ineligibility, there must be provided to
the Commissioner the name of the TRICARE-eligible individual
who makes the election and any other information that the
Commissioner may require with respect to the individual for
purposes of determining the individual's eligibility for an
HSA. There must be provided to each TRICARE-eligible individual
seeking to make an election of TRICARE ineligibility
information regarding (1) HSAs in connection with coverage
under a high deductible health plan, including a comparison of
HSAs and the health care benefits the individual is eligible to
receive under the TRICARE program, and (2) changing an election
of TRICARE ineligibility later in order to be eligible to
enroll in the TRICARE program, as described above.
In addition, not later than 60 days after the end of each
fiscal year, the Secretary of Defense is required to submit to
the congressional defense committees a report on elections of
TRICARE ineligibility and subsequent elections to be eligible
to enroll in the TRICARE program, which includes (1) the number
of TRICARE-eligible individuals, as of the date of the
submission of the report, who are ineligible to enroll in and
receive any benefits under the TRICARE program pursuant to an
election of TRICARE ineligibility, and (2) the number of
TRICARE-eligible individuals who made an election of TRICARE
ineligibility and, as of the date of the submission of the
report, are enrolled in the TRICARE program pursuant to a later
election to be eligible to enroll in the TRICARE program.
EFFECTIVE DATE
The provision applies to months beginning after December
31, 2016.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 5458, the ``Veterans TRICARE Choice Act
of 2016,'' on June 15, 2016.
The bill, H.R. 5458, as amended, was ordered favorably
reported to the House of Representatives by a voice vote (with
a quorum being present).
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 5458, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal fiscal year budget receipts for the period
2017-2026:
FISCAL YEARS
[Millions of dollars]
----------------------------------------------------------------------------------------------------------------
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26
----------------------------------------------------------------------------------------------------------------
-1 -8 -9 -9 -10 -11 -11 -12 -13 -13 -37 -97
----------------------------------------------------------------------------------------------------------------
[1] Estimate includes the following off-budget effects:
----------------------------------------------------------------------------------------------------------------
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017-21 2017-26
----------------------------------------------------------------------------------------------------------------
-1 -3 -4 -4 -4 -5 -5 -5 -5 -6 -16 -41
----------------------------------------------------------------------------------------------------------------
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: The gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing provisions
of the bill involve increased tax expenditures. See amounts
shown in the table in Part IV.A above.
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
June 20, 2016.
Hon. Kevin Brady,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 5458, the Veterans
TRICARE Choice Act of 2016.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 5458--Veterans TRICARE Choice Act of 2016
H.R. 5458 would allow certain individuals who are
automatically eligible for TRICARE, which is the health
benefits program of the Department of Defense, to elect to be
temporarily ineligible for that benefit. Making that election
would allow those individuals to contribute to health savings
accounts (HSAs), which are tax-advantaged accounts used to pay
health expenses. Under current law, individuals eligible for
TRICARE cannot make contributions to HSAs. The new election
allowed under H.R. 5458 would not apply to individuals serving
on active duty.
The staff of the Joint Committee on Taxation estimates that
the legislation would reduce revenues by $97 million over the
2017-2026 period. That change in revenues includes a reduction
of $41 million that would result from changes in off-budget
revenues (from Social Security payroll taxes). CHO estimates
that effects on direct spending and spending subject to
appropriation would be insignificant in any year and in total
over the 2017-2026 period.
The Statutory Pay-As-You Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting
revenues and direct spending. The estimated net increase in the
federal deficit is shown in the following table. Only on-budget
changes to revenues or outlays are subject to pay-as-you-go
procedures.
JCT and CHO estimate that enacting the bill would not
increase net direct spending or on-budget deficits by more than
$5 billion in any of the four consecutive 10-year periods
beginning in 2027.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Peter Huether.
The estimate was approved by Mark Booth, Unit Chief, Revenue
Estimating.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR HR 5458, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON JUNE 15, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
--------------------------------------------------------------------------------------------------
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2016-2021 2016-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN THE ON-BUDGET DEFICIT
Statutory Pay-As-You-Go..............................
Effects............................................ 0 0 5 5 5 6 6 6 7 8 7 21 56
Memorandum:
Change in Off-Budget Revenuesa................... 0 -1 -3 -4 -4 -4 -5 -5 -5 -5 -6 -16 -41
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source:Staff of the Joint Committee on Taxation.
Note:Components may not sum to total because of rounding
a. A negative sign for revenues indicates a reduction in revenues.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 5458 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code of 1986 and has widespread applicability
to individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Internal Revenue
Code of 1986 and that have ``widespread applicability'' to
individuals or small businesses, within the meaning of the
rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month 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 or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is \1/12\ of--
(A) in the case of an eligible individual who
has self- only coverage under a high deductible
health plan as of the first day of such month,
$2,250.
(B) in the case of an eligible individual who
has family coverage under a high deductible
health plan as of the first day of such month,
$4,500.
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(4) Coordination with other contributions.--The
limitation which would (but for this paragraph) apply
under this subsection to an individual for any taxable
year shall be reduced (but not below zero) by the sum
of--
(A) the aggregate amount paid for such
taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to
health savings accounts of such individual
which is excludable from the taxpayer's gross
income for such taxable year under section
106(d) (and such amount shall not be allowed as
a deduction under subsection (a)), and
(C) the aggregate amount contributed to
health savings accounts of such individual for
such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) and without
regard to any additional contribution amount
under paragraph (3))--
(i) shall be reduced by the aggregate
amount paid to Archer MSAs of such
spouses for the taxable year, and
(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.
(6) 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.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming
eligible individuals after the beginning of the year.--
(A) In general.--For purposes of computing
the limitation under paragraph (1) for any
taxable year, an individual who is an eligible
individual during the last month of such
taxable year shall be treated--
(i) as having been an eligible
individual during each of the months in
such taxable year, and
(ii) as having been enrolled, during
each of the months such individual is
treated as an eligible individual
solely by reason of clause (i), in the
same high deductible health plan in
which the individual was enrolled for
the last month of such taxable year.
(B) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then--
(I) gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual is
increased by the aggregate
amount of all contributions to
the health savings account of
the individual which could not
have been made but for
subparagraph (A), and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount of such increase.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the last month of the
taxable year referred to in
subparagraph (A) and ending on the last
day of the 12th month following such
month.
(c) Definitions and Special Rules.--For purposes of this
section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(ii) coverage (whether through
insurance or otherwise) for accidents,
disability, dental care, vision care,
or long-term care, and
(iii) for taxable years beginning
after December 31, 2006, coverage under
a health flexible spending arrangement
during any period immediately following
the end of a plan year of such
arrangement during which unused
benefits or contributions remaining at
the end of such plan year may be paid
or reimbursed to plan participants for
qualified benefit expenses incurred
during such period if--
(I) the balance in such
arrangement at the end of such
plan year is zero, or
(II) the individual is making
a qualified HSA distribution
(as defined in section 106(e))
in an amount equal to the
remaining balance in such
arrangement as of the end of
such plan year, in accordance
with rules prescribed by the
Secretary.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(d) Health Savings Account.--For purposes of this section--
(1) In general.--The term ``health savings account''
means a trust created or organized in the United States
as a health savings account exclusively for the purpose
of paying the qualified medical expenses of the account
beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover
contribution described in subsection (f)(5) or
section 220(f)(5), no contribution 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 sum of--
(I) the dollar amount in
effect under subsection
(b)(2)(B), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary 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
invested 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) 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, 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, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term shall include
an amount paid for medicine or a drug only if
such medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 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 health savings 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 health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary 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 health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (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 purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) 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 beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 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
beneficiary 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 distribution after
the date on which the account beneficiary
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 contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings 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 a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse 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 were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--
(1) In general.--Each dollar amount in subsections
(b)(2) and (c)(2)(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 such taxable year begins determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--
(i) except as provided in clause
(ii), ``calendar year 1997'', and
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.
In the case of adjustments made for any taxable year
beginning after 2007, section 1(f)(4) shall be applied
for purposes of this paragraph by substituting ``March
31'' for ``August 31'', and the Secretary shall publish
the adjusted amounts under subsections (b)(2) and
(c)(2)(A) for taxable years beginning in any calendar
year no later than June 1 of the preceding calendar
year.
(2) 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) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, and existing law in
which no change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 223. HEALTH SAVINGS ACCOUNTS.
(a) Deduction Allowed.--In the case of an individual who is
an eligible individual for any month 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 or on behalf of such individual to a health
savings account of such individual.
(b) Limitations.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to an individual for the taxable
year shall not exceed the sum of the monthly
limitations for months during such taxable year that
the individual is an eligible individual.
(2) Monthly limitation.--The monthly limitation for
any month is \1/12\ of--
(A) in the case of an eligible individual who
has self- only coverage under a high deductible
health plan as of the first day of such month,
$2,250.
(B) in the case of an eligible individual who
has family coverage under a high deductible
health plan as of the first day of such month,
$4,500.
(3) Additional contributions for individuals 55 or
older.--
(A) In general.--In the case of an individual
who has attained age 55 before the close of the
taxable year, the applicable limitation under
subparagraphs (A) and (B) of paragraph (2)
shall be increased by the additional
contribution amount.
(B) Additional contribution amount.--For
purposes of this section, the additional
contribution amount is the amount determined in
accordance with the following table:
------------------------------------------------------------------------
The additional contribution amount
For taxable years beginning in: is:
------------------------------------------------------------------------
2004 $500
2005 $600
2006 $700
2007 $800
2008 $900
2009 and thereafter $1,000.
------------------------------------------------------------------------
(4) Coordination with other contributions.--The
limitation which would (but for this paragraph) apply
under this subsection to an individual for any taxable
year shall be reduced (but not below zero) by the sum
of--
(A) the aggregate amount paid for such
taxable year to Archer MSAs of such individual,
(B) the aggregate amount contributed to
health savings accounts of such individual
which is excludable from the taxpayer's gross
income for such taxable year under section
106(d) (and such amount shall not be allowed as
a deduction under subsection (a)), and
(C) the aggregate amount contributed to
health savings accounts of such individual for
such taxable year under section 408(d)(9) (and
such amount shall not be allowed as a deduction
under subsection (a)).
Subparagraph (A) shall not apply with respect to any
individual to whom paragraph (5) applies.
(5) Special rule for married individuals.--In the
case of individuals who are married to each other, if
either spouse has family coverage--
(A) both spouses shall be treated as having
only such family coverage (and if such spouses
each have family coverage under different
plans, as having the family coverage with the
lowest annual deductible), and
(B) the limitation under paragraph (1) (after
the application of subparagraph (A) and without
regard to any additional contribution amount
under paragraph (3))--
(i) shall be reduced by the aggregate
amount paid to Archer MSAs of such
spouses for the taxable year, and
(ii) after such reduction, shall be
divided equally between them unless
they agree on a different division.
(6) 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.
(7) Medicare eligible individuals.--The limitation
under this subsection for any month with respect to an
individual shall be zero for the first month such
individual is entitled to benefits under title XVIII of
the Social Security Act and for each month thereafter.
(8) Increase in limit for individuals becoming
eligible individuals after the beginning of the year.--
(A) In general.--For purposes of computing
the limitation under paragraph (1) for any
taxable year, an individual who is an eligible
individual during the last month of such
taxable year shall be treated--
(i) as having been an eligible
individual during each of the months in
such taxable year, and
(ii) as having been enrolled, during
each of the months such individual is
treated as an eligible individual
solely by reason of clause (i), in the
same high deductible health plan in
which the individual was enrolled for
the last month of such taxable year.
(B) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then--
(I) gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual is
increased by the aggregate
amount of all contributions to
the health savings account of
the individual which could not
have been made but for
subparagraph (A), and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount of such increase.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the last month of the
taxable year referred to in
subparagraph (A) and ending on the last
day of the 12th month following such
month.
(c) Definitions and Special Rules.--For purposes of this
section--
(1) Eligible individual.--
(A) In general.--The term ``eligible
individual'' means, with respect to any month,
any individual if--
(i) such individual is covered under
a high deductible health plan as of the
1st day of such month, and
(ii) such individual is not, while
covered under a high deductible health
plan, covered under any health plan--
(I) which is not a high
deductible health plan, and
(II) which provides coverage
for any benefit which is
covered under the high
deductible health plan.
(B) Certain coverage disregarded.--
Subparagraph (A)(ii) shall be applied without
regard to--
(i) coverage for any benefit provided
by permitted insurance,
(ii) coverage (whether through
insurance or otherwise) for accidents,
disability, dental care, vision care,
or long-term care, [and]
(iii) for taxable years beginning
after December 31, 2006, coverage under
a health flexible spending arrangement
during any period immediately following
the end of a plan year of such
arrangement during which unused
benefits or contributions remaining at
the end of such plan year may be paid
or reimbursed to plan participants for
qualified benefit expenses incurred
during such period if--
(I) the balance in such
arrangement at the end of such
plan year is zero, or
(II) the individual is making
a qualified HSA distribution
(as defined in section 106(e))
in an amount equal to the
remaining balance in such
arrangement as of the end of
such plan year, in accordance
with rules prescribed by the
Secretary[.], and
(iv) coverage under the TRICARE
program under chapter 55 of title 10,
United States Code, for any period with
respect to which an election is in
effect under section 1097e of such
title providing that the individual is
ineligible to be enrolled in (and
receive benefits under) such program.
(C) Special rule for individuals eligible for
certain veterans benefits.--An individual shall
not fail to be treated as an eligible
individual for any period merely because the
individual receives hospital care or medical
services under any law administered by the
Secretary of Veterans Affairs for a service-
connected disability (within the meaning of
section 101(16) of title 38, United States
Code).
(2) High deductible health plan.--
(A) In general.--The term ``high deductible
health plan'' means a health plan--
(i) which has an annual deductible
which is not less than--
(I) $1,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage, and
(ii) the sum of the annual deductible
and the other annual out-of-pocket
expenses required to be paid under the
plan (other than for premiums) for
covered benefits does not exceed--
(I) $5,000 for self-only
coverage, and
(II) twice the dollar amount
in subclause (I) for family
coverage.
(B) Exclusion of certain plans.--Such term
does not include a health plan if substantially
all of its coverage is coverage described in
paragraph (1)(B).
(C) Safe harbor for absence of preventive
care deductible.--A plan shall not fail to be
treated as a high deductible health plan by
reason of failing to have a deductible for
preventive care (within the meaning of section
1871 of the Social Security Act, except as
otherwise provided by the Secretary).
(D) Special rules for network plans.--In the
case of a plan using a network of providers--
(i) Annual out-of-pocket
limitation.--Such plan shall not fail
to be treated as a high deductible
health plan by reason of having an out-
of-pocket limitation for services
provided outside of such network which
exceeds the applicable limitation under
subparagraph (A)(ii).
(ii) Annual deductible.--Such plan's
annual deductible for services provided
outside of such network shall not be
taken into account for purposes of
subsection (b)(2).
(3) Permitted insurance.--The term ``permitted
insurance'' means--
(A) insurance if substantially all of the
coverage provided under such insurance relates
to--
(i) liabilities incurred under
workers' compensation laws,
(ii) tort liabilities,
(iii) liabilities relating to
ownership or use of property, or
(iv) such other similar liabilities
as the Secretary may specify by
regulations,
(B) insurance for a specified disease or
illness, and
(C) insurance paying a fixed amount per day
(or other period) of hospitalization.
(4) Family coverage.--The term ``family coverage''
means any coverage other than self-only coverage.
(5) Archer MSA.--The term ``Archer MSA'' has the
meaning given such term in section 220(d).
(d) Health Savings Account.--For purposes of this section--
(1) In general.--The term ``health savings account''
means a trust created or organized in the United States
as a health savings account exclusively for the purpose
of paying the qualified medical expenses of the account
beneficiary, but only if the written governing
instrument creating the trust meets the following
requirements:
(A) Except in the case of a rollover
contribution described in subsection (f)(5) or
section 220(f)(5), no contribution 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 sum of--
(I) the dollar amount in
effect under subsection
(b)(2)(B), and
(II) the dollar amount in
effect under subsection
(b)(3)(B).
(B) The trustee is a bank (as defined in
section 408(n)), an insurance company (as
defined in section 816), or another person who
demonstrates to the satisfaction of the
Secretary 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
invested 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) 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, 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, but only to the
extent such amounts are not compensated for by
insurance or otherwise. Such term shall include
an amount paid for medicine or a drug only if
such medicine or drug is a prescribed drug
(determined without regard to whether such drug
is available without a prescription) or is
insulin.
(B) Health insurance may not be purchased
from account.--Subparagraph (A) shall not apply
to any payment for insurance.
(C) Exceptions.--Subparagraph (B) shall not
apply to any expense for coverage under--
(i) a health plan during any period
of continuation coverage required under
any Federal law,
(ii) a qualified long-term care
insurance contract (as defined in
section 7702B(b)),
(iii) a health plan during a period
in which the individual is receiving
unemployment compensation under any
Federal or State law, or
(iv) in the case of an account
beneficiary who has attained the age
specified in section 1811 of the Social
Security Act, any health insurance
other than a medicare supplemental
policy (as defined in section 1882 of
the Social Security Act).
(3) Account beneficiary.--The term ``account
beneficiary'' means the individual on whose behalf the
health savings account was established.
(4) Certain rules to apply.--Rules similar to the
following rules shall apply for purposes of this
section:
(A) Section 219(d)(2) (relating to no
deduction for rollovers).
(B) Section 219(f)(3) (relating to time when
contributions deemed made).
(C) Except as provided in section 106(d),
section 219(f)(5) (relating to employer
payments).
(D) Section 408(g) (relating to community
property laws).
(E) Section 408(h) (relating to custodial
accounts).
(e) Tax Treatment of Accounts.--
(1) In general.--A health savings account is exempt
from taxation under this subtitle unless such account
has ceased to be a health savings account.
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 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 health savings 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 health savings
account which is used exclusively to pay qualified
medical expenses of any account beneficiary 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 health savings account which is not used
exclusively to pay the qualified medical expenses of
the account beneficiary shall be included in the gross
income of such beneficiary.
(3) Excess contributions returned before due date of
return.--
(A) In general.--If any excess contribution
is contributed for a taxable year to any health
savings account of an individual, paragraph (2)
shall not apply to distributions from the
health savings accounts of such individual (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 purposes of
subparagraph (A), the term ``excess
contribution'' means any contribution (other
than a rollover contribution described in
paragraph (5) or section 220(f)(5)) which is
neither excludable from gross income under
section 106(d) 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 beneficiary for any
taxable year in which there is a payment or
distribution from a health savings account of
such beneficiary which is includible in gross
income under paragraph (2) shall be increased
by 20 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
beneficiary 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 distribution after
the date on which the account beneficiary
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 contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (2) shall not
apply to any amount paid or distributed from a
health savings account to the account
beneficiary to the extent the amount received
is paid into a health savings account for the
benefit of such beneficiary not later than the
60th day after the day on which the beneficiary
receives the payment or distribution.
(B) Limitation.--This paragraph shall not
apply to any amount described in subparagraph
(A) received by an individual from a health
savings 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 a health
savings account which was not includible in the
individual's gross income because of the
application of this paragraph.
(6) Coordination with medical expense deduction.--For
purposes of determining the amount of the deduction
under section 213, any payment or distribution out of a
health savings account for qualified medical expenses
shall not be treated as an expense paid for medical
care.
(7) Transfer of account incident to divorce.--The
transfer of an individual's interest in a health
savings account to an individual's spouse or former
spouse under a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2) shall
not be considered a taxable transfer made by such
individual notwithstanding any other provision of this
subtitle, and such interest shall, after such transfer,
be treated as a health savings account with respect to
which such spouse is the account beneficiary.
(8) Treatment after death of account beneficiary.--
(A) Treatment if designated beneficiary is
spouse.--If the account beneficiary's surviving
spouse 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 were the account beneficiary.
(B) Other cases.--
(i) In general.--If, by reason of the
death of the account beneficiary, any
person acquires the account
beneficiary's interest in a health
savings account in a case to which
subparagraph (A) does not apply--
(I) such account shall cease
to be a health savings account
as of the date of death, and
(II) an amount equal to the
fair market value of the assets
in such account on such date
shall be includible if such
person is not the estate of
such beneficiary, in such
person's gross income for the
taxable year which includes
such date, or if such person is
the estate of such beneficiary,
in such beneficiary's gross
income for the last taxable
year of such beneficiary.
(ii) Special rules.--
(I) Reduction of inclusion
for predeath expenses.--The
amount includible in gross
income under clause (i) by any
person (other than the estate)
shall be reduced by the amount
of qualified medical expenses
which were incurred by the
decedent before the date of the
decedent's death and paid by
such person within 1 year after
such date.
(II) Deduction for estate
taxes.--An appropriate
deduction shall be allowed
under section 691(c) to any
person (other than the decedent
or the decedent's spouse) with
respect to amounts included in
gross income under clause (i)
by such person.
(g) Cost-Of-Living Adjustment.--
(1) In general.--Each dollar amount in subsections
(b)(2) and (c)(2)(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 such taxable year begins determined by
substituting for ``calendar year 1992'' in
subparagraph (B) thereof--
(i) except as provided in clause
(ii), ``calendar year 1997'', and
(ii) in the case of each dollar
amount in subsection (c)(2)(A),
``calendar year 2003''.
In the case of adjustments made for any taxable year
beginning after 2007, section 1(f)(4) shall be applied
for purposes of this paragraph by substituting ``March
31'' for ``August 31'', and the Secretary shall publish
the adjusted amounts under subsections (b)(2) and
(c)(2)(A) for taxable years beginning in any calendar
year no later than June 1 of the preceding calendar
year.
(2) 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) Reports.--The Secretary may require--
(1) the trustee of a health savings account to make
such reports regarding such account to the Secretary
and to the account beneficiary with respect to
contributions, distributions, the return of excess
contributions, and such other matters as the Secretary
determines appropriate, and
(2) any person who provides an individual with a high
deductible health plan to make such reports to the
Secretary and to the account beneficiary with respect
to such plan as the Secretary determines appropriate.
The reports required by this subsection shall be filed at such
time and in such manner and furnished to such individuals at
such time and in such manner as may be required by the
Secretary.
* * * * * * *
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TITLE 10, UNITED STATES CODE
* * * * * * *
SUBTITLE A--GENERAL MILITARY LAW
* * * * * * *
PART II--PERSONNEL
* * * * * * *
CHAPTER 55--MEDICAL AND DENTAL CARE
Sec.
1071. Purpose of this chapter.
* * * * * * *
1097e. TRICARE program: election of eligibility.
* * * * * * *
Sec. 1097e. TRICARE program: election of eligibility
(a) Election.--Beginning January 1, 2017, a TRICARE-eligible
individual may elect at any time to be ineligible to enroll in
(and receive any benefits under) the TRICARE program.
(b) Change of Election.--(1) If a TRICARE-eligible individual
makes an election under subsection (a), the TRICARE-eligible
individual may later elect to be eligible to enroll in the
TRICARE program. An election made under this subsection may be
made only during a special enrollment period.
(2) The Secretary shall ensure that a TRICARE-eligible
individual who makes an election under subsection (a) may
efficiently enroll in the TRICARE program pursuant to an
election under paragraph (1), including by maintaining the
individual, as appropriate, in the health care enrollment
system under section 1099 of this title in an inactive manner.
(c) Period of Election.--If a TRICARE-eligible individual
makes an election under subsection (a), such election shall be
in effect beginning on the date of such election and ending on
the date that such individual makes an election under
subsection (b)(1) to enroll in the TRICARE program.
(d) Health Savings Account Participation.--(1) For provisions
allowing participation in a health savings account in
connection with coverage under a high deductible health plan
during the period that the election under subsection (a) is in
effect, see section 223(c)(1)(B)(iv) of the Internal Revenue
Code of 1986.
(2) The Secretary shall submit to the Commissioner of
Internal Revenue the name of, and any other information that
the Commissioner may require with respect to, each TRICARE-
eligible individual who makes an election under subsection (a)
or (b), not later than 90 days after such election, for
purposes of determining the eligibility of such TRICARE-
eligible individual for a health savings account described in
paragraph (1).
(e) Records.--The Secretary shall ensure that a TRICARE-
eligible individual who makes an election under subsection (a)
is maintained on the Defense Enrollment Eligibility Reporting
System, or successor system, regardless of whether the
individual is eligible for the TRICARE program during the
period of such election.
(f) Provision of Information.--The Secretary shall provide to
each TRICARE-eligible individual who seeks to make an election
under subsection (a) information regarding--
(1) health savings accounts in connection with
coverage under a high deductible health plan described
in subsection (d)(1), including a comparison of such
health saving accounts and the health care benefits the
individual is eligible to receive under the TRICARE
program; and
(2) changing such an election under subsection
(b)(1).
(g) Annual Report.--Not later than 60 days after the end of
each fiscal year, the Secretary shall submit to the
congressional defense committees a report on elections by
TRICARE-eligible individuals under this section that includes
the following:
(1) The number of TRICARE-eligible individuals, as of
the date of the submittal of the report, who are
ineligible to enroll in (and receive any benefits
under) the TRICARE program pursuant to an election
under subsection (a).
(2) The number of TRICARE-eligible individuals who
made an election described under subsection (a) but, as
of the date of the submittal of the report, are
enrolled in the TRICARE program pursuant to a change of
election under subsection (b).
(h) Definitions.--In this section:
(1) The term ``TRICARE-eligible individual'' means an
individual who is--
(A) eligible to be a covered beneficiary
entitled to health care benefits under the
TRICARE program (determined without regard to
this section); and
(B) not serving on active duty in the
uniformed services.
(2) The term ``special enrollment period'' means the
period in which a beneficiary under the Federal
Employees Health Benefits program under chapter 89 of
title 5 may enroll in or change a plan under such
program by reason of a qualifying event or during an
open enrollment season. For purposes of this section,
such qualifying events shall also include events
determined appropriate by the Secretary of Defense,
including events relating to a member of the armed
forces being ordered to active duty.
* * * * * * *
VII. ADDITIONAL VIEWS
Many veterans, after completing their service to the
country, enter the civilian workforce and may receive health
coverage though this private employer. Some employers choose to
offer health savings accounts (HSAs) coupled with a high
deductible health plan. For veterans also receiving coverage
though Tricare, this can cause a problem. Contributions to a
health savings account may only be made while the account owner
is enrolled in a high deductible health plan. Further, the
account owner may not be eligible for coverage that is not a
high deductible health plan. Under present law, eligibility for
Tricare coverage disqualifies a retiree from HSA eligibility
because the Tricare program is not a high deductible health
plan. While there is a difference of opinion in the committee
on tax-preferred health accounts, the legislation recognizes
that some veterans may have that coverage, and could run afoul
of current law because of enrollment in Tricare. This is an
issue that we should fix.
H.R. 5458 would provide that military retirees may disclaim
their eligibility for the Tricare Program--the military's
retiree medical insurance program. This would allow a retiree
who is enrolled in a high deductible health plan to receive or
make HSA contributions. Under the bill, retirees would be
permitted to revoke their disclaimer upon a change of status
event and enroll in Tricare coverage--such as if they terminate
employment with a civilian employer who offers the high
deductible health plan.
The Department of Defense as well as the House Armed
Services Committee have some concerns with the approach in this
bill, in particular that TRICARE eligibility is a statutory
entitlement that cannot be waived. Changes in this legislation
may also lead to a number of unintended consequences.
Disclaimer of eligibility is not contingent upon enrollment in
a HDHP so beneficiaries who do not obtain minimum essential
coverage elsewhere, or who incur a gap in coverage, may be
liable for the individual coverage penalty at the end of the
tax year. We must also make sure that the Department of Defense
and veterans' organizations properly educate beneficiaries
about the very narrow circumstances by which this proposed
language would apply and the potential impact on family
readiness such an election could have should a beneficiary
suffer a catastrophic illness or injury. We hope these issues
will be addressed before the bill is brought to the House
floor.
Sander M. Levin,
Ranking Member.
[all]