HSA Improvement and Expansion Act of 2006 - Amends Internal Revenue Code provisions relating to health savings accounts (HSAs) to: (1) allow a one-time, tax-free transfer of balances in employer flexible spending arrangements, health reimbursement arrangements, and individual retirement accounts to HSAs; (2) revise HSA eligibility criteria for spouses covered by flexible spending arrangements, individuals over age 65 automatically enrolled in Medicare part A, and veterans receiving medical benefits; (3) increase contribution limits for HSAs; (4) allow payment of high deductible health insurance premiums from HSAs; and (5) allow payment from an HSA of certain medical expenses incurred before the establishment of such HSA.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5743 Introduced in House (IH)]
109th CONGRESS
2d Session
H. R. 5743
To amend the Internal Revenue Code of 1986 to improve and expand the
availability of health savings accounts, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
June 29, 2006
Mr. Ryan of Wisconsin (for himself, Mr. Cantor, and Ms. Hart)
introduced the following bill; which was referred to the Committee on
Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to improve and expand the
availability of health savings accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) Short Title.--This Act may be cited as the ``HSA Improvement
and Expansion Act of 2006''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) The Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (Public Law 108-173) authorizes
health savings accounts (referred to in this section as
``HSAs'') into which individuals may make annual contributions
of not more than $2,700, and families may make annual
contributions of not more than $5,450, to permit spending by
individuals for their health care needs.
(2) Federal law provides for obtaining health insurance
coverage through a low premium health plan offered with a tax-
favored HSA that typically costs substantially less than
traditional health insurance.
(3) Giving individuals more direct control over their
health care spending will encourage more prudent use of health
care services, help make the health care system more responsive
to the needs of consumers, and improve access to health
coverage for the uninsured.
(4) A broad range of improvements to the Federal laws
governing HSAs are necessary to make them more attractive to
consumers and employers.
(5) The number of people covered in January 2006 by
products combining an HSA with a low premium health plan was
3,168,000, more than triple the 1,031,000 reported in March
2005.
(6) HSAs have become an important option for consumers and
employers who have struggled to afford health insurance
coverage.
(7) According to a January 2006 census, 31 percent of new
enrollees in HSAs and low premium health plans in the
individual market were previously uninsured.
(8) HSAs combined with low premium health plans can provide
an affordable and accessible health insurance option for
individuals of all ages.
(9) 50 percent of all people covered by HSAs and low
premium health plans in the individual market, including
dependents covered under family plans, are 40 years of age or
older.
(10) Many States currently have in effect laws and
regulations that require insurers to provide specific benefit
coverage in the health insurance plans they offer, preventing
individuals and small business from enrolling in low premium
health plans and making them ineligible for HSAs.
SEC. 3. ACCELERATED FUNDING FOR HSAS THROUGH DISTRIBUTIONS FROM
BALANCES IN HEALTH REIMBURSEMENT AND FLEXIBLE SPENDING
ARRANGEMENTS AND FROM INDIVIDUAL RETIREMENT PLANS.
(a) One-Time FSA and HRA Rollovers to HSAs.--
(1) In general.--A plan shall not fail to be treated as a
flexible spending arrangement or health reimbursement
arrangement under section 105 or 106 of the Internal Revenue
Code of 1986 merely because--
(A) such plan provides for a contribution to the
health savings account (as defined in section 223 of
such Code) of the employee which meets the requirements
of paragraph (2), and
(B) such plan thereafter terminates with respect to
such employee.
(2) Requirements.--A contribution meets the requirements of
this paragraph if--
(A) in the case of a flexible spending arrangement
(as defined in section 106(c)(2) of such Code) in
existence on June 1, 2006, such contribution is the
remaining balance in such arrangement as of the last
day of the plan year ending in or before the taxable
year in which such contribution is made,
(B) in the case of a health reimbursement
arrangement in existence on June 1, 2006, such
contribution is the remaining balance of the amount to
be received in reimbursements under such arrangement as
of the last day of the plan year ending in or before
the taxable year in which such contribution is made,
and
(C) such contribution is made by the employer
directly to the health savings account of the employee
not later than 60 days after the end of the plan year
of such flexible spending arrangement or health
reimbursement arrangement.
(3) Treatment as rollover contribution.--For purposes of
sections 223 and 4973 of such Code, a contribution which meets
the requirements of paragraph (2) shall be treated as a
rollover contribution described in section 223(f)(5) of such
Code.
(4) Tax treatment relating to contributions.--For purposes
of this title--
(A) Income tax.--Gross income shall not include the
amount of any contribution under this subsection.
(B) Employment taxes.--Amounts contributed to a
health savings account under this subsection shall be
treated as a payment described in section 106(d) of
such Code.
(C) Comparability excise tax.--Section 4980G of
such Code shall not apply to contributions made under
this subsection.
(5) Termination.--This paragraph shall not apply to any
taxable year beginning after December 31, 2011.
(b) One-Time Distribution From Individual Retirement Plans to Fund
HSAs.--
(1) In general.--Section 402 (relating to taxability of
beneficiary of employees' trust) is amended by adding at the
end the following new subsection:
``(l) Health Savings Account Funding Distribution From Individual
Retirement Plans.--
``(1) In general.--In the case of an employee who is an
eligible individual and who elects the application of this
subsection for a taxable year, gross income of the employee for
the taxable year does not include a qualified HSA funding
distribution to the extent such distribution is otherwise
includible in gross income (determined after the application of
paragraph (4)).
``(2) Qualified hsa funding distribution.--For purposes of
this subsection, the term `qualified HSA funding distribution'
means a distribution from an individual retirement plan of the
employee to the extent that such distribution is contributed to
the health savings account of the employee not later than the
60th day after the day on which the employee receives such
distribution or in a direct trustee-to-trustee transfer.
``(3) Limitations.--
``(A) Maximum dollar limitations based on out-of
pocket limits in effect at time of contribution.--The
amount excluded from gross income by paragraph (1)
shall not exceed--
``(i) in the case of an individual who has
self-only coverage under a high deductible
health plan as of the first day of the month in
which the qualified HSA funding distribution is
contributed to the health savings account of
the employee, the amount in effect for the
taxable year under subclause (I) of section
223(c)(2)(A)(ii), and
``(ii) in the case of an individual who has
family coverage under a high deductible health
plan as of the first day of the month in which
the qualified HSA funding distribution is
contributed to the health savings account of
the employee, the amount in effect for the
taxable year under subclause (II) of section
223(c)(2)(A)(ii).
``(B) One-time transfer.--
``(i) In general.--Except as provided in
clause (ii), an individual may make an election
under paragraph (1) only for one qualified HSA
funding distribution during the lifetime of the
individual. Such an election, once made, shall
be irrevocable.
``(ii) Conversion from self-only to family
coverage.--If a qualified HSA funding
distribution is made during a month during
which an individual has self-only coverage
under a high deductible health plan as of the
first day of the month, the individual may
elect to make an additional qualified HSA
funding distribution during a subsequent month
during which the individual has family coverage
under a high deductible health plan as of the
first day of the subsequent month, except that
the limitation otherwise applicable under
subparagraph (A)(ii) to the distribution during
such subsequent month shall be reduced by the
amount of the earlier qualified HSA funding
distribution.
``(4) Application of section 72.--Notwithstanding section
72, in determining the extent to which an amount is treated as
includible in gross income for purposes of paragraph (1), the
aggregate amount distributed from an eligible retirement plan
in a taxable year shall be treated as includible in gross
income to the extent that such amount does not exceed the
aggregate amount which would have been so includible if all
amounts distributed from all eligible retirement plans were
treated as 1 contract for purposes of determining the inclusion
of such distribution under section 72. Proper adjustments shall
be made in applying section 72 to other distributions in such
taxable year and subsequent taxable years.
``(5) Definitions.--For purposes of this subsection--
``(A) Eligible retirement plan.--The term `eligible
retirement plan' means an individual retirement plan
(as defined in section 7701(a)(37)), including an
individual retirement plan which is designated as a
Roth IRA.
``(B) Eligible individual.--The term `eligible
individual' has the meaning given such term by section
223(c)(1).
``(6) Related plans treated as 1.--For purposes of this
subsection, all eligible retirement plans of an employer shall
be treated as a single plan.''.
(2) Coordination with limitation on contributions to
hsas.--Section 223(b)(4) (relating to coordination with other
contributions) is amended by striking ``and'' at the end of
subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting ``, and'', and by inserting
after subparagraph (B) the following new subparagraph:
``(C) the aggregate amount contributed to health
savings accounts of such individual for such taxable
year under section 402(l) (and such amount shall not be
allowed as a deduction under subsection (a)).''.
(3) 10-percent penalty on early distributions not to
apply.--Section 72(t)(2)(A) of such Code (relating to
subsection not to apply to certain distributions) is amended by
striking ``or'' at the end of clause (vi), by striking the
period at the end of clause (vii) and inserting ``, or'', and
by inserting after clause (vii) the following new clause:
``(viii) a qualified HSA funding
distribution (as defined by section 402(l)).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 4. PROVISIONS RELATING TO ELIGIBILITY TO CONTRIBUTE TO HSAS.
(a) Individuals Eligible for Reimbursement Under Spouse's Flexible
Spending Arrangement.--Section 223(c)(1) (defining eligible individual)
is amended by adding at the end the following new subparagraph:
``(C) Special rule for certain flexible spending
arrangements.--For purposes of subparagraph (A)(ii), an
individual shall not be treated as covered under a
health plan described in such subparagraph merely
because the individual is covered under a flexible
spending arrangement (within the meaning of section
106(c)(2)) which is maintained by an employer of the
spouse of the individual, but only if--
``(i) the employer is not also the employer
of the individual, and
``(ii) the individual certifies to the
employer and to the Secretary (in such form and
manner as the Secretary may prescribe) that the
individual and the individual's spouse will not
accept reimbursement under the arrangement for
any expenses for medical care provided to the
individual.''.
(b) Individuals Over Age 65 Automatically Enrolled in Medicare Part
A.--Section 223(b)(7) (relating to contribution limitation on medicare
eligible individuals) is amended by adding at the end the following new
sentence: ``This paragraph shall not apply to any individual during any
period the individual's only entitlement to such benefits is an
entitlement to hospital insurance benefits under part A of title XVIII
of such Act pursuant to an automatic enrollment for such hospital
insurance benefits under the regulations under section 226(a)(1) of
such Act.''
(c) Individuals Eligible for Certain Veterans Benefits.--Section
223(c)(1) (defining eligible individual), as amended by subsection (a),
is amended by adding at the end the following new subparagraph:
``(D) Special rule for individuals eligible for
certain veterans benefits.--For purposes of
subparagraph (A)(ii), an individual shall not be
treated as covered under a health plan described in
such subparagraph merely because the individual
receives periodic hospital care or medical services for
a service-connected disability under any law
administered by the Secretary of Veterans Affairs but
only if the individual is not eligible to receive such
care or services for any condition other than a
service-connected disability.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 5. PROVISIONS RELATING TO CONTRIBUTION AND LOW PREMIUM HEALTH PLAN
LIMITS.
(a) Increase in Contribution Limits for HSAs.--
(1) Increase in monthly limit.--
(A) In general.--Paragraph (2) of section 223(b)
(relating to monthly limitation) is amended to read as
follows:
``(2) Monthly limitation.--In the case of an eligible
individual who has coverage under a high deductible health
plan, the monthly limitation for any month of such coverage 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, $2,700, and
``(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, $5,450.''.
(B) Conforming amendments.--
(i) Section 223(d)(1)(A)(ii)(I) is amended
by striking ``subsection (b)(2)(B)(ii)'' and
inserting ``subsection (b)(2)(B)''.
(ii) Section 223(c)(2)(D) is amended to
read as follows:
``(D) Special rule for network plans.--In the case
of a plan using a network of providers, 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).''.
(2) Increase in limit for individuals becoming eligible
individuals after the beginning of the year.--Section 223(b)
(relating to limitations) is amended by adding at the end the
following new paragraph:
``(8) Increase in limit for individuals becoming eligible
individuals after the beginning of the year.--An individual who
first becomes an eligible individual during a calendar year in
a month after January of the calendar year shall, for purposes
of computing the limitation under paragraph (1) for any taxable
year, be treated as having been an eligible individual during
each of the months in such calendar year preceding such first
month (and as having been enrolled in each of those months in
the same high deductible health plan the individual was
enrolled in for such first month).''.
(3) Application of special rules for married individuals.--
Paragraph (5) of section 223(b) (relating to special rule for
married individuals) is amended to read as follows:
``(5) Special rules for married individuals.--
``(A) In general.--In the case of individuals who
are married to each other and who are both eligible
individuals, the limitation under paragraph (1) for
each spouse shall be equal to the spouse's applicable
share of the excess (if any) of--
``(i) the dollar amount in effect under
paragraph (2)(B) (without regard to any
additional contribution amounts under paragraph
(3)), over
``(ii) the aggregate amount paid to Archer
MSAs of such spouses for the taxable year.
``(B) Applicable share.--For purposes of
subparagraph (A), a spouse's applicable share is one-
half of the limitation under subparagraph (A) unless
both spouses agree on a different division.''
(4) Self-only coverage.--Section 223(c)(4) (defining family
coverage) is amended to read as follows:
``(4) Coverage.--
``(A) Family coverage.--The term `family coverage'
means any coverage other than self-only coverage.
``(B) Self-only coverage.--If more than 1
individual is covered by a high deductible health plan
but only 1 of the individuals is an eligible
individual, the coverage shall be treated as self-only
coverage.''.
(b) Family Plan May Have Individual Annual Deductible Limit.--
Section 223(c)(2) (defining high deductible health plan) is amended by
adding at the end the following new subparagraph:
``(E) Special rule for family coverage.--A health
plan providing family coverage shall not fail to meet
the requirements of subparagraph (A)(i)(II) merely
because the plan elects to provide both--
``(i) an aggregate annual deductible limit
for all individuals covered by the plan which
is not less than the amount in effect under
subparagraph (A)(i)(II), and
``(ii) an annual deductible limit for each
individual covered by the plan which is not
less than the amount in effect under
subparagraph (A)(i)(I).''.
(c) Cost-of-Living Adjustments Computed Earlier in the Calendar
Year.--Paragraph (1) of section 223(g) (relating to cost-of-living
adjustment) is amended by adding at the end the following new flush
sentence:
``In the case of any taxable year beginning after 2006, 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.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
SEC. 6. DEFINITION OF QUALIFIED MEDICAL EXPENSES.
(a) Premiums for Low Premium Health Plans Treated as Qualified
Medical Expenses.--Subparagraph (C) of section 223(d)(2) is amended by
striking ``or'' at the end of clause (iii), by striking the period at
the end of clause (iv) and inserting ``, or'', and by adding at the end
the following new clause:
``(v) a high deductible health plan, but
only if the expenses are for coverage for a
month with respect to which the account
beneficiary is an eligible individual by reason
of the coverage under the plan.''.
(b) Special Rule for Certain Medical Expenses Incurred Before
Establishment of Account.--Paragraph (2) of section 223(d) is amended
by adding at the end the following new subparagraph:
``(D) Certain medical expenses incurred before
establishment of account treated as qualified.--An
expense shall not fail to be treated as a qualified
medical expense solely because such expense was
incurred before the establishment of the health savings
account if such expense was incurred--
``(i) during either--
``(I) the taxable year in which the
health savings account was established,
or
``(II) the preceding taxable year
in the case of a health savings account
established after the taxable year in
which such expense was incurred but
before the time prescribed by law for
filing the return for such taxable year
(not including extensions thereof), and
``(ii) for medical care of an individual
during a period that such individual was an
eligible individual.
For purposes of clause (ii), an individual shall be
treated as an eligible individual for any portion of a
month the individual is described in subsection (c)(1),
determined without regard to whether the individual is
covered under a high deductible health plan on the 1st
day of such month.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2006.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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