H.R. 2596 (108th): Health Savings and Affordability Act of 2003

108th Congress, 2003–2004. Text as of Jun 25, 2003 (Introduced).

Status & Summary | PDF | Source: GPO

HR 2596 IH

108th CONGRESS

1st Session

H. R. 2596

To amend the Internal Revenue Code of 1986 to allow a deduction to individuals for amounts contributed to health savings security accounts and health savings accounts, to provide for the disposition of unused health benefits in cafeteria plans and flexible spending arrangements, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

June 25, 2003

Mr. THOMAS 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 allow a deduction to individuals for amounts contributed to health savings security accounts and health savings accounts, to provide for the disposition of unused health benefits in cafeteria plans and flexible spending arrangements, 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.

    This Act may be cited as the ‘Health Savings and Affordability Act of 2003’.

SEC. 2. HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS.

    (a) IN GENERAL- Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to additional itemized deductions for individuals) is amended by redesignating section 223 as section 225 and by inserting after section 222 the following new sections:

‘SEC. 223. HEALTH SAVINGS SECURITY 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 such individual to a health savings security 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) $2,000, in the case of an eligible individual who--

          ‘(i) has self-only coverage under a minimum deductible plan as of the first day of such month, or

          ‘(ii) is uninsured as of the first day of such month and is not described in subparagraph (B)(ii) with respect to the taxable year which includes such month,

        ‘(B) $4,000, in the case of an eligible individual who--

          ‘(i) has family coverage under a minimum deductible plan as of the first day of such month, or

          ‘(ii) is uninsured as of the first day of such month and, with respect to the taxable year which includes such month--

            ‘(I) is entitled to a deduction for a dependent under section 151(c) (or would be so entitled but for paragraph (2) or (4) of section 152(e)), or

            ‘(II) files a joint return, and

        ‘(C) zero in any other case.

      ‘(3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55 OR OLDER-

        ‘(A) IN GENERAL- In the case of an individual who has attained the age of 55 before the close of the taxable year, paragraph (2) shall be applied by increasing the $2,000 amount in paragraph (2)(A) and the $4,000 amount in paragraph (2)(B) 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:

‘For taxable years

The additional

beginning in:

contribution amount is:

2004

$500

2005

$600

2006

$700

2007

$800

2008

$900

2009 and thereafter

$1,000.

      ‘(4) LIMITATION BASED ON ADJUSTED GROSS INCOME-

        ‘(A) SELF-ONLY COVERAGE- The dollar amount in paragraph (2)(A) (as increased under paragraph (3)) shall be reduced (but not below zero) by an amount which bears the same ratio to such dollar amount as--

          ‘(i) the amount (if any) by which the taxpayer’s adjusted gross income for such taxable year exceeds $75,000 ($150,000 in the case of a joint return), bears to

          ‘(ii) $10,000 ($20,000 in the case of a joint return).

        ‘(B) FAMILY COVERAGE- The dollar amount in paragraph (2)(B) (as increased under paragraph (3)) shall be reduced (but not below zero) by an amount which bears the same ratio to such dollar amount as--

          ‘(i) the amount (if any) by which the taxpayer’s adjusted gross income for such taxable year exceeds $150,000, bears to

          ‘(ii) $20,000.

        ‘(C) NO REDUCTION BELOW $200 UNTIL COMPLETE PHASE-OUT- No dollar amount shall be reduced below $200 under subparagraph (A) or (B) unless (without regard to this subparagraph) such limitation is reduced to zero.

        ‘(D) ROUNDING- Any amount determined under this paragraph which is not a multiple of $10 shall be rounded to the next lowest $10.

        ‘(E) ADJUSTED GROSS INCOME- For purposes of this paragraph, adjusted gross income shall be determined--

          ‘(i) without regard to this section or section 911, and

          ‘(ii) after application of sections 86, 135, 137, 219, 221, 222, and 469.

      ‘(5) COORDINATION WITH OTHER CONTRIBUTIONS- The limitation which would (but for this paragraph) apply under this subsection to the taxpayer for any taxable year shall be reduced (but not below zero) by the sum of--

        ‘(A) the aggregate amount paid during such taxable year to Archer MSAs of such individual,

        ‘(B) the aggregate amount paid during such taxable year to health savings accounts of such individual, and

        ‘(C) the aggregate amount paid during such taxable year to health savings security accounts of such individual by persons other than such individual.

      ‘(6) SPECIAL RULES FOR MARRIED INDIVIDUALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDIVIDUALS- Rules similar to the rules of paragraphs (3), (6), and (7) of section 220(b) shall apply for purposes of this section.

    ‘(c) DEFINITIONS- For purposes of this section--

      ‘(1) ELIGIBLE INDIVIDUAL-

        ‘(A) IN GENERAL- The term ‘eligible individual’ means, with respect to any month, any individual unless such individual is covered, as of the first day of such month, under any health plan which is not a minimum deductible plan.

        ‘(B) CERTAIN COVERAGE DISREGARDED- Subparagraph (A) shall be applied without regard to--

          ‘(i) coverage for any benefit provided by permitted insurance, and

          ‘(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.

      ‘(2) MINIMUM DEDUCTIBLE PLAN-

        ‘(A) IN GENERAL- The term ‘minimum deductible plan’ means a health plan--

          ‘(i) in the case of self-only coverage, which has an annual deductible which is not less than $500, and

          ‘(ii) in the case of family coverage, which has an annual deductible which is not less than twice the dollar amount in clause (i) (as increased under subparagraph (B)).

        ‘(B) COST-OF-LIVING ADJUSTMENT FOR ANNUAL DEDUCTIBLES-

          ‘(i) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2004, the $500 amount in subparagraph (A)(i) shall be increased by an amount equal to--

            ‘(I) such dollar amount, multiplied by

            ‘(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting ‘calendar year 2003’ for ‘calendar year 1992’ in subparagraph (B) thereof.

          ‘(ii) ROUNDING- If any increase under clause (i) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.

        ‘(C) SPECIAL RULES-

          ‘(i) 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).

          ‘(ii) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE DEDUCTIBLE- A plan shall not fail to be treated as a minimum deductible plan by reason of failing to have a deductible for preventive care.

      ‘(3) UNINSURED- An individual shall be treated as uninsured if such individual is not covered by insurance which constitutes medical care. The preceding sentence shall be applied without regard to the coverage described in paragraph (1)(B).

      ‘(4) PERMITTED INSURANCE- The term ‘permitted insurance’ has the meaning given such term in section 220(c)(3).

      ‘(5) FAMILY COVERAGE- The term ‘family coverage’ has the meaning given such term in section 220(c)(5).

      ‘(6) ARCHER MSA- The term ‘Archer MSA’ has the meaning given such term in section 220(d).

      ‘(7) HEALTH SAVINGS ACCOUNT- The term ‘health savings account’ has the meaning given such term in section 224(d).

    ‘(d) HEALTH SAVINGS SECURITY ACCOUNT- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘health savings security account’ means a trust created or organized in the United States as a health savings security 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 from an Archer MSA, or a health savings security account, which is not includible in gross income, no contribution will be accepted--

          ‘(i) unless it is in cash and is contributed by--

            ‘(I) the account beneficiary,

            ‘(II) a member of the family of the account beneficiary, or

            ‘(III) an employer of the account beneficiary, and

          ‘(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the highest annual limitation which could apply to an individual under subsection (b) for a taxable year beginning in such calendar year.

        ‘(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) MEMBER OF THE FAMILY- The term ‘member of the family’ has the meaning given such term in section 2032A(e)(2).

      ‘(3) QUALIFIED MEDICAL EXPENSES- The term ‘qualified medical expenses’ has the meaning given such term in section 220(d)(2), except that--

        ‘(A) subparagraph (B)(i) thereof shall not apply to--

          ‘(i) insurance which constitutes a minimum deductible plan if no portion of the cost of such insurance is paid by an employer or former employer of the account beneficiary or the spouse of such beneficiary, and

          ‘(ii) any health insurance (other than health insurance substantially all of its coverage is coverage described in subsection (c)(1)(B)) if the account beneficiary has attained age 65, and

        ‘(B) subparagraph (C) thereof shall not apply for purposes of this section.

      ‘(4) ACCOUNT BENEFICIARY- The term ‘account beneficiary’ means the individual on whose behalf the health savings security account was established.

      ‘(5) 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).

      ‘(6) CONTRIBUTIONS FROM FLEXIBLE SPENDING ACCOUNTS TREATED AS MADE BY THE EMPLOYER- Any contribution from a flexible spending account to a health savings security account which is not includible in the gross income of the employee by reason of section 125(h) shall be treated as a contribution made by the employer for purposes of this section.

    ‘(e) TAX TREATMENT OF ACCOUNTS-

      ‘(1) IN GENERAL- A health savings security account is exempt from taxation under this subtitle unless such account has ceased to be a health savings security 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 security accounts, and any amount treated as distributed under such similar 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 security 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-

        ‘(A) IN GENERAL- Any amount paid or distributed out of a health savings security 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 in the manner provided under section 72.

        ‘(B) SPECIAL RULES FOR APPLYING SECTION 72- For purposes of applying section 72 to any amount described in subparagraph (A)--

          ‘(i) all health savings security accounts shall be treated as 1 contract,

          ‘(ii) all distributions during any taxable year shall be treated as 1 distribution,

          ‘(iii) the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins, and

          ‘(iv) such distributions shall be treated as made from contributions from members of the family of the account beneficiary to the extent that such distribution, when added to all previous distributions from the health savings security account taken into account under this clause, do not exceed the aggregate contributions from members of such family.

      ‘(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 security account of an individual, paragraph (2) shall not apply to distributions from the health savings security 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 made on or before the last day prescribed by law (including extensions of time) for filing the account beneficiary’s return for such taxable year,

          ‘(ii) no deduction is allowed under this section with respect to such contribution,

          ‘(iii) such distribution is accompanied by the amount of net income attributable to such excess contribution, and

          ‘(iv) such distribution satisfies the requirements of subparagraph (B).

        ‘(B) RULES RELATED TO ORDERING-

          ‘(i) DISTRIBUTIONS LIMITED TO CONTRIBUTIONS- Subparagraph (A) shall apply to distributions to a person only to the extent of the contributions of such person to such accounts during such taxable year.

          ‘(ii) CLASSES OF CONTRIBUTORS- Subparagraph (A) shall apply only to distributions of such contributions which are made in the following order:

            ‘(I) first, to members of the family of the account beneficiary,

            ‘(II) second, to the account beneficiary,

            ‘(III) third, to employers of the account beneficiary with respect to contributions under section 125(h), and

            ‘(IV) fourth, to employers of the account beneficiary with respect to contributions under section 106(d).

          ‘(iii) LAST-IN FIRST-OUT- If distributions could be made to more than one person under any subclause of clause (ii), subparagraph (A) shall not apply to any such distribution unless such distribution is of the most recent excess contribution which has not been distributed to the contributor.

        ‘(C) TREATMENT OF NET INCOME- Any net income described in subparagraph (A)(iii) shall be included in the gross income of the person receiving the distribution for the taxable year in which received.

        ‘(D) EXCESS CONTRIBUTION- For purposes of subparagraph (A), the term ‘excess contribution’ means any contribution (other than a rollover contribution from another health savings security account, or from an Archer MSA, which is not includible in gross income) to the extent such contribution results in the aggregate contributions to health savings security accounts of the account beneficiary for the taxable year to be in excess of the limitation under subsection (b) (determined without regard to paragraph (5)(C) thereof) which applies to such beneficiary for such year.

      ‘(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 security account of such beneficiary which is includible in gross income under paragraph (2) shall be increased by 15 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-

        ‘(A) IN GENERAL- Paragraph (2) shall not apply to any amount paid or distributed from a health savings security account to the account beneficiary to the extent the amount received is paid into a health savings security account, or 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 security 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 security account which was not includible in the individual’s gross income because of the application of this paragraph.

      ‘(6) SPECIAL RULES- Rules similar to the rules of paragraphs (6), (7), and (8) of section 220(f) shall apply for purposes of this section.

    ‘(g) REPORTS- The Secretary may require the trustee of a health savings security account to make such reports regarding such account to the Secretary and to the account beneficiary with respect to contributions, distributions, and such other matters 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.

    ‘(h) REGULATIONS- The Secretary may issue regulations to carry out the purposes of this section, including regulations regarding the proper treatment of distributions described in subsection (f)(3) and nondeductible contributions by members of the family of the account beneficiary.

‘SEC. 224. 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 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 the amount equal to 1/12 of the annual deductible (as of the first day of such month) of the individual’s coverage under the high deductible health plan.

      ‘(3) COORDINATION WITH OTHER CONTRIBUTIONS- The limitation which would (but for this paragraph) apply under this subsection to the taxpayer for any taxable year shall be reduced (but not below zero) by the sum of--

        ‘(A) the aggregate amount paid during such taxable year to Archer MSAs of such individual,

        ‘(B) the aggregate amount paid during such taxable year to health savings security accounts of such individual, and

        ‘(C) the aggregate amount paid during such taxable year to health savings accounts of such individual by persons other than such individual.

      ‘(4) SPECIAL RULES FOR MARRIED INDIVIDUALS, DEPENDENTS, AND MEDICARE ELIGIBLE INDIVIDUALS- Rules similar to the rules of paragraphs (3), (6), and (7) of section 220(b) shall apply for purposes of this section.

    ‘(c) DEFINITIONS- 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, and

          ‘(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.

      ‘(2) HIGH DEDUCTIBLE HEALTH PLAN-

        ‘(A) IN GENERAL- The term ‘high deductible health plan’ means a health plan--

          ‘(i) in the case of self-only coverage, which has an annual deductible which is not less than $1,000 and not more than $2,250,

          ‘(ii) in the case of family coverage, which has an annual deductible which is not less than $2,000 and not more than $4,500, and

          ‘(iii) the annual out-of-pocket expenses required to be paid under the plan (other than for premiums) for covered benefits does not exceed--

            ‘(I) $3,000 for self-only coverage, and

            ‘(II) $5,500 for family coverage.

        ‘(B) COST-OF-LIVING ADJUSTMENT-

          ‘(i) IN GENERAL- In the case of any taxable year beginning in a calendar year after 1998, each dollar amount in subparagraph (A) shall be increased by an amount equal to--

            ‘(I) such dollar amount, multiplied by

            ‘(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting ‘calendar year 1997’ for ‘calendar year 1992’ in subparagraph (B) thereof.

          ‘(ii) SPECIAL RULES- In the case of the $1,000 amount in subparagraph (A)(i) and the $2,000 amount in subparagraph (A)(ii), subclause (i)(II) shall be applied by substituting ‘calendar year 2002’ for ‘calendar year 1997’.

          ‘(iii) ROUNDING- If any increase under clause (i) or (ii) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.

        ‘(C) SPECIAL RULES-

          ‘(i) 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).

          ‘(ii) 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.

        ‘(D) TREATMENT OF NETWORK SERVICES-

          ‘(i) IN GENERAL- In the case of a health plan which is a preferred provider organization plan and which would (without regard to services provided outside such organization’s network of providers described in clause (iii)(I)) be a high deductible health plan, such plan shall not fail to be a high deductible health plan because--

            ‘(I) the annual deductible for services provided outside such network exceeds the applicable maximum dollar amount in clause (i) or (ii) of subparagraph (A), or

            ‘(II) the annual out-of-pocket expenses required to be paid for services provided outside such network exceeds the applicable dollar amount in subparagraph (A)(iii).

          ‘(ii) ANNUAL DEDUCTIBLE- The annual deductible taken into account under subsection (b)(2) with respect to a plan which is a high deductible health plan by reason of clause (i) shall be the annual deductible for services provided within such network.

          ‘(iii) PREFERRED PROVIDER ORGANIZATION PLAN DEFINED- In this subparagraph, the term ‘preferred provider organization plan’ means a health plan that--

            ‘(I) has a network of providers that have agreed to a contractually specified reimbursement for covered benefits with the organization offering the plan,

            ‘(II) provides for reimbursement for all covered benefits regardless of whether such benefits are provided within such network of providers, and

            ‘(III) is offered by an organization that is not licensed or organized under State law as a health maintenance organization.

      ‘(3) PERMITTED INSURANCE- The term ‘permitted insurance’ has the meaning given such term in section 220(c)(3).

      ‘(4) FAMILY COVERAGE- The term ‘family coverage’ has the meaning given such term in section 220(c)(5).

      ‘(5) ARCHER MSA- The term ‘Archer MSA’ has the meaning given such term in section 220(d).

      ‘(6) HEALTH SAVINGS SECURITY ACCOUNT- The term ‘health savings security account’ has the meaning given such term in section 223(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 from an Archer MSA, a health savings security account, or a health savings account, which is not includible in gross income, no contribution will be accepted--

          ‘(i) unless it is in cash and is contributed by--

            ‘(I) the account beneficiary, or

            ‘(II) an employer of the account beneficiary, and

          ‘(ii) to the extent such contribution, when added to previous contributions to the trust for the calendar year, exceeds the highest annual limitation which could apply to an individual under subsection (b) for a taxable year beginning in such calendar year.

        ‘(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- The term ‘qualified medical expenses’ has the meaning given such term in section 220(d)(2).

      ‘(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).

      ‘(6) CONTRIBUTIONS FROM FLEXIBLE SPENDING ACCOUNTS TREATED AS MADE BY THE EMPLOYER- Any contribution from a flexible spending account to a health savings account which is not includible in the gross income of the employee by reason of section 125(h) shall be treated as a contribution made by the employer for purposes of this section.

    ‘(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 made on or before the last day prescribed by law (including extensions of time) for filing the account beneficiary’s return for such taxable year,

          ‘(ii) no deduction is allowed under this section with respect to such contribution,

          ‘(iii) such distribution is accompanied by the amount of net income attributable to such excess contribution, and

          ‘(iv) such distribution satisfies the requirements of subparagraph (B).

        ‘(B) RULES RELATED TO ORDERING-

          ‘(i) DISTRIBUTIONS LIMITED TO CONTRIBUTIONS- Subparagraph (A) shall apply to distributions to a person only to the extent of the contributions of such person to such accounts during such taxable year.

          ‘(ii) CLASSES OF CONTRIBUTORS- Subparagraph (A) shall apply only to distributions of such contributions which are made in the following order:

            ‘(I) first, to the account beneficiary,

            ‘(II) second, to employers of the account beneficiary with respect to contributions under section 125(h), and

            ‘(III) third, to employers of the account beneficiary with respect to contributions under section 106(d).

          ‘(iii) LAST-IN FIRST-OUT- If distributions could be made to more than one person under any subclause of clause (ii), subparagraph (A) shall not apply to any such distribution unless such distribution is of the most recent excess contribution which has not been distributed to the contributor.

        ‘(C) TREATMENT OF NET INCOME- Any net income described in subparagraph (A)(iii) shall be included in the gross income of the person receiving the distribution for the taxable year in which received.

        ‘(D) EXCESS CONTRIBUTION- For purposes of subparagraph (A), the term ‘excess contribution’ means any contribution (other than a rollover contribution from another health savings account, from a health savings security account, or from an Archer MSA, which is not includible in gross income) to the extent such contribution results in the aggregate contributions to health savings accounts of the account beneficiary for the taxable year to be in excess of the limitation under subsection (b) (determined without regard to paragraph (3)(C) thereof) which applies to such beneficiary for such year.

      ‘(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 15 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-

        ‘(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) SPECIAL RULES- Rules similar to the rules of paragraphs (6), (7), and (8) of section 220(f) shall apply for purposes of this section.

    ‘(g) REPORTS- The Secretary may require 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, and such other matters 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) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL ITEMIZES OTHER DEDUCTIONS- Subsection (a) of section 62 of such Code is amended by inserting after paragraph (18) the following new paragraphs:

      ‘(19) HEALTH SAVINGS SECURITY ACCOUNTS- The deduction allowed by section 223.

      ‘(20) HEALTH SAVINGS ACCOUNTS- The deduction allowed by section 224.’.

    (c) COORDINATION WITH ARCHER MSAS-

      (1) ROLLOVERS FROM ARCHER MSAS PERMITTED- Subparagraph (A) of section 220(f)(5) of such Code (relating to rollover contribution) is amended by inserting ‘, a health savings security account (as defined in section 223(d)), or a health savings account (as defined in section 224(d)),’ after ‘paid into an Archer MSA’.

      (2) REDUCTION IN ARCHER MSA LIMITATION FOR CONTRIBUTIONS TO HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS- Subsection (b) of section 220 of such Code (relating to limitations) is amended by adding at the end the following new paragraph:

      ‘(8) COORDINATION WITH HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS- The limitation which would (but for this paragraph) apply under this subsection to the taxpayer for any taxable year shall be reduced (but not below zero) by the sum of--

        ‘(A) the aggregate amount paid during such taxable year to health savings security accounts of such individual, and

        ‘(B) the aggregate amount paid during such taxable year to health savings accounts of such individual.’.

    (d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS-

      (1) EXCLUSION FROM INCOME TAX- Section 106 of such Code (relating to contributions by employer to accident and health plans) is amended by adding at the end the following new subsections:

    ‘(d) CONTRIBUTIONS TO HEALTH SAVINGS SECURITY ACCOUNTS-

      ‘(1) IN GENERAL- In the case of an employee who is an eligible individual, amounts contributed by such employee’s employer to any health savings security account of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 223(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

      ‘(2) SPECIAL RULES- Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for purposes of this subsection.

      ‘(3) DEFINITIONS- For purposes of this subsection, the terms ‘eligible individual’ and ‘health savings security account’ have the respective meanings given to such terms by section 223.

      ‘(4) CROSS REFERENCE-

‘For penalty on failure by employer to make comparable contributions to the health savings security accounts of comparable employees, see section 4980G.

    ‘(e) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS-

      ‘(1) IN GENERAL- In the case of an employee who is an eligible individual, amounts contributed by such employee’s employer to any health savings account of such employee shall be treated as employer-provided coverage for medical expenses under an accident or health plan to the extent such amounts do not exceed the limitation under section 224(b) (determined without regard to this subsection) which is applicable to such employee for such taxable year.

      ‘(2) SPECIAL RULES- Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for purposes of this subsection.

      ‘(3) DEFINITIONS- For purposes of this subsection, the terms ‘eligible individual’ and ‘health savings account’ have the respective meanings given to such terms by section 224.

      ‘(4) CROSS REFERENCE-

‘For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees, see section 4980G.’.

      (2) EXCLUSION FROM EMPLOYMENT TAXES-

        (A) RAILROAD RETIREMENT TAX- Subsection (e) of section 3231 of such Code is amended by adding at the end the following new paragraph:

      ‘(11) HEALTH SAVINGS SECURITY ACCOUNT AND HEALTH SAVINGS ACCOUNT CONTRIBUTIONS- The term ‘compensation’ shall not include any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under subsection (d) or (e) of section 106.’.

        (B) UNEMPLOYMENT TAX- Subsection (b) of section 3306 of such Code is amended by striking ‘or’ at the end of paragraph (16), by striking the period at the end of paragraph (17) and inserting ‘; or’, and by inserting after paragraph (17) the following new paragraph:

      ‘(18) any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under subsection (d) or (e) of section 106.’.

        (C) WITHHOLDING TAX- Subsection (a) of section 3401 of such Code is amended by striking ‘or’ at the end of paragraph (20), by striking the period at the end of paragraph (21) and inserting ‘; or’, and by inserting after paragraph (21) the following new paragraph:

      ‘(22) any payment made to or for the benefit of an employee if at the time of such payment it is reasonable to believe that the employee will be able to exclude such payment from income under subsection (d) or (e) of section 106.’

      (3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON W-2- Subsection (a) of section 6051 of such Code is amended by striking ‘and’ at the end of paragraph (10), by striking the period at the end of paragraph (11) and inserting a comma, and by inserting after paragraph (11) the following new paragraphs:

      ‘(12) the amount contributed to any health savings security account (as defined in section 223(d)) of such employee or such employee’s spouse, and

      ‘(13) the amount contributed to any health savings account (as defined in section 224(d)) of such employee or such employee’s spouse.’.

      (4) PENALTY FOR FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS ACCOUNT CONTRIBUTIONS-

        (A) IN GENERAL- Chapter 43 of such Code is amended by adding after section 4980F the following new section:

‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.

    ‘(a) GENERAL RULE- In the case of an employer who makes a contribution to the health savings security account or the health savings account of any employee during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (b) for such calendar year.

    ‘(b) RULES AND REQUIREMENTS- Rules and requirements similar to the rules and requirements of section 4980E shall apply for purposes of this section.

    ‘(c) REGULATIONS- The Secretary shall issue regulations to carry out the purposes of this section, including regulations providing special rules for employers who make contributions to more than one of the following types of accounts during the calendar year:

      ‘(1) An Archer MSA.

      ‘(2) A health savings security account.

      ‘(3) A health savings account.’.

        (B) CLERICAL AMENDMENT- The table of sections for chapter 43 of such Code is amended by adding after the item relating to section 4980F the following new item:

      ‘Sec. 4980G. Failure of employer to make comparable health savings account contributions.’.

    (e) TAX ON EXCESS CONTRIBUTIONS- Section 4973 of such Code (relating to tax on excess contributions to certain tax-favored accounts and annuities) is amended--

      (1) by striking ‘or’ at the end of paragraph (3) of subsection (a),

      (2) by inserting after paragraph (4) of subsection (a) the following new paragraphs:

      ‘(5) a health savings security account (within the meaning of section 223(d)), or

      ‘(6) a health savings account (within the meaning of section 224(d))’, and

      (4) by adding at the end the following new subsections:

    ‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS SECURITY ACCOUNTS- For purposes of this section, in the case of health savings security accounts (within the meaning of section 223(d)), the term ‘excess contributions’ means the sum of--

      ‘(1) the aggregate amount contributed for the taxable year to the accounts (other than a rollover contribution from another health savings security account, or from an Archer MSA, which is not includible in gross income) which is in excess of the limitation under section 223(b) (determined without regard to paragraph (5)(C) thereof), and

      ‘(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of--

        ‘(A) the distributions out of the accounts which were included in gross income under section 223(f)(2), and

        ‘(B) the excess (if any) of--

          ‘(i) the sum of limitations described in paragraph (1), over

          ‘(ii) the amount contributed to the accounts for the taxable year.

    For purposes of this subsection, any contribution which is distributed out of the health savings security account in a distribution to which section 223(f)(3) applies shall be treated as an amount not contributed.

    ‘(h) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS- For purposes of this section, in the case of health savings accounts (within the meaning of section 224(d)), the term ‘excess contributions’ means the sum of--

      ‘(1) the aggregate amount contributed for the taxable year to the accounts (other than a rollover contribution from another health savings account, a health savings security account, or from an Archer MSA, which is not includible in gross income) which is in excess of the limitation under section 224(b) (determined without regard to paragraph (3)(C) thereof), and

      ‘(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of--

        ‘(A) the distributions out of the accounts which were included in gross income under section 224(f)(2), and

        ‘(B) the excess (if any) of--

          ‘(i) the sum of limitations described in paragraph (1), over

          ‘(ii) the amount contributed to the accounts for the taxable year.

    For purposes of this subsection, any contribution which is distributed out of the health savings account in a distribution to which section 224(f)(3) applies shall be treated as an amount not contributed.’.

    (f) TAX ON PROHIBITED TRANSACTIONS-

      (1) Section 4975 of such Code (relating to tax on prohibited transactions) is amended by adding at the end of subsection (c) the following new paragraphs:

      ‘(6) SPECIAL RULE FOR HEALTH SAVINGS SECURITY ACCOUNTS- An individual for whose benefit a health savings security account (within the meaning of section 223(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a health savings security account by reason of the application of section 223(e)(2) to such account.

      ‘(7) SPECIAL RULE FOR HEALTH SAVINGS ACCOUNTS- An individual for whose benefit a health savings account (within the meaning of section 224(d)) is established shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction, the account ceases to be a health savings account by reason of the application of section 224(e)(2) to such account.’.

      (2) Paragraph (1) of section 4975(e) of such Code is amended by redesignating subparagraphs (E) and (F) as subparagraphs (G) and (H), respectively, and by inserting after subparagraph (D) the following new subparagraphs:

        ‘(E) a health savings security account described in section 223(d),

        ‘(F) a health savings account described in section 224(d),’.

    (g) FAILURE TO PROVIDE REPORTS ON HEALTH SAVINGS ACCOUNTS- Paragraph (2) of section 6693(a) of such Code (relating to reports) is amended by redesignating subparagraphs (C) and (D) as subparagraphs (E) and (F), respectively, and by inserting after subparagraph (B) the following new subparagraphs:

        ‘(C) section 223(g) (relating to health savings security accounts),

        ‘(D) section 224(g) (relating to health savings accounts),’.

    (h) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION EXPENSES- Subparagraph (B) of section 848(e)(1) of such Code (defining specified insurance contract) is amended by striking ‘and’ at the end of clause (iii), by striking the period at the end of clause (iv) and inserting a comma, and by adding at the end the following new clauses:

          ‘(v) any contract which is a health savings security account (as defined in section 223(d)), and’.

          ‘(vi) any contract which is a health savings account (as defined in section 224(d)).’.

    (i) HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER CAFETERIA PLANS- Paragraph (2) of section 125(d) (relating to cafeteria plan defined) is amended by adding at the end the following new subparagraph:

        ‘(D) EXCEPTION FOR HEALTH SAVINGS ACCOUNTS- Subparagraph (A) shall not apply to a plan to the extent of amounts which a covered employee may elect to have the employer pay as contributions to a health savings security account, or a health savings account, established on behalf of the employee.’.

    (j) INFORMATION REPORTING BY PROVIDERS OF HEALTH INSURANCE- Subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new section:

‘SEC. 6050U. RETURNS RELATING TO PROVIDERS OF HEALTH INSURANCE.

    ‘(a) REQUIREMENT OF REPORTING- Under regulations prescribed by the Secretary, every person who provides any individual with coverage under a plan which constitutes medical care shall, at such time as the Secretary may prescribe, make the return described in subsection (b) with respect to such individual.

    ‘(b) FORM AND MANNER OF RETURNS- A return is described in this subsection if such return--

      ‘(1) is in such form as the Secretary may prescribe, and

      ‘(2) contains such information as the Secretary prescribes.

    ‘(c) STATEMENTS TO BE FURNISHED TO INDIVIDUALS WITH RESPECT TO WHOM INFORMATION IS REQUIRED- Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing--

      ‘(1) the name and address of the person required to make such return and the phone number of the information contact for such person, and

      ‘(2) the information required to be shown on the return with respect to such individual.

    The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.’.

    (k) CONFORMING AMENDMENTS-

      (1) The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following:

      ‘Sec. 223. Health savings security accounts.

      ‘Sec. 224. Health savings accounts.

      ‘Sec. 225. Cross reference.’.

      (2)(A) Sections 86(b)(2)(A), 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), and 221(b)(2)(C)(i) are each amended by inserting ‘223,’ after ‘222,’.

      (B) Section 222(b)(2)(C)(i) is amended by inserting ‘223,’ before ‘911’.

      (C) Section 469(i)(3)(F)(iii) is amended by striking ‘and 222’ and inserting ‘222, and 223’.

    (l) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2003.

SEC. 3. DISPOSITION OF UNUSED HEALTH BENEFITS IN CAFETERIA PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

    (a) IN GENERAL- Section 125 of the Internal Revenue Code of 1986 (relating to cafeteria plans) is amended by redesignating subsections (h) and (i) as subsections (i) and (j), respectively, and by inserting after subsection (g) the following:

    ‘(h) CONTRIBUTIONS OF CERTAIN UNUSED HEALTH BENEFITS-

      ‘(1) IN GENERAL- For purposes of this title, a plan or other arrangement shall not fail to be treated as a cafeteria plan solely because qualified benefits under such plan include a health flexible spending arrangement under which not more than $500 of unused health benefits may be--

        ‘(A) carried forward to the succeeding plan year of such health flexible spending arrangement,

        ‘(B) to the extent permitted by sections 223 and 224, contributed on behalf of the employee to a health savings security account (as defined in section 223(d)), or a health savings account (as defined in section 224(d)), maintained for the benefit of such employee, or

        ‘(C) contributed to a qualified retirement plan (as defined in section 4974(c)), or an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), but only to the extent such amount would not be allowed as a deduction under--

          ‘(i) section 223 if made directly by the employee to a health savings security account of the employee (determined without regard to any other contributions made by the employee), and

          ‘(ii) section 224 if made directly by the employee to a health savings account of the employee (determined without regard to any other contributions made by the employee).

      ‘(2) SPECIAL RULES FOR TREATMENT OF CONTRIBUTIONS TO RETIREMENT PLANS- For purposes of this title, contributions under paragraph (1)(C)--

        ‘(A) shall be treated as elective deferrals (as defined in section 402(g)(3)) in the case of contributions to a qualified cash or deferred arrangement (as defined in section 401(k)) or to an annuity contract described in section 403(b),

        ‘(B) shall be treated as employer contributions to which the employee has a nonforfeitable right in the case of a plan (other than a plan described in subparagraph (A)) which is described in section 401(a) which includes a trust exempt from tax under section 501(a),

        ‘(C) shall be treated as deferred compensation in the case of contributions to an eligible deferred compensation plan (as defined in section 457(b)), and

        ‘(D) shall be treated in the manner designated for purposes of section 408 or 408A in the case of contributions to an individual retirement plan.

      ‘(3) HEALTH FLEXIBLE SPENDING ARRANGEMENT- For purposes of this subsection, the term ‘health flexible spending arrangement’ means a flexible spending arrangement (as defined in section 106(c)) that is a qualified benefit and only permits reimbursement for expenses for medical care (as defined in section 213(d)(1) (without regard to subparagraphs (C) and (D) thereof).

      ‘(4) UNUSED HEALTH BENEFITS- For purposes of this subsection, with respect to an employee, the term ‘unused health benefits’ means the excess of--

        ‘(A) the maximum amount of reimbursement allowable to the employee during a plan year under a health flexible spending arrangement, taking into account any election by the employee, over

        ‘(B) the actual amount of reimbursement during such year under such arrangement.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2003.

SEC. 4. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS RELATED TO CERTAIN HEALTH ARRANGEMENTS.

    (a) IN GENERAL- Section 6041 (relating to information at source) is amended by adding at the end the following new subsection:

    ‘(f) SECTION DOES NOT APPLY TO CERTAIN HEALTH ARRANGEMENTS- This section shall not apply to any payment for medical care (as defined in section 213(d)) made under--

      ‘(1) a flexible spending arrangement (as defined in section 106(c)(2)), or

      ‘(2) a health reimbursement arrangement which is treated as employer-provided coverage under an accident or health plan for purposes of section 106.’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to payments made after December 31, 2002.