[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 720 Introduced in House (IH)]
104th CONGRESS
1st Session
H. R. 720
To amend the Internal Revenue Code of 1986 to allow individuals a
deduction for contributions to a Medisave account.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 27, 1995
Mr. Hoke 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 individuals a
deduction for contributions to a Medisave account.
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 ``Medisave Patient Empowerment Act of
1995''.
SEC. 2. MEDISAVE 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 220 as
section 221 and by inserting after section 219 the following new
section:
``SEC. 220. MEDISAVE ACCOUNTS.
``(a) Deduction Allowed.--In the case of an eligible individual,
there shall be allowed as a deduction the amounts paid in cash during
the taxable year by or on behalf of such individual to a Medisave
account for the benefit of such individual and (if any) such
individual's spouse and dependents if such spouse and dependents are
eligible individuals.
``(b) Limitations.--
``(1) Only 1 account per family.--Except as provided in
regulations prescribed by this Secretary, no deduction shall be
allowed under subsection (a) for amounts paid to any Medisave
account for the benefit of an individual, such individual's
spouse, or any dependent of such individual or spouse if such
individual, spouse, or dependent is a beneficiary of any other
Medisave account.
``(2) Dollar limitation.--The amount allowable as a
deduction under subsection (a) for the taxable year shall not
exceed the lesser of--
``(A) the lowest deductible under any catastrophic
health plan providing coverage to any beneficiary of
the Medisave account, or
``(B)(i) $2,500, or
``(ii) $5,000 if the catastrophic health plan
covering the taxpayer provides coverage for more than 1
individual.
``(c) Definitions.--For purposes of this section--
``(1) Eligible individual.--The term `eligible individual'
means any individual who is covered under a catastrophic health
plan throughout the calendar year in which or with which the
taxable year ends.
``(2) Catastrophic health plan.--For purposes of paragraph
(1)--
``(A) In general.--The term `catastrophic health
plan' means a health plan covering specified expenses
incurred by an individual for medical care for such
individual and the spouse and dependents (as defined in
section 152) of such individual only to the extent such
expenses covered by the plan for any calendar year
exceed $1,800 ($3,600 if the catastrophic health plan
covering the taxpayer provides coverage for more than 1
individual) or such higher amounts as may be specified
by the plan.
``(B) Cost-of-living adjustment.--In the case of
any calendar year after 1995, 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 such
calendar year by substituting `calendar year
1994' for `calendar year 1992' in subparagraph
(B) thereof.
If any increase under the preceding sentence is not a
multiple of $50, such increase shall be rounded to the
nearest multiple of $50.
``(d) Medisave Accounts.--For purposes of this section--
``(1) Medisave account.--
``(A) In general.--The term `Medisave account'
means a trust created or organized in the United States
exclusively for the purpose of paying the medical
expenses of the beneficiaries of such trust, but only
if the written governing instrument creating the trust
meets the following requirements:
``(i) Except in the case of a rollover
contribution described in subsection (e)(4), no
contribution will be accepted unless it is in
cash, and contributions will not be accepted in
excess of the amount allowed as a deduction
under this section for the taxable year.
``(ii) The trustee is a bank (as defined in
section 408(n)) 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.
``(iii) No part of the trust assets will be
invested in life insurance contracts.
``(iv) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment fund.
``(v) The interest of an individual in the
balance in his account is nonforfeitable.
``(vi) Under regulations prescribed by the
Secretary, rules similar to the rules of
section 401(a)(9) shall apply to the
distribution of the entire interest of
beneficiaries of such trust.
``(B) Treatment of comparable accounts held by
insurance companies.--For purposes of this section, an
account held by an insurance company in the United
States shall be treated as a Medisave account (and such
company shall be treated as a bank) if--
``(i) such account is part of a health
insurance plan that includes a catastrophic
health plan (as defined in subsection (c)(2)),
``(ii) such account is exclusively for the
purpose of paying the medical expenses of the
beneficiaries of such account who are covered
under such catastrophic health plan, and
``(iii) the written instrument governing
the account meets the requirements of clauses
(i), (v), and (vi) of subparagraph (A).
``(2) Medical expenses.--
``(A) In general.--The term `medical expenses'
means, with respect to an individual, amounts paid or
incurred by such individual for--
``(i) medical care (as defined in section
213), or
``(ii) long-term care (as defined in
paragraph (3)),
for such individual, the spouse of such individual, and
any dependent (as defined in section 152) of such
individual, but only to the extent such amounts are not
compensated for by insurance or otherwise.
``(B) Health plan coverage may not be purchased
from account.--
``(i) In general.--Such term shall not
include any amount paid for coverage under a
health plan.
``(ii) Exception.--Clause (i) shall not
apply to coverage of an individual under a
catastrophic health plan or under a long-term
care insurance plan.
``(3) Long-term care.--
``(A) In general.--The term `long-term care' means
diagnostic, preventive, therapeutic, rehabilitative,
maintenance, or personal care services which are
required by, and provided to, a chronically ill
individual, which have as their primary purpose the
direct provision of needed assistance with 1 or more
activities of daily living (or the alleviation of the
conditions necessitating such assistance) that the
individual is certified under subparagraph (B) as being
unable to perform, and which are provided in a setting
other than an acute care unit of a hospital pursuant to
a continuing plan of care prescribed by a physician or
registered professional nurse. Such term does not
include food or lodging provided in an institutional or
other setting, or basic living services associated with
the maintenance of a household or participation in
community life, such as case management, transportation
or legal services, or the performance of home
maintenance or household chores.
``(B) Chronically ill individual.--The term
`chronically ill individual' means an individual who is
certified by a physician or registered professional
nurse as being unable to perform at least 3 activities
of daily living without substantial assistance from
another individual. For purposes of this paragraph, the
term `activities of daily living' means bathing,
dressing, eating, toileting, transferring, and walking.
``(4) Time when contributions deemed made.--A contribution
shall be deemed to be made on the last day of the preceding
taxable year if the contribution is made on account of such
taxable year and is made not later than the time prescribed by
law for filing the return for such taxable year (not including
extensions thereof).
``(e) Tax Treatment of Distributions.--
``(1) In general.--Any amount paid or distributed out of a
Medisave account shall be included in the gross income of the
individual for whose benefit such account was established
unless such amount is used exclusively to pay the medical
expenses of such individual.
``(2) Excess contributions returned before due date of
return.--Paragraph (1) shall not apply to the distribution of
any contribution paid during a taxable year to a Medisave
account to the extent that such contribution exceeds the amount
allowable as a deduction under subsection (a) if--
``(A) 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
``(B) such distribution is accompanied by the
amount of net income attributable to such excess
contribution.
Any net income described in subparagraph (B) shall be included
in the gross income of the individual for the taxable year in
which it is received.
``(3) Penalty for distributions not used for medical
expenses.--
``(A) In general.--The tax imposed by this chapter
for any taxable year in which there is a payment or
distribution from a Medisave account which is not used
to pay the medical expenses of the individual for whose
benefit the account was established shall be increased
by 10 percent of the amount of such payment or
distribution which is includible in gross income under
paragraph (1).
``(B) Account balance limitation.--If--
``(i) the tax imposed by this chapter is
required to be increased under subparagraph (A)
by reason of a distribution, and
``(ii) after such distribution, the
aggregate balance of all Medisave accounts
established for the benefit of the individual,
is less than the amount of the deductible under
the catastrophic health plan covering such
individual,
subparagraph (A) shall be applied by substituting `50
percent' for `10 percent'.
``(4) Rollovers.--Paragraph (1) shall not apply to any
amount paid or distributed out of a Medisave account to the
individual for whose benefit the account is maintained if the
entire amount received (including money and any other property)
is paid into another Medisave account for the benefit of such
individual not later than the 60th day after the day on which
he received the payment or distribution.
``(f) Tax Treatment of Accounts.--
``(1) Exemption from tax.--Any Medisave account is exempt
from taxation under this subtitle unless such account has
ceased to be a Medisave account by reason of paragraph (2) or
(3). Notwithstanding the preceding sentence, any such account
shall be subject to the taxes imposed by section 511 (relating
to imposition of tax on unrelated business income of
charitable, etc. organizations).
``(2) Account terminates if individual engages in
prohibited transaction.--
``(A) In general.--If, during any taxable year of
the individual for whose benefit the Medisave account
was established, such individual engages in any
transaction prohibited by section 4975 with respect to
the account, the account ceases to be a Medisave
account as of the first day of that taxable year.
``(B) Account treated as distributing all its
assets.--In any case in which any account ceases to be
a Medisave account by reason of subparagraph (A) on the
first day of any taxable year, paragraph (1) of
subsection (e) shall be applied as if there were a
distribution on such first day in an amount equal to
the fair market value (on such first day) of all assets
in the account (on such first day) and no portion of
such distribution were used to pay medical expenses.
``(3) Effect of pledging account as security.--If, during
any taxable year, the individual for whose benefit a Medisave
account was established uses the account or any portion thereof
as security for a loan, the portion so used is treated as
distributed to that individual and not used to pay medical
expenses.
``(g) Custodial Accounts.--For purposes of this section, a
custodial account shall be treated as a trust if--
``(1) the assets of such account are held by a bank (as
defined in section 408(n)) or another person who demonstrates
to the satisfaction of the Secretary that the manner in which
he will administer the account will be consistent with the
requirements of this section, and
``(2) the custodial account would, except for the fact that
it is not a trust, constitute a Medisave account described in
subsection (d).
For purposes of this title, in the case of a custodial account treated
as a trust by reason of the preceding sentence, the custodian of such
account shall be treated as the trustee thereof.
``(h) Reports.--The trustee of a Medisave account shall make such
reports regarding such account to the Secretary and to the individual
for whose benefit the account is maintained with respect to
contributions, distributions, and such other matters as the Secretary
may require under regulations. 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 those
regulations.''
(b) Deduction Allowed Whether or Not Individual Itemizes Other
Deductions.--Subsection (a) of section 62 of such Code is amended by
inserting after paragraph (15) the following new paragraph:
``(16) Medisave accounts.--The deduction allowed by section
220.''
(c) Distributions From Medisave Accounts Not Allowed as Medical
Expense Deduction.--Section 213 of such Code is amended by adding at
the end thereof the following new subsection:
``(f) Coordination With Medisave Accounts.--The amount otherwise
taken into account under subsection (a) as expenses paid for medical
care shall be reduced by the amount (if any) of the distributions from
any Medisave account of the taxpayer during the taxable year which is
not includible in gross income by reason of being used for medical
care.''
(d) Exclusion of Employer Contributions to Medisave Accounts From
Employment Taxes.--
(1) Social security taxes.--
(A) Subsection (a) of section 3121 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) remuneration paid to or on behalf of an employee if
(and to the extent that) at the time of payment of such
remuneration it is reasonable to believe that a corresponding
deduction is allowable under section 220.''
(B) Subsection (a) of section 209 of the Social
Security Act is amended by striking ``or'' at the end
of paragraph (17), by striking the period at the end of
paragraph (18) and inserting ``; or'', and by inserting
after paragraph (18) the following new paragraph:
``(19) remuneration paid to or on behalf of an employee if
(and to the extent that) at the time of payment of such
remuneration it is reasonable to believe that a corresponding
deduction is allowable under section 220 of the Internal
Revenue Code of 1986.''
(2) Railroad retirement tax.--Subsection (e) of section
3231 of such Code is amended by adding at the end thereof the
following new paragraph:
``(10) Employer contributions to medisave accounts.--The
term `compensation' shall not include any payment made to or on
behalf of an employee if (and to the extent that) at the time
of payment of such remuneration it is reasonable to believe
that a corresponding deduction is allowable under section
220.''
(3) Unemployment tax.--Subsection (b) of section 3306 of
such Code is amended by striking ``or'' at the end of paragraph
(15), by striking the period at the end of paragraph (16) and
inserting ``; or'', and by inserting after paragraph (16) the
following new paragraph:
``(17) remuneration paid to or on behalf of an employee if
(and to the extent that) at the time of payment of such
remuneration it is reasonable to believe that a corresponding
deduction is allowable under section 220.''
(4) Withholding tax.--Subsection (a) of section 3401 of
such Code is amended by striking ``or'' at the end of paragraph
(19), by striking the period at the end of paragraph (20) and
inserting ``; or'', and by inserting after paragraph (20) the
following new paragraph:
``(21) to or on behalf of an employee if (and to the extent
that) at the time of payment of such remuneration it is
reasonable to believe that a corresponding deduction is
allowable under section 220.''
(e) Tax on Excess Contributions.--Section 4973 of such Code
(relating to tax on excess contributions to individual retirement
accounts, certain section 403(b) contracts, and certain individual
retirement annuities) is amended--
(1) by inserting ``medisave accounts,'' after ``accounts,''
in the heading of such section,
(2) by redesignating paragraph (2) of subsection (a) as
paragraph (3) and by inserting after paragraph (1) the
following:
``(2) a Medisave account (within the meaning of section
220(d)),'',
(3) by striking ``or'' at the end of paragraph (1) of
subsection (a), and
(4) by adding at the end thereof the following new
subsection:
``(d) Excess Contributions to Medisave Accounts.--For purposes of
this section, in the case of a Medisave account (within the meaning of
section 220(d)), the term `excess contributions' means the amount by
which the amount contributed for the taxable year to the account
exceeds the amount allowable as a deduction under section 220 for such
taxable year. For purposes of this subsection, any contribution which
is distributed out of the Medisave account in a distribution to which
section 220(e)(2) applies shall be treated as an amount not
contributed.''
(f) Tax on Prohibited Transactions.--Section 4975 of such Code
(relating to prohibited transactions) is amended--
(1) by adding at the end of subsection (c) the following
new paragraph:
``(4) Special rule for medisave accounts.--An individual
for whose benefit a Medisave account (within the meaning of
section 220(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 Medisave account by reason of the application of
section 220(e)(2)(A) to such account.'', and
(2) by inserting ``or a Medisave account described in
section 220(d)'' in subsection (e)(1) after ``described in
section 408(a)''.
(g) Failure To Provide Reports on Medisave Accounts.--Section 6693
of such Code (relating to failure to provide reports on individual
retirement account or annuities) is amended--
(1) by inserting ``or on medisave accounts'' after
``annuities'' in the heading of such section, and
(2) by adding at the end of subsection (a) the following:
``The person required by section 220(h) to file a report
regarding a Medisave account at the time and in the manner
required by such section shall pay a penalty of $50 for each
failure unless it is shown that such failure is due to
reasonable cause.''
(h) Clerical 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. 220. Medisave accounts.
``Sec. 221. Cross reference.''
(2) The table of sections for chapter 43 of such Code is
amended by striking the item relating to section 4973 and
inserting the following:
``Sec. 4973. Tax on excess contributions
to individual retirement
accounts, medisave accounts,
certain 403(b) contracts, and
certain individual retirement
annuities.''
(3) The table of sections for subchapter B of chapter 68 of
such Code is amended by inserting ``or on Medisave accounts''
after ``annuities'' in the item relating to section 6693.
(i) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
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