Federal

Health Freedom and Flexibility Act

Source: Congress.gov · 3,491 words in original text

What This Bill Does

This bill changes federal tax rules for Health Savings Accounts (savings accounts people can use to pay for medical expenses with pre-tax money). It removes requirements that you must be enrolled in certain types of health insurance to use a Health Savings Account. It also expands what counts as a qualified medical expense (costs you can pay from the account without owing taxes). ##

Who It Affects

- Individuals who have or want to open Health Savings Accounts - Employers that contribute to employee Health Savings Accounts - Spouses and children who inherit Health Savings Accounts from account owners ##

Key Provisions

- You can deduct (reduce your taxable income by) money you contribute to a Health Savings Account without having to be enrolled in a specific type of health insurance plan (Sec. 2) - Menstrual care products like tampons, pads, liners, cups and sponges count as qualified medical expenses you can pay from your account (Sec. 6) - Prescription medicines, over-the-counter medicines and medically necessary items (items a doctor or nurse certifies are needed for diagnosis, treatment or prevention of disease) count as qualified medical expenses (Sec. 7) - Medical expenses you paid before opening your Health Savings Account count as qualified expenses if you paid them in the tax year you opened the account or the year before, as long as you open the account before filing your tax return (Sec. 8) - You can use account funds for direct primary care services (fixed monthly fee payments to a doctor for primary care), exercise equipment like treadmills and stationary bikes, and dental care items like toothbrushes and dental floss (Sec. 9) - You cannot use account funds to pay for health insurance that includes abortion coverage or to pay directly for an abortion (Sec. 10) - If a spouse or child inherits your Health Savings Account after you die, the account is treated as if that spouse or child is the owner (Sec. 11) - Employers must make the same dollar amount or same percentage contributions to Health Savings Accounts for all employees with the same health coverage type, with adjustments for employees who work only part of the year (Sec. 4980G as amended) ##

What Changes

If this bill becomes law, people can contribute to and deduct Health Savings Account contributions without being enrolled in a high-deductible health plan (a health insurance plan with a high amount you must pay out of pocket before insurance kicks in). The list of what counts as a qualified medical expense expands significantly to include menstrual products, over-the-counter medicines, dental care items, exercise equipment and direct primary care arrangements. People can also use account funds for medical expenses paid before they opened the account. However, account funds cannot be used for abortions or abortion-related insurance coverage. ##

Important Definitions

- **Health Savings Account**: An account where you can save money to pay for medical expenses, with tax advantages - **Qualified Medical Expenses**: Costs for medical care (as defined by existing tax law) that you can pay from a Health Savings Account without owing taxes on the withdrawal - **Medical Care**: Not defined in this bill - **Medically Necessary Item**: Any item for which a doctor or nurse certifies by letter that the service, medication or item is for medical diagnosis, treatment or prevention of a medical disease or condition - **Direct Primary Care Service Arrangement**: An agreement where a doctor provides only basic primary care services for a fixed periodic fee - **Exercise or Fitness Equipment**: Devices such as motorized treadmills, stair climbers, step machines, stationary bicycles, rowing machines, weight machines, circuit training equipment, cardiovascular equipment and strength equipment - **Dental Care Items**: Manual or electric toothbrushes, dental floss and dental mouthwash - **Menstrual Care Product**: A tampon, pad, liner, cup, sponge or similar product used for menstruation or other genital-tract secretions - **Abortion**: Use or prescription of any instrument, medicine, drug or substance or device to intentionally kill an unborn child or intentionally end pregnancy, except to produce a live birth and preserve the life and health of the child born alive after viability, or to remove a dead unborn child - **Child**: A person who has the family relationship to an account owner as defined in section 152(f)(1) of the tax code ##

Effective Date

Most provisions apply to taxable years ending after the date the bill becomes law. The provision about correcting administrative errors takes effect on the date the bill becomes law.

I 118TH CONGRESS 1ST SESSION H. R. 677 To amend the Internal Revenue Code of 1986 to make improvements to Health Savings Accounts. IN THE HOUSE OF REPRESENTATIVES JANUARY 31, 2023 Mr. ROSENDALE 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 make improvements to Health Savings Accounts. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Health Freedom and 4 Flexibility Act’’. 5 SEC. 2. REPEAL OF REQUIREMENT TO BE ENROLLED IN 6 HEALTH PLAN. 7 (a) IN GENERAL.—Subsection (a) of section 223 of 8 the Internal Revenue Code of 1986 is amended to read 9 as follows: 10 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 677 IH ‘‘(a) DEDUCTION ALLOWED.—In the case of an indi- 1 vidual, there shall be allowed as a deduction for the tax- 2 able year an amount equal to the aggregate amount paid 3 in cash during such taxable year by or on behalf of such 4 individual to a health savings account of such individual.’’. 5 (b) EFFECTIVE DATE.—The amendment made by 6 this section shall apply to taxable years ending after the 7 date of the enactment of this Act. 8 SEC. 3. REPEAL OF LIMITATIONS; RETENTION OF DENIAL 9 OF DEDUCTION TO DEPENDENTS. 10 (a) IN GENERAL.—Subsection (b) of section 223 of 11 the Internal Revenue Code of 1986 is amended to read 12 as follows: 13 ‘‘(b) DENIAL OF DEDUCTION TO DEPENDENTS.—No 14 deduction shall be allowed under this section to any indi- 15 vidual with respect to whom a deduction under section 151 16 is allowable to another taxpayer for a taxable year begin- 17 ning in the calendar year in which such individual’s tax- 18 able year begins.’’. 19 (b) CONFORMING AMENDMENT.—Subsection (f) of 20 section 223 of such Code is amended by striking para- 21 graph (3) and by redesignating paragraphs (4) through 22 (8) as paragraphs (3) through (7), respectively. 23 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 677 IH (c) EFFECTIVE DATE.—The amendments made by 1 this section shall apply to taxable years ending after the 2 date of the enactment of this Act. 3 SEC. 4. REPEAL OF RULES RELATING TO ELIGIBLE INDI- 4 VIDUAL; HIGH DEDUCTIBLE HEALTH PLAN. 5 (a) IN GENERAL.—Section 223 of the Internal Rev- 6 enue Code of 1986 is amended by striking subsections (c) 7 and (g) and by redesignating subsections (d), (e), (f), and 8 (h) as subsections (c), (d), (e), and (f), respectively. 9 (b) EFFECTIVE DATE.—The amendment made by 10 this section shall apply to taxable years ending after the 11 date of the enactment of this Act. 12 SEC. 5. HEALTH SAVINGS ACCOUNT. 13 (a) IN GENERAL.—Subparagraph (A) of section 14 223(c)(1) of the Internal Revenue Code of 1986, as 15 amended by the preceding sections of this Act, is amended 16 to read as follows: 17 ‘‘(A) Except in the case of a rollover con- 18 tribution described in subsection (e)(5) or sec- 19 tion 220(f)(5), no contribution will be accepted 20 unless it is in cash.’’. 21 (b) EFFECTIVE DATE.—The amendment made by 22 this section shall apply to taxable years ending after the 23 date of the enactment of this Act. 24 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 677 IH SEC. 6. QUALIFIED MEDICAL EXPENSES. 1 (a) REPEAL OF PURCHASE OF HEALTH INSURANCE 2 LIMITATION.—Paragraph (2) of section 223(c) of the In- 3 ternal Revenue Code of 1986, as redesignated by the pre- 4 ceding provisions of this Act, is amended to read as fol- 5 lows: 6 ‘‘(2) QUALIFIED MEDICAL EXPENSES.— 7 ‘‘(A) IN GENERAL.—The term ‘qualified 8 medical expenses’ means, with respect to an ac- 9 count beneficiary, amounts paid by such bene- 10 ficiary for medical care (as defined in section 11 213(d)) for such individual, the spouse of such 12 individual, any dependent (as defined in section 13 152, determined without regard to subsections 14 (b)(1), (b)(2), and (d)(1)(B) thereof) of such 15 individual, but only to the extent such amounts 16 are not compensated for by insurance or other- 17 wise. 18 ‘‘(B) MENSTRUAL CARE PRODUCTS.—For 19 purposes of this paragraph— 20 ‘‘(i) IN GENERAL.—Amounts paid for 21 menstrual care products shall be treated as 22 paid for medical care. 23 ‘‘(ii) DEFINITION.—The term ‘men- 24 strual care product’ means a tampon, pad, 25 liner, cup, sponge, or similar product used 26 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 677 IH by individuals with respect to menstruation 1 or other genital-tract secretions.’’. 2 (b) EFFECTIVE DATE.—The amendment made by 3 this section shall apply to taxable years ending after the 4 date of the enactment of this Act. 5 SEC. 7. ALLOWANCE OF DISTRIBUTIONS FOR PRESCRIP- 6 TION AND OVER-THE-COUNTER MEDICINES 7 AND DRUGS AND OTHER MEDICALLY NEC- 8 ESSARY ITEMS. 9 (a) HSAS.—Paragraph (2) of section 223(c) of the 10 Internal Revenue Code of 1986, as redesignated by the 11 preceding provisions of this Act, is amended by adding at 12 the end the following: 13 ‘‘(C) PRESCRIPTION AND OVER-THE- 14 COUNTER MEDICINES AND DRUGS AND OTHER 15 MEDICALLY NECESSARY ITEMS.—For purposes 16 of this paragraph— 17 ‘‘(i) IN GENERAL.—The term ‘quali- 18 fied medical expenses’ shall include an 19 amount paid for any prescription or over- 20 the-counter medicine or drug and medically 21 necessary items. 22 ‘‘(ii) MEDICALLY NECESSARY 23 ITEMS.—The term ‘medically necessary 24 item’ means any item for which a doctor or 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 677 IH nurse certifies by a letter of medical neces- 1 sity that the service or medication or item 2 is for a medical diagnosis, treatment, or 3 prevention of a medical diseases or condi- 4 tion.’’. 5 (b) EFFECTIVE DATE.—The amendment made by 6 subsection (a) shall apply to amounts paid in taxable years 7 ending after the date of the enactment of this Act. 8 SEC. 8. SPECIAL RULE FOR CERTAIN MEDICAL EXPENSES 9 INCURRED BEFORE ESTABLISHMENT OF AC- 10 COUNT. 11 (a) IN GENERAL.—Paragraph (2) of section 223(c) 12 of the Internal Revenue Code of 1986, as redesignated by 13 the preceding sections of this Act, is amended by adding 14 at the end the following new subparagraph: 15 ‘‘(D) CERTAIN MEDICAL EXPENSES IN- 16 CURRED BEFORE ESTABLISHMENT OF ACCOUNT 17 TREATED AS QUALIFIED.—An expense shall not 18 fail to be treated as a qualified medical expense 19 solely because such expense was incurred before 20 the establishment of the health savings account 21 if such expense was incurred— 22 ‘‘(i) during either— 23 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 677 IH ‘‘(I) the taxable year in which the 1 health savings account was estab- 2 lished, or 3 ‘‘(II) the preceding taxable year, 4 in the case of a health savings ac- 5 count established after the taxable 6 year in which such expense was in- 7 curred but before the time prescribed 8 by law for filing the return for such 9 taxable year (not including extensions 10 thereof), and 11 ‘‘(ii) for medical care which (but for 12 the fact that it was incurred before the es- 13 tablishment of the account) otherwise 14 meets the requirements of the preceding 15 subparagraphs.’’. 16 (b) EFFECTIVE DATE.—The amendment made by 17 this subsection (a) shall apply to taxable years ending 18 after the date of the enactment of this Act. 19 SEC. 9. DIRECT PRIMARY CARE; EXERCISE EQUIPMENT; 20 DENTAL CARE ITEMS. 21 (a) IN GENERAL.—Paragraph (2) of section 223(c) 22 of the Internal Revenue Code of 1986, as amended by the 23 preceding sections of this Act, is amended by adding at 24 the end the following new subparagraph: 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 677 IH ‘‘(E) DIRECT PRIMARY CARE; EXERCISE 1 EQUIPMENT; DENTAL CARE ITEMS.—For pur- 2 poses of this paragraph— 3 ‘‘(i) IN GENERAL.—The term ‘quali- 4 fied medical expenses’ shall include 5 amounts paid— 6 ‘‘(I) amounts paid under a direct 7 primary care service arrangement, 8 ‘‘(II) amounts paid for exercise 9 equipment, and 10 ‘‘(III) amounts paid for dental 11 care items. 12 ‘‘(ii) DIRECT PRIMARY CARE SERVICE 13 ARRANGEMENT.—The term ‘direct primary 14 care service arrangement’ means, with re- 15 spect to any individual, an arrangement 16 under which such individual is provided 17 medical care (as defined in section 213(d)) 18 consisting solely of primary care services 19 provided by primary care practitioners (as 20 defined in section 1833(x)(2)(A) of the So- 21 cial Security Act, determined without re- 22 gard to clause (ii) thereof), if the sole com- 23 pensation for such care is a fixed periodic 24 fee. 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 677 IH ‘‘(iii) EXERCISE OR FITNESS EQUIP- 1 MENT.—The term ‘exercise or fitness 2 equipment’ means devices such as motor- 3 ized treadmills, stair climbers or step ma- 4 chines, stationary bicycles, rowing ma- 5 chines, weight machines, circuit training 6 equipment, cardiovascular equipment, 7 strength equipment, or other similar equip- 8 ment. 9 ‘‘(iv) DENTAL CARE ITEMS.—The 10 term ‘dental care items’ includes manual 11 or electric toothbrush, dental floss, and 12 dental mouthwash.’’. 13 (b) EFFECTIVE DATE.—The amendment made by 14 this section shall apply to plan years ending after the date 15 of the enactment of this Act. 16 SEC. 10. PROHIBITION ON USE OF FUNDS FOR ELECTIVE 17 ABORTIONS. 18 (a) IN GENERAL.—Paragraph (2) of section 223(c) 19 of the Internal Revenue Code of 1986, as amended by the 20 preceding sections of this Act, is amended by adding at 21 the end the following new subparagraph: 22 ‘‘(F) PROHIBITION ON USE OF FUNDS FOR 23 ELECTIVE ABORTIONS.—For purposes of this 24 paragraph— 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 677 IH ‘‘(i) PAYMENTS FOR HEALTH INSUR- 1 ANCE WITH ABORTION COVERAGE.—The 2 term ‘qualified medical expenses’ shall not 3 include amounts paid for insurance that 4 includes coverage for abortions. 5 ‘‘(ii) PAYMENTS FOR ABORTIONS.— 6 The term ‘qualified medical expense’ shall 7 not include amounts paid for an abortion. 8 ‘‘(iii) ABORTION.—The term ‘abor- 9 tion’ means the use or prescription of any 10 instrument, medicine, drug, or any other 11 substance or device— 12 ‘‘(I) to intentionally kill the un- 13 born child of a woman known to be 14 pregnant, or 15 ‘‘(II) to intentionally terminate 16 the pregnancy of a woman known to 17 be pregnant, with an intention other 18 than— 19 ‘‘(aa) after viability, to 20 produce a live birth and preserve 21 the life and health of the child 22 born alive, or 23 ‘‘(bb) to remove a dead un- 24 born child.’’. 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 677 IH (b) EFFECTIVE DATE.—The amendment made by 1 this section shall apply to plan years ending after the date 2 of the enactment of this Act. 3 SEC. 11. TREATMENT AFTER DEATH IF DESIGNATED BENE- 4 FICIARY IS SPOUSE OR CHILD OF ACCOUNT 5 BENEFICIARY. 6 (a) IN GENERAL.—Subparagraph (A) of section 7 223(e)(7) of the Internal Revenue Code of 1986, as redes- 8 ignated by the preceding sections of this Act, is amended 9 to read as follows: 10 ‘‘(A) TREATMENT AFTER DEATH IF DES- 11 IGNATED BENEFICIARY IS SPOUSE OR CHILD OF 12 ACCOUNT BENEFICIARY.—If the account bene- 13 ficiary’s surviving spouse or child acquires such 14 beneficiary’s interest in a health savings ac- 15 count by reason of being the designated bene- 16 ficiary of such account at the death of the ac- 17 count beneficiary, such health savings account 18 shall be treated as if the spouse or child (as the 19 case may be) were the account beneficiary.’’. 20 (b) CHILD DEFINED.—Paragraph (7) of section 21 223(e) of such Code, as so redesignated, is amended by 22 adding at the end the following: 23 ‘‘(C) CHILD.—For purposes of this para- 24 graph, the term ‘child’ means, with respect to 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 677 IH an account beneficiary, an individual who bears 1 a relationship to the account beneficiary de- 2 scribed in section 152(f)(1).’’. 3 (c) EFFECTIVE DATE.—The amendments made by 4 this section shall apply with respect to account bene- 5 ficiaries dying in taxable years ending after the date of 6 the enactment of this Act. 7 SEC. 12. ADMINISTRATIVE ERROR CORRECTION BEFORE 8 DUE DATE OF RETURN. 9 (a) IN GENERAL.—Paragraph (3) of section 223(d) 10 of the Internal Revenue Code of 1986, as amended and 11 redesignated by the preceding sections of this Act, is 12 amended by adding at the end the following new subpara- 13 graph: 14 ‘‘(C) EXCEPTION FOR ADMINISTRATIVE 15 ERRORS CORRECTED BEFORE DUE DATE OF RE- 16 TURN.—Subparagraph (A) shall not apply if 17 any payment or distribution is made to correct 18 an administrative, clerical, or payroll contribu- 19 tion error and if— 20 ‘‘(i) such distribution is received by 21 the individual on or before the last day 22 prescribed by law (including extensions of 23 time) for filing such individual’s return for 24 such taxable year, and 25 VerDate Sep 11 2014 03:56 Feb 16, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H677.IH H677 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 677 IH ‘‘(ii) such distribution is accompanied 1 by the amount of net income attributable 2 to such contribution. 3 Any net income described in clause (ii) shall be 4 included in the gross income of the individual 5 for the taxable year in which it is received.’’. 6 (b) EFFECTIVE DATE.—The amendment made by 7 this section shall take effect on the date of the enactment 8 of this Act. 9 SEC. 13. CONFORMING AMENDMENTS. 10 (a) Section 26(b)(2) of the Internal Revenue Code of 11 1986 is amended— 12 (1) by st [Text truncated for display. Full text available on Congress.gov.]

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