House Report 115-853 - THE ``RESPONSIBLE ADDITIONS AND INCREASES TO SUSTAIN EMPLOYEE HEALTH BENEFITS ACT OF 2018''

[House Report 115-853]
[From the U.S. Government Publishing Office]

115th Congress } { REPORT
HOUSE OF REPRESENTATIVES
2d Session } { 115-853

======================================================================

THE ``RESPONSIBLE ADDITIONS AND INCREASES TO SUSTAIN EMPLOYEE HEALTH
BENEFITS ACT OF 2018''

_______

July 19, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following

R E P O R T

[To accompany H.R. 6313]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 6313) to amend the Internal Revenue Code of 1986 to
provide that a plan shall not fail to be treated as a health
flexible spending account merely because such arrangement's
account balance (or any portion thereof) determined as of the
end of any plan year may be carried forward to the succeeding
plan year, report favorably thereon with an amendment and
recommend that the bill as amended do pass.

115th Congress } { REPORT
HOUSE OF REPRESENTATIVES
2d Session } { 115-853

======================================================================

RESPONSIBLE ADDITIONS AND INCREASES TO SUSTAIN EMPLOYEE HEALTH BENEFITS
ACT OF 2018

_______

July 19, 2018.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 6313]

The Committee on Ways and Means, to whom was referred the
bill (H.R. 6313) to amend the Internal Revenue Code of 1986 to
allow the carryforward of health flexible spending arrangement
account balances, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.

CONTENTS

Page
I. SUMMARY AND BACKGROUND............................................3
II. EXPLANATION OF THE BILL...........................................4
A. Carryforward of Health Flexible Spending Arrangement
Account Balances..................................... 4
III.VOTES OF THE COMMITTEE............................................7

IV. BUDGET EFFECTS OF THE BILL........................................7
A. Committee Estimate of Budgetary Effects............... 7
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority........................ 10
C. Cost Estimate Prepared by the Congressional Budget
Office............................................... 10
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......10
A. Committee Oversight Findings and Recommendations...... 10
B. Statement of General Performance Goals and Objectives. 10
C. Information Relating to Unfunded Mandates............. 10
D. Applicability of House Rule XXI 5(b).................. 11
E. Tax Complexity Analysis............................... 11
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits.............................. 11
G. Duplication of Federal Programs....................... 11
H. Disclosure of Directed Rule Makings................... 11
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............12
B. Changes in Existing Law Proposed by the Bill, as
Reported............................................. 12

The amendment is as follows:
Strike all after the enacting clause and insert the
following:

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Responsible Additions and Increases to
Sustain Employee Health Benefits Act of 2018''.

SEC. 2. CARRYFORWARD OF HEALTH FLEXIBLE SPENDING ARRANGEMENT ACCOUNT
BALANCES.

(a) In General.--Section 106 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new subsection:
``(h) Carryforward of Health Flexible Spending Arrangement Account
Balances.--A plan shall not fail to be treated as a health flexible
spending arrangement under this section or section 105 merely because
such arrangement's account balance (or any portion thereof) determined
as of the end of any plan year may be carried forward to the succeeding
plan year.''.
(b) Coordination With Limitation on Salary Reduction Contributions.--
(1) In general.--Section 125(i) of such Code is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
``(2) Coordination with carryforward of account balances.--
The dollar amount otherwise in effect under paragraph (1) for
any plan year shall be reduced by the excess (if any) of--
``(A) the amount of any account balance which is
carried forward to such plan year from the preceding
plan year, over
``(B) $500.''.
(2) Conforming amendments.--Section 125(i) of such Code is
amended by striking ``taxable year'' each place it appears in
paragraphs (1) and (3) (as redesignated by paragraph (1) of
this subsection) and inserting ``plan year''.
(c) Coordination With Cafeteria Plan Limitation on Deferred
Compensation.--Section 125(d)(2) of such Code is amended by adding at
the end the following new subparagraph:
``(E) Exception for health flexible spending
arrangements.--Subparagraph (A) shall not apply to a
plan to the extent of amounts in a health flexible
spending arrangement which may be carried forward as
described in section 106(h).''.
(d) Effective Date.--The amendment made by this section shall apply
to plan years beginning after December 31, 2018.

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill H.R. 6313, as reported by the Committee on Ways
and Means, allows balances in Flexible Spending Arrangements
(FSA) to be carried forward each year.

B. Background and Need for Legislation

FSAs are employer-established accounts to reimburse
employees for qualified medical expenses. They are usually
funded through voluntary salary reduction agreements with the
employer, but employers can also contribute. Contributions are
not subject to payroll or federal income taxes. Contributions
to FSAs are capped at $2,650 in 2018. FSAs are ``use-it-or-
lose-it'' arrangements, with the exception that employers may
allow up to $500 to be carried over to the next year or allow a
grace-period to use leftover funds during the first quarter of
the next year.
According to the Employee Benefits Survey conducted by the
Department of Labor, 44 percent of all civilian workers had
access to a health FSA offered under a cafeteria plan in 2017.
The use-it-or-lose-it nature of FSAs can lead to
unnecessary health care expenditures at the end of the year or
underfunding of such accounts. If consumers are able to roll-
over their unused funds, they are more likely to become more
economically efficient as this incentivizes consumers to only
purchase what is needed. Additionally, the reduced spending of
excess funds could have a positive effect on overall spending,
including keeping premiums low through utilizing less services
through the plan.

C. Legislative History

Background

H.R. 6313 was introduced on July 6, 2018, and was referred
to the Committee on Ways and Means.

Committee action

The Committee on Ways and Means marked up H.R. 6313, the
``Responsible Additions and Increases to Sustain Employee
Health Benefits Act of 2018,'' on July 12, 2018, and ordered
the bill, as amended, favorably reported (with a quorum being
present).

Committee hearings

The policy issues associated with Flexible Spending
Accounts (FSAs) and need for legislative response were
discussed at the following Ways and Means hearings during the
114th and 115th Congress:
Full Committee Hearing on the Tax Treatment
of Health Care (April 14, 2016)
Subcommittee on Health Member Day Hearing on
Tax-Related Proposals to Improve Health Care (May 17,
2016)
Subcommittee on Health Hearing on Rising
Health Insurance Premiums Under the Affordable Care Act
(July 12, 2016)
Subcommittee on Health Hearing on Lowering
Costs and Expanding Access to Health Care through
Consumer-Directed Health Plans (June 6, 2018)

II. EXPLANATION OF THE BILL

A. Carryforward of Health Flexible Spending Arrangement Account
Balances

PRESENT LAW

Exclusion from income for employer-provided health coverage

Employees are not taxed on (i.e., may exclude from gross
income) the value of employer-provided health coverage under an
accident or health plan.\1\ In addition, any reimbursements
under an employer-provided accident or health plan for medical
care expenses for employees, their spouses, their dependents,
and adult children under age 27 generally are excluded from
gross income.\2\ The exclusion applies both to health coverage
in the case in which an employer directly pays the cost of
employees' medical expenses not covered by insurance (i.e., a
self-insured plan) and an employer purchased health insurance
coverage for its employees. There generally is no limit on the
amount of employer-provided health coverage that is excludable.
A similar rule excludes employer-provided health insurance
coverage from the employees' wages for employment tax
purposes.\3\
---------------------------------------------------------------------------
\1\Sec. 106.
\2\Sec. 105(b).
\3\Secs. 3121(a)(2), 3231(e)(1), and 3306(a)(2).
---------------------------------------------------------------------------
Employers may also provide health coverage in the form of
an agreement to reimburse medical expenses of their employees,
their spouses, their dependents, and adult children under age
27, not reimbursed by a health insurance plan, through
arrangements which allow reimbursement for medical care not in
excess of a specified dollar amount (either elected by an
employee under a cafeteria plan or otherwise specified by the
employer). An employer may agree to reimburse expenses for
medical care of its employees (and their spouses and
dependents), not covered by a health insurance plan, through a
flexible spending arrangement (``FSA'') which allows
reimbursement for medical expenses not in excess of a specified
dollar amount. The amounts available for reimbursement must be
exclusively for reimbursement for medical care.\4\
---------------------------------------------------------------------------
\4\Treas. Reg. sec. 1.105-2.
---------------------------------------------------------------------------
Reimbursements may be either elected by an employee under a
cafeteria plan or otherwise specified by the employer under a
health reimbursement arrangement (``HRA''). Reimbursements
under these arrangements are excludable from gross income as
reimbursements for medical care under employer-provided health
coverage.\5\
---------------------------------------------------------------------------
\5\Sec. 106.
---------------------------------------------------------------------------

Cafeteria plan

General rules
A cafeteria plan is a separate written plan of an employer
under which all participants are employees, and participants
are permitted to choose among at least one permitted taxable
benefit (e.g., current cash compensation) and at least one
qualified benefit (generally an employer-provided benefit
excludable from gross income, such as employer-provided health
coverage). If an employee receives a qualified benefit based on
his or her election between the qualified benefit and a taxable
benefit under a cafeteria plan, the qualified benefit generally
is not includible in gross income.\6\ The amount of the cash
compensation forgone pursuant to an election under a cafeteria
plan is generally referred to as a salary reduction
contribution. However, if a plan offering an employee an
election between taxable benefits (including cash) and
nontaxable qualified benefits does not meet the requirements
for being a cafeteria plan, the election between taxable and
nontaxable benefits generally results in gross income to the
employee, regardless of what benefit is elected and when the
election is made.\7\ A cafeteria plan generally may not provide
for deferral of compensation.
---------------------------------------------------------------------------
\6\Sec. 125(a). To be excludable, however, any qualified benefit
elected under a cafeteria plan must independently satisfy any
requirements under the Code section that provides the exclusion, such
as section 105(b) or 106.
\7\Prop. Treas. Reg. sec. 1.125-1(b).
---------------------------------------------------------------------------
Health flexible spending arrangement under a cafeteria plan
A flexible spending arrangement for medical expenses under
a cafeteria plan (commonly called a ``health FSA'') is health
coverage in the form of an arrangement under which employees
are given the option to reduce their current cash compensation
and instead have the amount of the salary reduction
contributions made available for use in reimbursing the
employee for his or her medical expenses.\8\ For 2018, the
maximum amount of salary reduction contributions for a year is
limited to $2,650.\9\
---------------------------------------------------------------------------
\8\Sec. 125 and Prop. Treas. Reg. sec. 1.125-5.
\9\Rev. Proc. 2017-58, 2017-45 I.R.B. 489 (Nov. 6, 2017).
---------------------------------------------------------------------------
Health FSAs are subject to the general requirements for
cafeteria plans, including a requirement that such plans may
not be plans of deferred compensation. This generally means
that amounts remaining under a health FSA at the end of a plan
year must be forfeited by the employee (referred to as the
``use-it-or-lose-it'' rule).\10\ However, guidance provides a
grace period of two and one-half months after the end of the
plan year for the carryover of excess benefits or contributions
in a health FSA.\11\ As an alternative to a grace period, an
employer may amend the cafeteria plan document to provide for
$500 of any unused amounts in a health FSA to be continuously
rolled over.\12\ If an employee leaves employment during a year
and has a balance in a health FSA (but no eligible unreimbursed
medical expenses), that amount will be forfeited.
---------------------------------------------------------------------------
\10\See sec. 125(d)(2).
\11\See, e.g., Notice 2005-42, 2005-23 I.R.B. 1204 (June 6, 2005).
\12\See Notice 2013-71, 2013-47, I.R.B. 532 (November 18, 2013).
---------------------------------------------------------------------------

REASONS FOR CHANGE

The Committee believes that health FSAs are an important
tool in managing health care costs because amounts contributed
to a health FSA are available in their entirety on the first
day of the plan year, rather than needing to be accumulated in
a fund before becoming available to pay for medical care costs.
However, health FSAs are constrained by the use-it-or-lose-it
rule because, at the end of a year, if an individual has a
balance in his or her health FSA that he or she believes may be
lost, the individual is more likely to spend those amounts on
medical care that they might not otherwise have chosen to do
(or need to do) leading to inefficient consumer health
spending.
The Committee believes that if an individual is permitted
to carry forward those amounts to future years, they will more
likely purchase medical care only when there is a need for such
care, leading to better containment of health costs.

EXPLANATION OF PROVISION

Under the provision, a plan shall not fail to be treated as
a health flexible spending arrangement merely because such
arrangement's account balance (or any portion thereof)
determined as of the end of any plan year may be carried
forward to the succeeding plan year. The dollar amount that may
be contributed to an FSA in any plan year in which the amount
of any balance (or any portion of the balance) from the
preceding plan year is carried forward to such plan year will
be reduced by the excess, if any, of the amount of the account
balance that is carried forward to such plan year from the
preceding plan year over $500. To the extent that amounts in a
health flexible spending arrangement may be carried forward as
of the end of any plan year to the succeeding plan year, the
carryover of such amounts will not cause the cafeteria plan to
be treated as a plan which provides deferred compensation.

EFFECTIVE DATE

The provision is effective for plan years beginning after
December 31, 2018.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the House of
Representatives, the following statement is made concerning the
vote of the Committee on Ways and Means during the markup
consideration of H.R. 6313, the ``Responsible Additions and
Increases to Sustain Employee Health Benefits Act of 2018,'' on
July 12, 2018.
H.R. 6313 was ordered favorably reported to the House of
Representatives as amended by an amendment in the nature of a
substitute offered by Chairman Brady by a roll call vote of 22
yeas to 14 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
Representative Yea Nay Present Representative Yea Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Brady...................... X ........ ......... Mr. Neal......... ........ X .........
Mr. Johnson.................... X ........ ......... Mr. Levin........ ........ X .........
Mr. Nunes...................... ........ ........ ......... Mr. Lewis........ ........ X .........
Mr. Reichert................... X ........ ......... Mr. Doggett...... ........ X .........
Mr. Roskam..................... X ........ ......... Mr. Thompson..... ........ X .........
Mr. Buchanan................... X ........ ......... Mr. Larson....... ........ X .........
Mr. Smith (NE)................. X ........ ......... Mr. Blumenauer... ........ X .........
Ms. Jenkins.................... X ........ ......... Mr. Kind......... X ........ .........
Mr. Paulsen.................... X ........ ......... Mr. Pascrell..... ........ ........ .........
Mr. Marchant................... X ........ ......... Mr. Crowley...... ........ X .........
Ms. Black...................... ........ ........ ......... Mr. Davis........ ........ X .........
Mr. Reed....................... X ........ ......... Ms. Sanchez...... ........ X .........
Mr. Kelly...................... X ........ ......... Mr. Higgins...... ........ X .........
Mr. Renacci.................... ........ ........ ......... Ms. Sewell....... ........ X .........
Ms. Noem....................... X ........ ......... Ms. DelBene...... ........ X .........
Mr. Holding.................... X ........ ......... Ms. Chu.......... ........ X .........
Mr. Smith (MO)................. X ........ .........
Mr. Rice....................... X ........ .........
Mr. Schweikert................. X ........ .........
Ms. Walorski................... X ........ .........
Mr. Curbelo.................... X ........ .........
Mr. Bishop..................... X ........ .........
Mr. LaHood..................... X ........ .........
Mr. Wenstrup................... X ........ .........
----------------------------------------------------------------------------------------------------------------

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 6313, as
reported.
The bill, as reported, is estimated to have the following
effect on Federal fiscal year budget receipts for the period
2019-2028:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Fiscal Years [Millions of Dollars]
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Item 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019-23 2019-28
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Permit Rollovers of Health Flexible Spending Arrangement -33 -51 -60 -64 -66 -67 -68 -74 -75 -75 -274 -634
Account Balances \1\.......................................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: The gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that the revenue-reducing tax
provision involves no new tax expenditure.

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 6138, as
reported. As of the filing of this report, the Committee had
not received an estimate prepared by the Congressional Budget
Office (CBO).

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated into
the description portions of this report.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.

C. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.

D. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.

E. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (``IRS Reform Act'')
requires the staff of the Joint Committee on Taxation (in
consultation with the Internal Revenue Service and the Treasury
Department) to provide a tax complexity analysis. The
complexity analysis is required for all legislation reported by
the Senate Committee on Finance, the House Committee on Ways
and Means, or any committee of conference if the legislation
includes a provision that directly or indirectly amends the
Internal Revenue Code of 1986 and has widespread applicability
to individuals or small businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Internal Revenue
Code of 1986 and that have ``widespread applicability'' to
individuals or small businesses, within the meaning of the
rule.

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits

With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.

G. Duplication of Federal Programs

In compliance with Sec. 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program, (2) a program included in any report
from the Government Accountability Office to Congress pursuant
to section 21 of Public Law 111-139, or (3) a program related
to a program identified in the most recent Catalog of Federal
Domestic Assistance, published pursuant to section 6104 of
title 31, United States Code.

H. Disclosure of Directed Rule Makings

In compliance with Sec. 3(i) of H. Res. 5 (115th Congress),
the following statement is made concerning directed rule
makings: The Committee advises that the bill requires no
directed rule makings within the meaning of such section.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

B. Changes in Existing Law Proposed by the Bill, as Reported

In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italic, existing law in
which no change is proposed is shown in roman):

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

* * * * * * *
Subtitle A--Income Taxes

* * * * * * *

CHAPTER 1--NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter B--Computation of Taxable Income

* * * * * * *

PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

* * * * * * *

SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH PLANS.

(a) General rule.--Except as otherwise provided in this
section, gross income of an employee does not include employer-
provided coverage under an accident or health plan.
(b) Contributions to Archer MSAs.--
(1) In general.--In the case of an employee who is an
eligible individual, amounts contributed by such
employee's employer to any Archer MSA 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 220(b)(1) (determined without regard to
this subsection) which is applicable to such employee
for such taxable year.
(2) No constructive receipt.--No amount shall be
included in the gross income of any employee solely
because the employee may choose between the
contributions referred to in paragraph (1) and employer
contributions to another health plan of the employer.
(3) Special rule for deduction of employer
contributions.--Any employer contribution to an Archer
MSA, if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in
which paid.
(4) Employer MSA contributions required to be shown
on return.--Every individual required to file a return
under section 6012 for the taxable year shall include
on such return the aggregate amount contributed by
employers to the Archer MSAs of such individual or such
individual's spouse for such taxable year.
(5) MSA contributions not part of COBRA coverage.--
Paragraph (1) shall not apply for purposes of section
4980B.
(6) Definitions.--For purposes of this subsection,
the terms ``eligible individual'' and ``Archer MSA''
have the respective meanings given to such terms by
section 220.
(7) Cross reference.--For penalty on failure by
employer to make comparable contributions to the Archer
MSAs of comparable employees, see section 4980E.
(c) Inclusion of long-term care benefits provided through
flexible spending arrangements.--
(1) In general.--Gross income of an employee shall
include employer-provided coverage for qualified long-
term care services (as defined in section 7702B(c)) to
the extent that such coverage is provided through a
flexible spending or similar arrangement.
(2) Flexible spending arrangement.--For purposes of
this subsection, a flexible spending arrangement is a
benefit program which provides employees with coverage
under which--
(A) specified incurred expenses may be
reimbursed (subject to reimbursement maximums
and other reasonable conditions), and
(B) the maximum amount of reimbursement which
is reasonably available to a participant for
such coverage is less than 500 percent of the
value of such coverage.
In the case of an insured plan, the maximum amount
reasonably available shall be determined on the basis
of the underlying coverage.
(d) Contributions to health savings accounts.--
(1) In general.--In the case of an employee who is an
eligible individual (as defined in section 223(c)(1)),
amounts contributed by such employee's employer to any
health savings account (as defined in section 223(d))
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) Cross reference.--For penalty on failure by
employer to make comparable contributions to the health
savings accounts of comparable employees, see section
4980G.
(e) FSA and HRA Terminations to Fund HSAs.--
(1) In general.--A plan shall not fail to be treated
as a health flexible spending arrangement or health
reimbursement arrangement under this section or section
105 merely because such plan provides for a qualified
HSA distribution.
(2) Qualified HSA distribution.--The term ``qualified
HSA distribution'' means a distribution from a health
flexible spending arrangement or health reimbursement
arrangement to the extent that such distribution--
(A) does not exceed the lesser of the balance
in such arrangement on September 21, 2006, or
as of the date of such distribution, and
(B) is contributed by the employer directly
to the health savings account of the employee
before January 1, 2012.
Such term shall not include more than 1 distribution
with respect to any arrangement.
(3) Additional tax for failure to maintain high
deductible health plan coverage.--
(A) In general.--If, at any time during the
testing period, the employee is not an eligible
individual, then the amount of the qualified
HSA distribution--
(i) shall be includible in the gross
income of the employee for the taxable
year in which occurs the first month in
the testing period for which such
employee is not an eligible individual,
and
(ii) the tax imposed by this chapter
for such taxable year on the employee
shall be increased by 10 percent of the
amount which is so includible.
(B) Exception for disability or death.--
Clauses (i) and (ii) of subparagraph (A) shall
not apply if the employee ceases to be an
eligible individual by reason of the death of
the employee or the employee becoming disabled
(within the meaning of section 72(m)(7)).
(4) Definitions and special rules.--For purposes of
this subsection--
(A) Testing period.--The term ``testing
period'' means the period beginning with the
month in which the qualified HSA distribution
is contributed to the health savings account
and ending on the last day of the 12th month
following such month.
(B) Eligible individual.--The term ``eligible
individual'' has the meaning given such term by
section 223(c)(1).
(C) Treatment as rollover contribution.--A
qualified HSA distribution shall be treated as
a rollover contribution described in section
223(f)(5).
(5) Tax treatment relating to distributions.--For
purposes of this title--
(A) In general.--A qualified HSA distribution
shall be treated as a payment described in
subsection (d).
(B) Comparability excise tax.--
(i) In general.--Except as provided
in clause (ii), section 4980G shall not
apply to qualified HSA distributions.
(ii) Failure to offer to all
employees.--In the case of a qualified
HSA distribution to any employee, the
failure to offer such distribution to
any eligible individual covered under a
high deductible health plan of the
employer shall (notwithstanding section
4980G(d)) be treated for purposes of
section 4980G as a failure to meet the
requirements of section 4980G(b).
(f) Reimbursements for medicine restricted to prescribed
drugs and insulin.--For purposes of this section and section
105, reimbursement for expenses incurred for a medicine or a
drug shall be treated as a reimbursement for medical expenses
only if such medicine or drug is a prescribed drug (determined
without regard to whether such drug is available without a
prescription) or is insulin.
(g) Qualified small employer health reimbursement
arrangement.--For purposes of this section and section 105,
payments or reimbursements from a qualified small employer
health reimbursement arrangement (as defined in section
9831(d)) of an individual for medical care (as defined in
section 213(d)) shall not be treated as paid or reimbursed
under employer-provided coverage for medical expenses under an
accident or health plan if for the month in which such medical
care is provided the individual does not have minimum essential
coverage (within the meaning of section 5000A(f)).
(h) Carryforward of Health Flexible Spending Arrangement
Account Balances.--A plan shall not fail to be treated as a
health flexible spending arrangement under this section or
section 105 merely because such arrangement's account balance
(or any portion thereof) determined as of the end of any plan
year may be carried forward to the succeeding plan year.

* * * * * * *

SEC. 125. CAFETERIA PLANS.

(a) General rule.--Except as provided in subsection (b), no
amount shall be included in the gross income of a participant
in a cafeteria plan solely because, under the plan, the
participant may choose among the benefits of the plan.
(b) Exception for highly compensated participants and key
employees.--
(1) Highly compensated participants.--In the case of
a highly compensated participant, subsection (a) shall
not apply to any benefit attributable to a plan year
for which the plan discriminates in favor of--
(A) highly compensated individuals as to
eligibility to participate, or
(B) highly compensated participants as to
contributions and benefits.
(2) Key employees.--In the case of a key employee
(within the meaning of section 416(i)(1)), subsection
(a) shall not apply to any benefit attributable to a
plan for which the qualified benefits provided to key
employees exceed 25 percent of the aggregate of such
benefits provided for all employees under the plan. For
purposes of the preceding sentence, qualified benefits
shall be determined without regard to the second
sentence of subsection (f).
(3) Year of inclusion.--For purposes of determining
the taxable year of inclusion, any benefit described in
paragraph (1) or (2) shall be treated as received or
accrued in the taxable year of the participant or key
employee in which the plan year ends.
(c) Discrimination as to benefits or contributions.--For
purposes of subparagraph (B) of subsection (b)(1), a cafeteria
plan does not discriminate where qualified benefits and total
benefits (or employer contributions allocable to qualified
benefits and employer contributions for total benefits) do not
discriminate in favor of highly compensated participants.
(d) Cafeteria plan defined.--For purposes of this section--
(1) In general.--The term ``cafeteria plan'' means a
written plan under which--
(A) all participants are employees, and
(B) the participants may choose among 2 or
more benefits consisting of cash and qualified
benefits.
(2) Deferred compensation plans excluded.--
(A) In general.--The term ``cafeteria plan''
does not include any plan which provides for
deferred compensation.
(B) Exception for cash and deferred
arrangements.--Subparagraph (A) shall not apply
to a profit-sharing or stock bonus plan or
rural cooperative plan (within the meaning of
section 401(k)(7)) which includes a qualified
cash or deferred arrangement (as defined in
section 401(k)(2)) to the extent of amounts
which a covered employee may elect to have the
employer pay as contributions to a trust under
such plan on behalf of the employee.
(C) Exception for certain plans maintained by
educational institutions.--Subparagraph (A)
shall not apply to a plan maintained by an
educational organization described in section
170(b)(1)(A)(ii) to the extent of amounts which
a covered employee may elect to have the
employer pay as contributions for post-
retirement group life insurance if--
(i) all contributions for such
insurance must be made before
retirement, and
(ii) such life insurance does not
have a cash surrender value at any
time.
For purposes of section 79, any life insurance
described in the preceding sentence shall be
treated as group-term life insurance.
(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 account
established on behalf of the employee.
(E) Exception for health flexible spending
arrangements.--Subparagraph (A) shall not apply
to a plan to the extent of amounts in a health
flexible spending arrangement which may be
carried forward as described in section 106(h).
(e) Highly compensated participant and individual defined.--
For purposes of this section--
(1) Highly compensated participant.--The term
``highly compensated participant'' means a participant
who is--
(A) an officer,
(B) a shareholder owning more than 5 percent
of the voting power or value of all classes of
stock of the employer,
(C) highly compensated, or
(D) a spouse or dependent (within the meaning
of section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B)
thereof) of an individual described in
subparagraph (A), (B), or (C).
(2) Highly compensated individual.--The term ``highly
compensated individual'' means an individual who is
described in subparagraph (A), (B), (C), or (D) of
paragraph (1).
(f) Qualified benefits defined.--For purposes of this
section--
(1) In general.--The term ``qualified benefit'' means
any benefit which, with the application of subsection
(a), is not includible in the gross income of the
employee by reason of an express provision of this
chapter (other than section 106(b), 117, 127, or 132).
Such term includes any group term life insurance which
is includible in gross income only because it exceeds
the dollar limitation of section 79 and such term
includes any other benefit permitted under regulations.
(2) Long-term care insurance not qualified.--The term
``qualified benefit'' shall not include any product
which is advertised, marketed, or offered as long-term
care insurance.
(3) Certain exchange-participating qualified health
plans not qualified.--
(A) In general.--The term ``qualified
benefit'' shall not include any qualified
health plan (as defined in section 1301(a) of
the Patient Protection and Affordable Care Act)
offered through an Exchange established under
section 1311 of such Act.
(B) Exception for exchange-eligible
employers.--Subparagraph (A) shall not apply
with respect to any employee if such employee's
employer is a qualified employer (as defined in
section 1312(f)(2) of the Patient Protection
and Affordable Care Act) offering the employee
the opportunity to enroll through such an
Exchange in a qualified health plan in a group
market.
(g) Special rules.--
(1) Collectively bargained plan not considered
discriminatory.--For purposes of this section, a plan
shall not be treated as discriminatory if the plan is
maintained under an agreement which the Secretary finds
to be a collective bargaining agreement between
employee representatives and one or more employers.
(2) Health benefits.--For purposes of subparagraph
(B) of subsection (b)(1), a cafeteria plan which
provides health benefits shall not be treated as
discriminatory if--
(A) contributions under the plan on behalf of
each participant include an amount which--
(i) equals 100 percent of the cost of
the health benefit coverage under the
plan of the majority of the highly
compensated participants similarly
situated, or
(ii) equals or exceeds 75 percent of
the cost of the health benefit coverage
of the participant (similarly situated)
having the highest cost health benefit
coverage under the plan, and
(B) contributions or benefits under the plan
in excess of those described in subparagraph
(A) bear a uniform relationship to
compensation.
(3) Certain participation eligibility rules not
treated as discriminatory.--For purposes of
subparagraph (A) of subsection (b)(1), a classification
shall not be treated as discriminatory if the plan--
(A) benefits a group of employees described
in section 410(b)(2)(A)(i), and
(B) meets the requirements of clauses (i) and
(ii):
(i) No employee is required to
complete more than 3 years of
employment with the employer or
employers maintaining the plan as a
condition of participation in the plan,
and the employment requirement for each
employee is the same.
(ii) Any employee who has satisfied
the employment requirement of clause
(i) and who is otherwise entitled to
participate in the plan commences
participation no later than the first
day of the first plan year beginning
after the date the employment
requirement was satisfied unless the
employee was separated from service
before the first day of that plan year.
(4) Certain controlled groups, etc..--All employees
who are treated as employed by a single employer under
subsection (b), (c), or (m) of section 414 shall be
treated as employed by a single employer for purposes
of this section.
(h) Special rule for unused benefits in health flexible
spending arrangements of individuals called to active duty.--
(1) In general.--For purposes of this title, a plan
or other arrangement shall not fail to be treated as a
cafeteria plan or health flexible spending arrangement
(and shall not fail to be treated as an accident or
health plan) merely because such arrangement provides
for qualified reservist distributions.
(2) Qualified reservist distribution.--For purposes
of this subsection, the term ``qualified reservist
distribution'' means any distribution to an individual
of all or a portion of the balance in the employee's
account under such arrangement if--
(A) such individual was (by reason of being a
member of a reserve component (as defined in
section 101 of title 37, United States Code))
ordered or called to active duty for a period
in excess of 179 days or for an indefinite
period, and
(B) such distribution is made during the
period beginning on the date of such order or
call and ending on the last date that
reimbursements could otherwise be made under
such arrangement for the plan year which
includes the date of such order or call.
(i) Limitation on health flexible spending arrangements.--
(1) In general.--For purposes of this section, if a
benefit is provided under a cafeteria plan through
employer contributions to a health flexible spending
arrangement, such benefit shall not be treated as a
qualified benefit unless the cafeteria plan provides
that an employee may not elect for any [taxable year]
plan year to have salary reduction contributions in
excess of $2,500 made to such arrangement.
(2) Coordination with carryforward of account
balances.--The dollar amount otherwise in effect under
paragraph (1) for any plan year shall be reduced by the
excess (if any) of--
(A) the amount of any account balance which
is carried forward to such plan year from the
preceding plan year, over
(B) $500.
[(2)] (3) Adjustment for inflation.--In the case of
any [taxable year] plan year beginning after December
31, 2013, the dollar amount in paragraph (1) shall be
increased by an amount equal to--
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in
which such [taxable year] plan year begins by
substituting ``calendar year 2012'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
If any increase determined under this paragraph is not
a multiple of $50, such increase shall be rounded to
the next lowest multiple of $50.
(j) Simple cafeteria plans for small businesses.--
(1) In general.--An eligible employer maintaining a
simple cafeteria plan with respect to which the
requirements of this subsection are met for any year
shall be treated as meeting any applicable
nondiscrimination requirement during such year.
(2) Simple cafeteria plan.--For purposes of this
subsection, the term ``simple cafeteria plan'' means a
cafeteria plan--
(A) which is established and maintained by an
eligible employer, and
(B) with respect to which the contribution
requirements of paragraph (3), and the
eligibility and participation requirements of
paragraph (4), are met.
(3) Contribution requirements.--
(A) In general.--The requirements of this
paragraph are met if, under the plan the
employer is required, without regard to whether
a qualified employee makes any salary reduction
contribution, to make a contribution to provide
qualified benefits under the plan on behalf of
each qualified employee in an amount equal to--
(i) a uniform percentage (not less
than 2 percent) of the employee's
compensation for the plan year, or
(ii) an amount which is not less than
the lesser of--
(I) 6 percent of the
employee's compensation for the
plan year, or
(II) twice the amount of the
salary reduction contributions
of each qualified employee.
(B) Matching contributions on behalf of
highly compensated and key employees.--The
requirements of subparagraph (A)(ii) shall not
be treated as met if, under the plan, the rate
of contributions with respect to any salary
reduction contribution of a highly compensated
or key employee at any rate of contribution is
greater than that with respect to an employee
who is not a highly compensated or key
employee.
(C) Additional contributions.--Subject to
subparagraph (B), nothing in this paragraph
shall be treated as prohibiting an employer
from making contributions to provide qualified
benefits under the plan in addition to
contributions required under subparagraph (A).
(D) Definitions.--For purposes of this
paragraph--
(i) Salary reduction contribution.--
The term ``salary reduction
contribution'' means, with respect to a
cafeteria plan, any amount which is
contributed to the plan at the election
of the employee and which is not
includible in gross income by reason of
this section.
(ii) Qualified employee.--The term
``qualified employee'' means, with
respect to a cafeteria plan, any
employee who is not a highly
compensated or key employee and who is
eligible to participate in the plan.
(iii) Highly compensated employee.--
The term ``highly compensated
employee'' has the meaning given such
term by section 414(q).
(iv) Key employee.--The term ``key
employee'' has the meaning given such
term by section 416(i).
(4) Minimum eligibility and participation
requirements.--
(A) In general.--The requirements of this
paragraph shall be treated as met with respect
to any year if, under the plan--
(i) all employees who had at least
1,000 hours of service for the
preceding plan year are eligible to
participate, and
(ii) each employee eligible to
participate in the plan may, subject to
terms and conditions applicable to all
participants, elect any benefit
available under the plan.
(B) Certain employees may be excluded.--For
purposes of subparagraph (A)(i), an employer
may elect to exclude under the plan employees--
(i) who have not attained the age of
21 before the close of a plan year,
(ii) who have less than 1 year of
service with the employer as of any day
during the plan year,
(iii) who are covered under an
agreement which the Secretary of Labor
finds to be a collective bargaining
agreement if there is evidence that the
benefits covered under the cafeteria
plan were the subject of good faith
bargaining between employee
representatives and the employer, or
(iv) who are described in section
410(b)(3)(C) (relating to nonresident
aliens working outside the United
States).
A plan may provide a shorter period of service
or younger age for purposes of clause (i) or
(ii).
(5) Eligible employer.--For purposes of this
subsection--
(A) In general.--The term ``eligible
employer'' means, with respect to any year, any
employer if such employer employed an average
of 100 or fewer employees on business days
during either of the 2 preceding years. For
purposes of this subparagraph, a year may only
be taken into account if the employer was in
existence throughout the year.
(B) Employers not in existence during
preceding year.--If an employer was not in
existence throughout the preceding year, the
determination under subparagraph (A) shall be
based on the average number of employees that
it is reasonably expected such employer will
employ on business days in the current year.
(C) Growing employers retain treatment as
small employer.--
(i) In general.--If--
(I) an employer was an
eligible employer for any year
(a ``qualified year''), and
(II) such employer
establishes a simple cafeteria
plan for its employees for such
year,
then, notwithstanding the fact the
employer fails to meet the requirements
of subparagraph (A) for any subsequent
year, such employer shall be treated as
an eligible employer for such
subsequent year with respect to
employees (whether or not employees
during a qualified year) of any trade
or business which was covered by the
plan during any qualified year.
(ii) Exception.--This subparagraph
shall cease to apply if the employer
employs an average of 200 or more
employees on business days during any
year preceding any such subsequent
year.
(D) Special rules.--
(i) Predecessors.--Any reference in
this paragraph to an employer shall
include a reference to any predecessor
of such employer.
(ii) Aggregation rules.--All persons
treated as a single employer under
subsection (a) or (b) of section 52, or
subsection (n) or (o) of section 414,
shall be treated as one person.
(6) Applicable nondiscrimination requirement.--For
purposes of this subsection, the term ``applicable
nondiscrimination requirement'' means any requirement
under subsection (b) of this section, section 79(d),
section 105(h), or paragraph (2), (3), (4), or (8) of
section 129(d).
(7) Compensation.--The term ``compensation'' has the
meaning given such term by section 414(s).
(k) Cross reference.--For reporting and recordkeeping
requirements, see section 6039D.
(l) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this section.

* * * * * * *

DISSENTING VIEWS

H.R. 6313 Responsible Additions and Increases to Sustain Employee
Health Benefits Act of 2018

H.R. 6313 (Stivers, R-OH) allows individuals to rollover
Flexible Spending Account (FSA) contributions.
H.R. 6313 does not undo sabotage, premium hikes, and
benefit cuts Republicans have caused over the past 18 months.
This bill was one in a series of 11 bills the Committee marked
up that Republicans claim will help lower health care costs for
consumers. This legislation does not undo the disruption and
sabotage the Republicans have continued to inflict on the
American health care system. Instead of focusing on expansion
of tax-preferred accounts, Democrats encourage the Committee to
redirect its attention to legislation that could actually
ensure that uninsured, low-income, and vulnerable people have
real access to care. For example H.R. 5155, sponsored by Reps.
Pallone, Neal, and Scott would protect people with pre-existing
conditions, help lower premiums for Americans, and improve
affordability of health coverage.
The Joint Committee on Taxation (JCT) estimates the cost of
this bill to be $634 million over 10 years. Altogether the 11
bills the Committee marked up would add another $92 billion in
unoffset tax cuts to the deficit. With these bills, Republicans
are adding more tax cuts and increasing the deficit.
Republicans are using the deficit, which they keep making
larger with cuts for the wealthy, to justify the deep cuts they
plan to make to Medicare and Medicaid. Republicans already are
proposing to cut Medicare and Medicaid by nearly a trillion
dollars to try to pay for the tax cuts they have already
enacted. This bill will only increase Republicans' call for
further cuts to these critical programs.

Richard E. Neal,
Ranking Member

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