MEDICARE+CHOICE MSA.

SEC. 4006. MEDICARE+CHOICE MSA. (a) In General.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to amounts specifically excluded from gross income) is amended by redesignating section 138 as section 139 and by inserting after section 137 the following new section:111 STAT. 332 “SEC. 138. MEDICARE+CHOICE MSA. “(a) Exclusion.—Gross income shall not include any payment to the Medicare+Choice MSA of an individual by the Secretary of Health and Human Services under part C of title XVIII of the Social Security Act. “(b) Medicare+Choice MSA.—For purposes of this section, the term ‘Medicare+Choice MSA’ means a medical savings account (as defined in section 220(d))— “(1) which is designated as a Medicare+Choice MSA, “(2) with respect to which no contribution may be made other than— “(A) a contribution made by the Secretary of Health and Human Services pursuant to part C of title XVIII of the Social Security Act, or “(B) a trustee-to-trustee transfer described in subsection (c)(4). “(3) the governing instrument of which provides that trustee-to-trustee transfers described in subsection (c)(4) may be made to and from such account, and “(4) which is established in connection with an MSA plan described in section 1859(b)(3) of the Social Security Act. “(c) Special Rules for Distributions.— “(1) Distributions for qualified medical expenses.—In applying section 220 to a Medicare+Choice MSA— “(A) qualified medical expenses shall not include amounts paid for medical care for any individual other than the account holder, and “(B) section 220(d)(2)(C) shall not apply. “(2) Penalty for distributions from medicare+choice msa not used for qualified medical expenses if minimum balance not maintained.— “(A) In general.—The tax imposed by this chapter for any taxable year in which there is a payment or distribution from a Medicare+Choice MSA which is not used exclusively to pay the qualified medical expenses of the account holder shall be increased by 50 percent of the excess (if any) of— “(i) the amount of such payment or distribution, over “(ii) the excess (if any) of— “(I) the fair market value of the assets in such MSA as of the close of the calendar year preceding the calendar year in which the taxable year begins, over “(II) an amount equal to 60 percent of the deductible under the Medicare+Choice MSA plan covering the account holder as of January 1 of the calendar year in which the taxable year begins. Section 220(f)(4) shall not apply to any payment or distribution from a Medicare+Choice MSA. “(B) Exceptions.—Subparagraph (A) shall not apply if the payment or distribution is made on or after the date the account holder— “(i) becomes disabled within the meaning of section 72(m)(7), or “(ii) dies.111 STAT. 333 “(C) Special rules.—For purposes of subparagraph (A)— “(i) all Medicare+Choice MSAs of the account holder shall be treated as 1 account, “(ii) all payments and distributions not used exclusively to pay the qualified medical expenses of the account holder during any taxable year shall be treated as 1 distribution, and “(iii) any distribution of property shall be taken into account at its fair market value on the date of the distribution. “(3) Withdrawal of erroneous contributions.—Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any payment or distribution from a Medicare+Choice MSA to the Secretary of Health and Human Services of an erroneous contribution to such MSA and of the net income attributable to such contribution. “(4) Trustee-to-trustee transfers.—Section 220(f)(2) and paragraph (2) of this subsection shall not apply to any trustee-to-trustee transfer from a Medicare+Choice MSA of an account holder to another Medicare+Choice MSA of such account holder. “(d) Special Rules for Treatment of Account After Death of Account Holder.—In applying section 220(f)(8)(A) to an account which was a Medicare+Choice MSA of a decedent, the rules of section 220(f) shall apply in lieu of the rules of subsection (c) of this section with respect to the spouse as the account holder of such Medicare+Choice MSA. “(e) Reports.—In the case of a Medicare+Choice MSA the report under section 220(h)— “(1) shall include the fair market value of the assets in such Medicare+Choice MSA as of the close of each calendar year, and “(2) shall be furnished to the account holder— “(A) not later than January 31 of the calendar year following the calendar year to which such reports relate, and “(B) in such manner as the Secretary prescribes in such regulations. “(f) Coordination With Limitation on Number of Taxpayers Having Medical Savings Accounts.—Subsection (i) of section 220 shall not apply to an individual with respect to a Medicare+Choice MSA, and Medicare+Choice MSA’s shall not be taken into account in determining whether the numerical limitations under section 220(j) are exceeded.”. (b) Technical Amendments.— (1) The last sentence of section 4973(d) of such Code is amended by inserting “or section 138(c)(3)” after “section 220(1)(3)”. (2) Subsection (b) of section 220 of such Code is amended by adding at the end the following new paragraph: “(7) Medicare eligible individuals.—The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.”.111 STAT. 334 (3) The table of sections for part III of subchapter B of chapter 1 of such Code is amended by striking the last item and inserting the following: “Sec. 138. Medicare+Choice MSA. “Sec. 139. Cross references to other Acts.”. (c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 1998.