(1)

by striking Exception.—Notwithstanding subsection (a) and inserting the following:

Exceptions.—

(1) Self-insured group health plans

Notwithstanding subsection (a), and

(2)

by adding at the end the following new paragraph:

(2) Custom health option and individual care expense arrangements

(A) In general

For purposes of this subchapter, a custom health option and individual care expense arrangement shall be treated as meeting the requirements of section 9802 and sections 2705, 2711, 2713, and 2715 of title XXVII of the Public Health Service Act.

(B) Custom health option and individual care expense arrangements defined

For purposes of this section, the term custom health option and individual care expense arrangement means a health reimbursement arrangement—

(i)

which is an employer-provided group health plan funded solely by employer contributions to provide payments or reimbursements for medical care subject to a maximum fixed dollar amount for a period,

(ii)

under which such payments or reimbursements may only be made for medical care provided during periods during which the individual is covered—

(I)

under individual health insurance coverage (other than coverage that consists solely of excepted benefits), or

(II)

under part A and B of title XVIII of the Social Security Act or part C of such title,

(iii)

which meets the nondiscrimination requirements of subparagraph (C),

(iv)

which meets the substantiation requirements of subparagraph (D), and

(v)

which meets the notice requirements of subparagraph (E).

(C) Nondiscrimination

(i) In general

An arrangement meets the requirements of this subparagraph if an employer offering such arrangement to an employee within a specified class of employee—

(I)

offers such arrangement to all employees within such specified class on the same terms, and

(II)

does not offer any other group health plan (other than an account-based group health plan or a group health plan that consists solely of excepted benefits) to any employees within such specified class.

In the case of an employer who offers a group health plan provided through health insurance coverage in the small group market (that is subject to section 2701 of the Public Health Service Act) to all employees within such specified class, subclause (II) shall not apply to such group health plan.

(ii) Specified class of employee

For purposes of this subparagraph, any of the following may be designated as a specified class of employee:

(I)

Full-time employees.

(II)

Part-time employees.

(III)

Salaried employees.

(IV)

Non-salaried employees.

(V)

Employees whose home location is in the same rating area.

(VI)

Employees who are included in a unit of employees covered under a collective bargaining agreement to which the employer is subject (determined under rules similar to the rules of section 105(h)).

(VII)

Employees who have not met a group health plan, or health insurance issuer offering group health insurance coverage, waiting period requirement that satisfies section 2708 of the Public Health Service Act.

(VIII)

Seasonal employees.

(IX)

Employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).

(X)

Under such rules as the Secretary may prescribe, employees who are hired for temporary placement with an unrelated person that is not the common law employer.

(XI)

Employees who are hired in the same date range.

(XII)

Such other classes of employees as the Secretary may designate.

An employer may designate (in such manner as is prescribed by the Secretary) two or more of the classes described in the preceding subclauses as the specified class of employees to which the arrangement is offered for purposes of applying this subparagraph.

(iii) Special rule for new hires

An employer may designate prospectively so much of a specified class of employees as are hired after a date set by the employer. Such subclass of employees shall be treated as the specified class for purposes of applying clause (i).

(iv) Rules for determining type of employee

For purposes for clause (ii), any determination of full-time, part-time, or seasonal employment status shall be made under rules similar to the rules of section 105(h) or 4980H, whichever the employer elects for the plan year. Such election shall apply with respect to all employees of the employer for the plan year.

(v) Permitted variation

For purposes of clause (i)(I), an arrangement shall not fail to be treated as provided on the same terms within a specified class merely because the maximum dollar amount of payments and reimbursements which may be made under the terms of the arrangement for the year with respect to each employee within such class—

(I)

increases as additional dependents of the employee are covered under the arrangement, and

(II)

increases with respect to a participant as the age of the participant increases, but not in excess of an amount equal to 300 percent of the lowest maximum dollar amount with respect to such a participant determined without regard to age.

(D) Substantiation requirements

An arrangement meets the requirements of this subparagraph if the arrangement has reasonable procedures to substantiate—

(i)

that the participant and any dependents are, or will be, enrolled in coverage described in subparagraph (B)(ii) as of the beginning of the plan year of the arrangement (or as of the beginning of coverage under the arrangement in the case of an employee who first becomes eligible to participate in the arrangement after the date notice is given with respect to the plan under subparagraph (E) (determined without regard to clause (iii) thereof)), and

(ii)

any requests made for payment or reimbursement of medical care under the arrangement and that the participant and any dependents remain so enrolled.

(E) Notice

(i) In general

Except as provided in clause (iii), an arrangement meets the requirements of this subparagraph if, under the arrangement, each employee eligible to participate is, not later than 60 days before the beginning of the plan year, given written notice of the employee’s rights and obligations under the arrangement which—

(I)

is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and

(II)

is written in a manner calculated to be understood by the average employee eligible to participate.

(ii) Notice requirements

Such notice shall include such information as the Secretary may by regulation prescribe.

(iii) Notice deadline for certain employees

In the case of an employee—

(I)

who first becomes eligible to participate in the arrangement after the date notice is given with respect to the plan under clause (i) (determined without regard to this clause), or

(II)

whose employer is first established fewer than 120 days before the beginning of the first plan year of the arrangement,

the requirements of this subparagraph shall be treated as met if the notice required under clause (i) is provided not later than the date the arrangement may take effect with respect to such employee.

(1) In general

Section 6051(a) of such Code is amended by striking and at the end of paragraph (18), by striking the period at the end of paragraph (19) and inserting , and, and by inserting after paragraph (19) the following new paragraph:

(20)

the total amount of permitted benefits for enrolled individuals under a custom health option and individual care expense arrangement (as defined in section 9815(b)(2)) with respect to such employee.

(1) No inference

To the extent not inconsistent with the amendments made by this section—

(2) Other conforming of rules

The Secretary of the Treasury, the Secretary of Health and Human Services, and the Secretary of Labor shall modify such rules as may be necessary to conform to the amendments made by this section.

(1)

by redesignating clauses (x), (xi), and (xii) as clauses (xi), (xii), and (xiii), respectively, and

(2)

by inserting after clause (ix) the following new clause:

(x)

the credit determined under section 45BB,