A bill to amend the Internal Revenue Code of 1954 to allow individuals a deduction from gross income for contributions to a health services savings account and to amend title XVIII of the Social Security Act to establish a limited Medicare option for catastrophic care, and for other purposes.

Amends the Internal Revenue Code to allow a deduction for amounts paid by or on behalf of an individual to an individual health services account. Limits the amount of the allowable deduction to any individual for any taxable year to $2,000. Defines "individual health services account" as a trust created or organized exclusively to pay qualified health expenses of the distributee. Sets forth various requirements for the trust. Defines "qualified health expenses" as amounts paid for: (1) care of the distributee at a skilled nursing facility; (2) care of the distributee at an intermediate care facility; (3) care at any other long-term facility which provides nursing or custodial care; (4) home health care of the distributee prescribed by, and under the supervision of, a qualified physician; (5) Medicare supplemental policies for the distributee; or (6) health services supplemental policies for the distributee.

Defines a "health services supplemental policy" as a health insurance policy or other health benefit plan offered by a private entity to an individual which provides reimbursement for expenses incurred, or services for, catastrophic and long-term care. Requires the Secretary of the Treasury to establish minimum requirements and standards for the certification of health services supplemental policies and procedures for the Secretary to certify policies submitted to the Secretary.

Requires any amount distributed from an individual health services account to be included in the gross income of the distributee for the taxable year in which the distribution is received. Imposes a ten percent penalty on distributions which are not used exclusively for qualified health expenses.

Permits the exclusion of ten percent of a distribution from an individual health services account where the distribution is used exclusively to pay qualified health expenses of the distributee, if the distributee has attained the age of 59 and one-half. Provides that only 80 percent of any distribution used exclusively to pay for Medicare supplemental policies or health services supplemental policies shall be included in income of the distributee, regardless of the age of the distributee.

Provides that an individual health services account will be exempt from taxation unless the distributee engages in prohibited transactions with the account. Treats as a distribution from the account any portion of the account used as security for a loan. Provides that the individual health services account will terminate on the death of the distributee.

Allows the deduction for amounts paid to a health services savings account to be taken in arriving at adjusted gross income. Imposes a tax penalty on excess contributions to an individual health services account, on prohibited transactions, and on failure to file certain information reports.

Directs the Secretary, in consultation with various interested groups, to report to the Congress, not later than one year after the date of enactment of this Act, on a regulatory program to provide for the application of minimum standards with respect to health services supplemental policies.

Amends title XVIII (Medicare) of the Social Security Act to provide Medicare benefits for catastrophic care. Provides that each individual enrolled under Medicare shall be deemed to have elected this coverage unless the individual files a notice that such coverage is not wanted.

Requires the Secretary of Health and Human Services to determine the monthly actuarial rate for enrollees for the catastrophic coverage option. Provides that the monthly premiums for each individual covered under this month shall be the amount equal to the monthly actuarial rate for enrollees.