Report Title:

Medical Savings Account; Authorization

 

Description:

Authorizes medical saving accounts to pay for the eligible medical expenses of employees and their dependents.

HOUSE OF REPRESENTATIVES

H.B. NO.

816

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO MEDICAL SAVINGS ACCOUNTS.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

MEDICAL SAVINGS ACCOUNTS

§ -1 Short title. This Act may be cited as the Medical Savings Account Act.

§ -2 Definitions. As used in this chapter:

"Account administrator" means any of the following:

(1) A national or state chartered bank, a federal or state chartered savings and loan association, a federal or state chartered savings bank, or a federal or state chartered credit union;

(2) A trust company authorized to act as a fiduciary;

(3) An insurance company authorized to do business in this State under chapter 431 or a health maintenance organization authorized to do business in this State;

(4) A dealer, salesperson, or investment adviser registered under chapter 485;

(5) A certified public accountant registered under chapter 466;

(6) An attorney licensed to practice in this State;

(7) An employer, if the employer has a self-insured health plan under the federal Employee Retirement Income Security Act of 1974; and

(8) An employer that participates in the medical savings account program.

"Deductible" means the total deductible for an employee and all the dependents of that employee for a calendar year.

"Dependent" means the spouse of the employee or a child of the employee if the child is any of the following:

(1) Under nineteen years of age, or under twenty-three years of age and enrolled as a full-time student at an accredited college or university;

(2) Legally entitled to the provision of proper or necessary subsistence, education, medical care, or other care necessary for the health, guidance, or well-being of the child and not otherwise emancipated, self-supporting, married, or a member of the armed forces of the United States; and

(3) Mentally or physically incapacitated to the extent that the child is not self-sufficient.

"Domicile" means a place where an individual has a true, fixed, and permanent home and principal establishment, to which, whenever absent, the individual intends to return. Domicile continues until another permanent home or principal establishment is established.

"Eligible medical expense" means an expense paid by the taxpayer for medical care described in Section 213(d) of the Internal Revenue Code.

"Employee" means the individual for whose benefit or for the benefit of whose dependents a medical savings account is established. Employee includes a self-employed individual.

"Higher deductible" means a deductible of not less than $1,000 and not more than $3,000 for 2001. This minimum and maximum shall be adjusted annually by the department of taxation to reflect increases in the consumer price index for the United States as defined and officially reported by the United States Department of labor.

"Medical savings account" or "account" means an account established in this State pursuant to a medical savings account program to pay the eligible medical expenses of an employee and the employee's dependents.

"Medical savings account program" or "program" means a program that includes all of the following:

(1) The purchase by an employer of a qualified higher deductible health plan for the benefit of an employee and the employee's dependents.

(2) The contribution on behalf of an employee into a medical savings account by an employer of all or part of the premium differential realized by the employer based on the purchase of a qualified higher deductible health plan for the benefit of the employee. An employer that did not previously provide a health coverage policy, certificate, or contract for employees may contribute all or part of the deductible of the plan purchased pursuant to paragraph (1). For 2001, a contribution under this paragraph may not exceed $6,000 for two taxpayers filing a joint return, if each taxpayer has a medical savings account but neither is covered by the other's health coverage, or $3,000 in all other cases. These maximum amounts shall be adjusted annually by the department of taxation to reflect increases in the consumer price index for the United States as defined and officially reported by the United States Department of Labor.

(3) An account administrator to administer the medical savings account from which payment of claims is made. Not more than thirty days after an account administrator begins to administer an account, the administrator shall notify in writing each employee on whose behalf the administrator administers an account of the date of the last business day of the administrator's business year.

"Qualified higher deductible health plan" means a health coverage policy, certificate, or contract that provides for payments for covered benefits that exceed the higher deductible and that is purchased by an employer for the benefit of an employee for whom the employer makes deposits into a medical savings account.

§ -3 Program offer; tax treatment. (a) For tax years beginning after December 31, 2000, an employer, except as otherwise provided by statute, contract, or a collective bargaining agreement, may offer a medical savings account program to the employer's employees.

(b) Before making any contribution to an account, an employer that offers a medical savings account program shall inform all of its employees in writing of the federal tax status of contributions made pursuant to this chapter.

(c) Except as provided in section -5, principal contributed to and interest earned on a medical savings account and money reimbursed to an employee for eligible medical expenses are exempt from taxation under chapter 235 as provided in section 235-7. § -4 Use of account moneys. (a) The account administrator shall utilize the moneys held in a medical savings account solely for the purpose of paying the medical expenses of the employee or the employer's dependents or to purchase a health coverage policy, certificate, or contract if the employee does not otherwise have health insurance coverage. Moneys held in a medical savings account may not be used to cover medical expenses of the employee or the employee's dependents that are otherwise covered, including but not limited to medical expenses covered pursuant to an automobile insurance policy, workers' compensation insurance policy or self-insured plan, or another health coverage policy, certificate, or contract.

(b) The employee may submit documentation of medical expenses paid by the employee in the tax year to the account administrator, and the account administrator shall reimburse the employee from the employee's account for eligible medical expenses.

(c) If an employer makes contributions to a medical savings account program on a periodic installment basis, the employer may advance to an employee, interest free, an amount necessary to cover medical expenses incurred that exceed the amount in the employee's medical savings account when the expense is incurred if the employee agrees to repay the advance from future installments or when the employee ceases to be an employee of the employer.

§ -5 Withdrawals from account. (a) Notwithstanding subsection (b) and subject to subsection (c), an employee may withdraw money from the employee's medical savings account for any purpose other than a purpose described in section -4(a) only on the last business day of the account administrator's business year. Money withdrawn pursuant to this subsection is income for purposes of chapter 235 in the taxable year of the withdrawal.

(b) Subject to subsection (c), if the employee withdraws money for any purpose other than a purpose described in section     -4(a) at any other time, all of the following apply:

(1) The amount of the withdrawal is income for purposes of chapter 235 in the taxable year of the withdrawal;

(2) The administrator shall withhold and on behalf of the employee shall pay a penalty to the department of taxation equal to ten per cent of the amount of the withdrawal; and

(3) Interest earned on the account during the taxable year in which a withdrawal under this subsection is made is income for purposes of chapter 235.

(c) The amount of a disbursement of any assets of a medical savings account pursuant to a filing for protection under Title 11 of the United States Code, 11 U.S.C. §§101 to 1330, by an employee or person for whose benefit the account was established is not considered a withdrawal for purposes of this section. The amount of a disbursement is not subject to taxation under chapter 235, and subsection (b) does not apply.

(d) Upon the death of the employee, the account administrator shall distribute the principal and accumulated interest of the medical savings account to the estate of the employee.

(e) If:

(1) An employee is no longer employed by an employer that participates in a medical savings account program;

(2) The employee, not more than sixty days after the employee's final day of employment, transfers the account to a new account administrator or requests in writing to the former employer's account administrator that the account remain with that administrator; and

(3) That account administrator agrees to retain the account, then the money in the medical savings account may be utilized for the benefit of the employee or the employee's dependents subject to this chapter and remains exempt from taxation pursuant to this chapter. Not more than thirty days after the expiration of the sixty days, if an account administrator has not accepted the former employee's account, the employer shall mail a check to the former employee, at the employee's last known address, for an amount equal to the amount in the account on that day, and that amount is subject to taxation pursuant to subsection (a) but is not subject to the penalty under subsection (b)(2) of this section. If an employee becomes employed with a different employer that participates in a medical savings account program, the employee may transfer the employee's medical savings account to that new employer's account administrator.

§ -6 Insurance commissioner's report. The insurance commissioner shall report to the legislature on or before January 1, 2005, with respect to the following:

(1) The availability of health care coverage under medical savings account programs and the market share of those programs;

(2) The results of a survey of employer and employee satisfaction with medical savings account programs; and

(3) The results of a loss ratio study relative to medical savings account programs.

§ -7 Administrator; fiduciary duty. An account administrator shall discharge the administrator's fiduciary duties as a fiduciary in a manner consistent with the fiduciary standards required by 29 U.S.C. §1104, and shall not engage in any self-dealing transactions in the investment of account assets.

§ -8 Sunset. This chapter is repealed on January 1,      ."

SECTION 2. Section 235-7, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There shall be excluded from gross income, adjusted gross income, and taxable income:

(1) Income not subject to taxation by the State under the Constitution and laws of the United States;

(2) Rights, benefits, and other income exempted from taxation by section 88-91, having to do with the state retirement system, and the rights, benefits, and other income, comparable to the rights, benefits, and other income exempted by section 88-91, under any other public retirement system;

(3) Any compensation received in the form of a pension for past services;

(4) Compensation paid to a patient affected with Hansen's disease employed by the State or the United States in any hospital, settlement, or place for the treatment of Hansen's disease;

(5) Except as otherwise expressly provided, payments made by the United States or this State, under an act of Congress or a law of this State, which by express provision or administrative regulation or interpretation are exempt from both the normal and surtaxes of the United States, even though not so exempted by the Internal Revenue Code itself;

(6) Any income expressly exempted or excluded from the measure of the tax imposed by this chapter by any other law of the State, it being the intent of this chapter not to repeal or supersede any such express exemption or exclusion;

(7) The first $1,750 received by each member of the reserve components of the Army, Navy, Air Force, Marine Corps, or Coast Guard of the United States of America, and the Hawaii national guard as compensation for performance of duty;

(8) Income derived from the operation of ships or aircraft if the income is exempt under the Internal Revenue Code pursuant to the provisions of an income tax treaty or agreement entered into by and between the United States and a foreign country, provided that the tax laws of the local governments of that country reciprocally exempt from the application of all of their net income taxes, the income derived from the operation of ships or aircraft which are documented or registered under the laws of the United States;

(9) The value of legal services provided by a prepaid legal service plan to a taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

(10) Amounts paid, directly or indirectly, by a prepaid legal service plan to a taxpayer as payment or reimbursement for the provision of legal services to the taxpayer, the taxpayer's spouse, and the taxpayer's dependents;

(11) Contributions by an employer to a prepaid legal service plan for compensation (through insurance or otherwise) to the employer's employees for the costs of legal services incurred by the employer's employees, their spouses, and their dependents; [and]

(12) Amounts received in the form of a monthly surcharge by a utility acting on behalf of an affected utility under section 269-16.3 shall not be gross income, adjusted gross income, or taxable income for the acting utility under this chapter. Any amounts retained by the acting utility for collection or other costs shall not be included in this exemption[.]; and

(13) Amounts received as reimbursements for medical expenses from a medical savings account made in accordance with section -4."

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval; provided that section 2 shall apply to taxable years beginning after December 31, 2000.

INTRODUCED BY:

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