Report Title:

Health Savings Accounts; Establishment

Description:

Establishes and maintains health savings accounts.

THE SENATE

S.B. NO.

3143

TWENTY-SECOND LEGISLATURE, 2004

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to health savings accounts.

 

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

SECTION 1. Chapter 393, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"PART . HEALTH SAVINGS ACCOUNTS

"§393-A Short Title. This part may be cited as the Health Savings Account Act.

§393-B Definitions. As used in this part:

(a) "Eligible individual" means the individual taxpayer, including employees of an employer who contributes to health savings accounts of the employees' behalf, whom:

(1) Must be covered by a "High Deductible Health Plan" individually or with dependent; and;

(2) May not be covered under any health plan that is not a high deductible health plan, except for:

(i) coverage for accidents;

(ii) workers compensation insurance;

(iii) insurance for a specified disease or illness;

(iv) insurance paying a fixed amount per day per hospitalization; and;

(v) tort liabilities.

(3) Establishes or on whose behalf the health savings account is established.

(b) "Deductible" means the total deductible for an eligible individual and all the dependents of that eligible individual for a calendar year.

(c) "Dependent" means the spouse or child of the eligible individual as defined in Section 152 of the Internal Revenue Code.

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

(e) "High Deductible" means:

(1) In the case of self-only coverage, an annual deductible (increased each year by a cost-of-living adjustment) which is not less than $1000 and the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits does not exceed $5000.

(2) In the case of family coverage, an annual deductible (increased each year by a cost-of-living adjustment) of not less than $2000 and the sum of the annual deductible and other annual out-of-pocket expenses required to be paid under the plan for covered benefits does not exceed $10,000.

(3) A plan shall not fail to be treated as a high deductible plan by reason of failing to have a deductible for preventative care or, in the case of network plans, for having out-of-pocket expenses which exceed these limits on an annual deductible for services provided outside the network.

(f) "Health savings account" or "account" means a trust or custodian established in this state pursuant to a health savings account program exclusively to pay the qualified medical expenses of an eligible individual or his or her dependents, but only if the written governing instrument creating the account meets the following requirements:

(1) Except in the case of a rollover contribution, no contribution will be accepted:

(A) Unless it is in cash; or;

(B) to the extent such contribution, when added to the previous contributions to the Account for the calendar year, exceeds 100 per cent of the eligible individual's deductible or $2600 for an individual or $5150 per family, whichever is lower.

(2) The trustee or custodian is a bank, an insurance company, or another person approved by the Secretary of Health and Human Services.

(3) No part of the trust assets will be invested in life insurance contracts.

(4) The assets of the account will not be commingled with other property except as allowed for under Individual Retirement Accounts.

(5) Eligible individual's interest in the account is nonforfeitable.

(g) "Health Savings Account program" or "program" means a program that includes all of the following:

(1) The purchase by an eligible individual or by an employer of a high deductible health plan;

(2) The contribution into a health savings account by an eligible individual or on behalf of an employee or by his or her employer. The total annual contribution may not exceed the amount of the plan's higher deductible or the amounts listed in subsection (f) (1)(b).

(h) "High Deductible Health Plan" means a health coverage policy, certificate, or contract that provides for payments for covered benefits that exceeds the higher deductible.

§393-C Applicability and Scope.

(a) The provisions of this Act shall apply also to taxpayers who are not receiving preferred federal tax treatment for a health savings account (under I. R. C. Section 223).

(b) For taxable years beginning after 2005 a resident of Hawaii or an employer shall be allowed to deposit contributions to a health savings account. The amount of deposit for 2005 shall not exceed the amount of the plan's high deductible, nor $2600 for an individual policy, and $5150 for a family policy.

(c) Except as provided in §293-E, principal contributed to and interest earned on a health savings account and money reimbursed to an eligible individual or an employee for qualified medical expenses are exempt from taxation under Chapter 235, Hawaii Revised Statutes.

§393-D Distribution of Health Savings Account Funds.

(a) The trustee or custodian shall utilize the funds held in a health savings account solely for the purpose of paying the qualified medical expenses of the eligible individual or his or her dependents, or to purchase a health coverage policy certificate, or contract, if the eligible individual is receiving unemployment compensation, is exercising continuation privileges under federal law, is purchasing a long term care insurance contract, or to pay for health insurance other than a Medicare supplemental policy for those who are Medicare eligible. Funds held in a health savings account shall not be used to cover expenses of the eligible individual or his or her dependents that are otherwise covered, including but not limited to, medical expense covered pursuant to an automobile insurance policy, worker's compensation insurance policy or self-insured plan, or another employer-funded health coverage policy, certificate, or contract.

§393-E Health Savings Accounts; Withdrawals.

(a) Notwithstanding subsection (c), (d), (e), or (f), an eligible individual may withdraw money from his or her health savings account for any purpose other than a purpose described in §393-D, subsection (a).

(b) Subject to subsection (c), if the eligible individual withdraws money for any purpose other than a purpose described in §393-D, subsection (a) at any other time, all of the following apply:

(1) The amount of the withdrawal is income for the purposes in Chapter 235, in the tax year of the withdrawal.

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

(c) The amount of disbursement of any assets of a health savings account pursuant to a filing for protection under Title 11 of the United States Code, 11 U. S. C. 101 et seq. by an eligible individual 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) The transfer of an eligible individual's interest in a health savings account to an eligible individual's spouse or former spouse under a divorce or separation instrument shall not be considered a taxable transfer made by such eligible individual, notwithstanding any other provision of this subpart, and such interest shall, after such transfer, be treated as a health savings account with respect to which such spouse is the eligible individual.

(e) Upon the death of the eligible individual, the trustee or custodian shall distribute the principle and accumulated interest of the health savings account to the estate of the deceased.

(f) If an employee becomes employed with a different employer that participates in a health savings account program, the employee may transfer his or her health savings account to that new employer's trustee or custodian, or to an individually purchased account program.

SECTION 2. If any provision of this Act, or the application thereof to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the Act, which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 3. This Act shall take effect upon its approval; provided that section 1 shall apply to taxable years beginning after December 31, 2004.

INTRODUCED BY:

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