OVERVIEW

A tax-exempt trust or custodial account established for the purpose of paying qualified medical expenses in conjunction with a high-deductible (“HD”) health plan.

Comment: In brief: A supercharged Archer MSA – a portable, personal trust account for medical expenses, with much greater availability, liberalized funding, and increased contribution limits.

ELIGIBILITY

An individual who is covered under a qualifying HD health plan. IRC § 223(c)(1)(A). It appears that this eligibility rule is applied separately to spouses (except that there are special rules where either spouse has family coverage).

Such individuals may not be covered under any other non-HD health plan which provides coverage for any benefit otherwise covered under the HD plan, except for certain exempted coverage and other statutorily “permitted insurance”. IRC § 223(c)(1).

Exempted coverage (whether through insurance or otherwise) includes coverage for accidents, disability, dental care, vision care, or long-term care. IRC s 223(c)(1)(B). “Permitted insurance” is (1) all insurance where substantially all of the coverage provided relates to liabilities from workers’ compensation laws, torts, or ownership or use of property (such as automobile insurance), (2) insurance for a specified disease or illness, and (3) insurance paying a fixed amount per day of hospitalization.

ELIGIBILITY – HIGH DEDUCTIBLE PLAN REQUIREMENTS

Must be covered by a qualifying HD health plan (generally, with no other health coverage).

A qualifying HD health plan is a health plan (including a self-insured plan), which has an annual deductible not less than $1,000 for self-only coverage ($2,000 for family coverage) and has an out-of-pocket limit (other than for premiums) equal to $5,000 for self-only coverage (or $10,000 for family coverage). IRC § 223(c)(2)(A). Notice 2004-2, Q & A 7.

Preventive Care: A plan will still qualify as a HD health plan even if it has no deductible for preventive care. IRC § 223(c)(2)(C). It is not entirely clear what Congress intended “preventive care” to cover for this purpose. The IRS has asked for comments on the appropriate standard for preventive care. Notice 2004-2.

Network Plans: A plan will not fail to qualify as a HD health plan just because the out-of-pocket limitation for services provided by non-network providers exceeds the annual HD health plan limits. IRC § 223(c)(2)(D).

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