HEALTH CARE BENEFIT PLAN PERSONAL INSURED ACCOUNTS HEALTH SAVINGS ACCOUNTS HSA’s A tax-exempt trust or custodial account established for the purpose of paying qualified medical expenses in conjunction with a high-deductible (HD) ($1,000 to $5,000) health plan. In brief: A portable personal trust account for medical expenses, with much greater availability (like same day), liberalized funding, and increased contribution limits, with year-to-year balance carry-forward, unlike other previous plans. Health Savings Accounts were authorized pursuant to section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2004 (the “Act”), Pub. L. No. 108-173, which added section #224 of the Internal Revenue Code of 1986. The IRS is expected to publish this in the 2004-2 Internal Revenue Bulletin. HEALTH SAVINGS ACCOUNTS HSA’s In the case of family coverage, a health plan with stacked deductibles will not qualify if benefits are provided for any individual before the applicable family deductible is met. More generally, a HD plan may not provide any benefits for a year until the applicable deductible is met. Notice 2004-2, Q & A 3. Comment: The foregoing requirement raises the question whether a health plan can qualify as a HD plan if it provides more liberal coverage for prescription drugs, provides more liberal cost-sharing for certain benefits, or includes a related HRA or FSA. The IRS has asked for comments on the relationship between a HSAs and HRAs or FSAs. Notice 2004-2. ACCOUNT REQUIREMENTSA trust created or organized for the purpose of paying the qualified medical expenses of the account beneficiary which meets certain special IRC requirements. IRC § 223(D)(1). The trustee must be a bank, life insurance company (as defined in IRC § 816), or approved non-bank custodian. (Where assets are held by a life insurance company, contributions are excluded from DAC tax under IRC § 848). The other special IRC requirements are: (1) except for rollover contributions from an HSA (and also an Archer MSA), no contribution will be accepted unless it is in cash and does not exceed the applicable contribution limits; (2) no part of the trust assets are invested in life insurance contracts; (3) the assets of the trust are not commingled with other property in a common trust or investment fund; and (4) an individual’s possessory interest in an HSA account is non-forfeitable. IRC § 223(d)(1). | |