SENATE AMENDED
PRIOR PRINTER'S NOS. 1717, 2897 PRINTER'S NO. 4048
No. 1468 Session of 1995
INTRODUCED BY MICOZZIE, GANNON, FICHTER, LYNCH, PETTIT,
GODSHALL, NICKOL, LEH, SCHRODER, L. I. COHEN, BUXTON,
D. W. SNYDER, FLICK, TULLI, SAYLOR, HERMAN, SCHULER,
FAIRCHILD, PITTS, DEMPSEY, FLEAGLE, STRITTMATTER, CONTI,
BIRMELIN, HUTCHINSON, ARMSTRONG, SATHER, KING, STISH, RUBLEY,
CLARK, COLAFELLA, TRELLO, RAYMOND, HERSHEY, STERN, KENNEY,
BARLEY, EGOLF, DRUCE, BATTISTO, PLATTS, HANNA, REINARD,
DeLUCA, STURLA, MELIO, MERRY, E. Z. TAYLOR, STABACK, CLYMER,
FARGO, MILLER, SERAFINI, TANGRETTI, ADOLPH, O'BRIEN,
J. TAYLOR, WAUGH, BAKER, HENNESSEY, TRICH, TRUE, CIVERA,
LAUGHLIN, MAITLAND AND ROHRER, APRIL 26, 1995
SENATOR TILGHMAN, APPROPRIATIONS, IN SENATE, RE-REPORTED AS
AMENDED, SEPTEMBER 30, 1996
AN ACT
1 Providing for the establishment and regulation of individual and <--
2 employer-provided medical care savings accounts.
3 EXEMPTING MEDICAL CARE SAVINGS ACCOUNTS FROM STATE PERSONAL <--
4 INCOME TAX; AND PROVIDING FOR MANDATED BENEFITS.
5 The General Assembly of the Commonwealth of Pennsylvania
6 hereby enacts as follows:
7 Section 1. Short title.
8 This act shall be known and may be cited as the Medical Care
9 Savings Account Act.
10 Section 2. Legislative intent. <--
11 Medical care savings accounts shall be set forth to enhance
12 health insurance availability for citizens of this Commonwealth,
13 to improve the ability of citizens of this Commonwealth to
1 afford health care expenditures, to provide incentives to
2 consider costs when requesting medical treatment, to encourage
3 competition in the health care industry and to improve quality
4 of health care. In order to alleviate the impoverishment of
5 citizens of this Commonwealth requiring long-term care, medical
6 care savings accounts shall be set forth to promote saving for
7 long-term care and to provide incentives for individuals to
8 protect themselves from financial hardship due to a long-term
9 health care need.
10 Section 3. Definitions.
11 The following words and phrases when used in this act shall
12 have the meanings given to them in this section unless the
13 context clearly indicates otherwise:
14 "Account administrator." Any of the following:
15 (1) A nationally chartered or State-chartered bank, a
16 federally chartered or State-chartered savings and loan
17 association, a federally chartered or State-chartered savings
18 bank or a federally chartered or State-chartered credit
19 union.
20 (2) A trust company authorized to act as a fiduciary.
21 (3) An insurance company authorized to do business in
22 this Commonwealth under the act of May 17, 1921 (P.L.789,
23 No.285), known as The Insurance Department Act of 1921, or an
24 entity operating under 40 Pa.C.S. Ch. 61 (relating to
25 hospital plan corporations) or 63 (relating to professional
26 health services plan corporations).
27 (4) A broker-dealer, commodity issuer, investment
28 advisor or agent registered under the act of December 5, 1972
29 (P.L.1280, No.284), known as the Pennsylvania Securities Act
30 of 1972.
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1 (5) A certified public accountant licensed to practice
2 in this Commonwealth under the act of May 26, 1947 (P.L.318,
3 No.140), known as The C.P.A. Law.
4 (6) An attorney licensed to practice in this
5 Commonwealth.
6 (7) An employer, if the employer has a self-insured
7 health plan under the Employee Retirement Income Security Act
8 of 1974 (Public Law 93-406, 88 Stat. 829).
9 (8) An employer that participates in the medical savings
10 account program.
11 "Account holder." A person, including an employee of an
12 employer who contributes to a medical care savings account for
13 the employee's benefit and on whose behalf a medical care
14 savings account is established.
15 "Deductible." The total covered medical expenses the account
16 holder must pay prior to any payment by the high deductible
17 plan.
18 "Dependent." The spouse of child of the account holder if
19 the child is any of the following:
20 (1) A person under the age of 18 who is not otherwise
21 emancipated, married or a member of the armed forces of the
22 United States.
23 (2) A person who is mentally or physically incapacitated
24 to the extent that the child is not self-sufficient.
25 (3) A person 23 years of age or younger who is enrolled
26 as a full-time student and who is legally entitled or subject
27 to a court order for the provision of proper and necessary
28 subsistence, education, medical care or any other care
29 necessary for the person's health, guidance or well-being.
30 "Eligible medical expense." Medical care as defined by
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1 section 213(d) of the Internal Revenue Code of 1986 (Public Law
2 99-514, 26 U.S.C. § 213(d)), dental care, eye care, and long-
3 term care. The term excludes premiums for all insurance except
4 for a high deductible plan, long-term care insurance, Medicare
5 supplemental insurance, continuation coverage authorized under
6 the Consolidated Omnibus Budget Reconciliation Act of 1985
7 (Public Law 99-272, 100 Stat. 82), or conversion coverage
8 authorized under the act of May 17, 1921 (P.L.682, No.284),
9 known as The Insurance Company Law of 1921.
10 "Health plan." A health policy, subscriber contract or
11 certificate or plan or an employee welfare benefit plan
12 providing medical care as defined by section 213(d) of the
13 Internal Revenue Code (Public Law 99-514, 26 U.S.C. § 213(d)) to
14 participants or beneficiaries directly or through insurance,
15 reimbursement or otherwise.
16 "High deductible plan." A health plan which provides for
17 payment of covered benefits in excess of the deductible. The
18 deductible shall not be less than $1,500 or more than $5,000 for
19 1996. The minimum and maximum may be adjusted by the Insurance
20 Department annually thereafter by a percentage equal to the
21 previous year's change in the medical component of the National
22 Consumer Price Index, provided dollar changes shall be rounded
23 to the nearest multiple of $50.
24 "Medical care savings account" or "account." An account
25 established pursuant to a medical care savings account program
26 to pay the eligible medical expenses of the account holder and
27 his or her dependents.
28 "Medical care savings account program" or "program." A
29 program that includes all of the following:
30 (1) The purchase by an account holder or by an employer
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1 of a high deductible plan for the benefit of the account
2 holder and dependents.
3 (2) A contribution to a medical care savings account by
4 an account holder or an employer for the benefit of an
5 account holder.
6 (3) An account administrator to administer the medical
7 care savings account.
8 (4) A provision that allows account holders to designate
9 a beneficiary or beneficiaries to whom account funds shall be
10 transferred in case of the account holder's death.
11 Section 4. Medical care savings accounts.
12 (a) General rule.--A person or an employer for the benefit
13 of an employee may deposit cash contributions annually to a
14 medical care savings account which shall not exceed $2,500 for
15 1996 for an individual account holder and $5,000 for an account
16 holder with dependents for 1996. This maximum shall be adjusted
17 by the Insurance Department annually by a percentage equal to
18 the previous year's changes in the medical component of the
19 National Consumer Price Index, provided dollar changes shall be
20 rounded to the nearest multiple of $50.
21 (b) Treatment of contribution, interest and
22 reimbursements.--For a medical care savings account the
23 contribution to and interest earned on an account and account
24 funds reimbursed to an account holder for eligible medical
25 expenses are exempt from personal income taxable under Article
26 III of the act of March 4, 1971 (P.L.6, No.2), known as the Tax
27 Reform Code of 1971.
28 (c) Account by operation of law.--Except as otherwise
29 provided in this section, the account administrator shall
30 utilize the funds held in a medical care savings account solely
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1 for the purpose of paying providers for eligible medical
2 expenses of the account holder and dependents or reimbursing the
3 account holder for eligible medical expense payments.
4 (d) Restrictions on withdrawal.-- Medical care savings
5 account funds may be withdrawn by the account holder for a
6 purpose other than payment for eligible medical expenses,
7 subject to the following restrictions and penalties:
8 (1) There shall be a distribution penalty payable to the
9 Department of Revenue by the administrator on behalf of the
10 account holder for withdrawal by the account holder of
11 medical care savings account funds not used for eligible
12 medical expenses. Account funds or any portion thereof used
13 as security for a loan shall be treated as a disbursement.
14 Such penalty shall be 10% of the amount of the withdrawal.
15 (2) The amount of withdrawal for other than eligible
16 medical expenses shall be subject to personal income taxation
17 under Article III of the Tax Reform Code of 1971.
18 (3) When a person ceases to qualify as a dependent under
19 a high deductible plan, the account holder may within 60 days
20 of such event transfer to an account administrator, without
21 penalty or taxation, the premium necessary to purchase a new
22 high deductible plan and funds to establish a medical care
23 savings account program for the person no longer qualifying
24 as a dependent under the prior high deductible plan.
25 (4) Disbursement arising out of bankruptcy.--The amount
26 of a disbursement of any assets of a medical care savings
27 account pursuant to a filing for protection under 11 U.S.C.
28 (relating to bankruptcy) by an account holder shall be
29 considered a withdrawal for purposes of this section, except
30 that the withdrawal shall not be subject to the 10% penalty
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1 imposed under section 4(d)(1). The amount of a disbursement
2 shall be subject to personal income taxation under Article
3 III of the Tax Reform Code of 1971.
4 (e) Advance of funds.--If an employer makes contributions to
5 a medical care savings account program on a periodic installment
6 basis, the employer may advance to an account holder, interest
7 free, an amount necessary to cover an eligible medical expense
8 that exceeds the amount in the account holder's medical care
9 savings account when the expense is incurred if the account
10 holder agrees to repay the advance from future installments or
11 when the account holder ceases to be an employee of the
12 employer.
13 (f) Reporting.--An employer that offers a program shall
14 inform all employees in writing of the Federal and State tax
15 status of contributions made to an account under this act before
16 making contributions.
17 (g) Treatment upon termination or change of employment.--If
18 an account holder is no longer employed by an employer that
19 established a medical care savings account for that account
20 holder:
21 (1) The account holder may request that the account
22 remain with the former employer's account administrator. Such
23 request must be made in writing within 60 days of the
24 termination of employment. If the account administrator
25 agrees to retain the account, the account shall not be
26 subject to personal income taxation under the Tax Reform Code
27 of 1971.
28 (2) If the new employer of the account holder offers
29 medical care savings accounts, the account holder may
30 transfer the medical care savings account to a new employer's
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1 account administrator. An account transferred to a new
2 employer's account administrator shall not be subject to
3 personal income taxation under the Tax Reform Code of 1971.
4 (3) The account holder may transfer the medical care
5 savings account to another account administrator. An account
6 transferred to another account administrator shall not be
7 subject to personal income taxation under the Tax Reform Code
8 of 1971.
9 (4) If the account administrator or a former employer
10 does not agree to retain an account upon termination of
11 employment, or if no request to retain the account or
12 transfer the account to another account administrator is
13 received by the account administrator, the account
14 administrator must forward the balance of the account to the
15 account holder within 90 days of termination of employment.
16 The amount forwarded shall be subject to personal income
17 taxation under the Tax Reform Code of 1971.
18 (h) Treatment of funds upon death.--Upon the death of the
19 account holder, the account administrator shall distribute the
20 account to the beneficiary designated in the account and the
21 funds so distributed shall be subject to inheritance tax under
22 Article XXI of the Tax Reform Code of 1971. In the event the
23 beneficiary qualifies as a dependent as of the date of the
24 account holder's death and utilizes account funds to establish a
25 new or supplement an existing medical care savings account
26 within 60 days of the date of the account holder's death, no
27 inheritance tax shall be levied on any account funds so
28 utilized. In the event the account holder has failed to
29 designate a beneficiary, or the beneficiary designation has been
30 rendered legally ineffective or inoperative for any reason, the
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1 account administrator shall distribute the account to the
2 account holder's estate and the funds so distributed shall be
3 subject to inheritance tax under Article XXI of the Tax Reform
4 Code of 1971.
5 Section 5. Provisions not applicable.
6 A high deductible plan shall not be subject to any provision
7 of law requiring a minimum health insurance benefit or
8 reimbursement.
9 Section 6. Duties of account administrator.
10 (1) An account administrator shall cause to be issued to
11 participating account holders at least quarterly a statement
12 setting forth amounts remaining in their accounts.
13 (2) Except as otherwise provided in section 4, the
14 account administrator shall utilize the funds held in a
15 medical care savings account solely for the purpose of paying
16 the eligible medical expenses of the account holder or
17 dependents.
18 (3) The account holder may submit documentation of
19 medical expenses paid by the account holder during the tax
20 year to the account administrator. The account administrator
21 shall reimburse the account holder from the account holder's
22 account for eligible medical expenses directly paid by the
23 account holder, provided supported documentation of such
24 payment has been submitted to the account administrator. The
25 account administrator shall reimburse the account holder
26 within 60 days of the date the documentation was submitted.
27 (4) An account administrator shall register with the
28 Insurance Department and pay an annual registration fee of
29 $25. The registration fee shall be deposited in the General
30 Fund. Registration as an account administrator does not
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1 affect the regulation of a bank, savings and loan
2 association, credit union, trust company or insurance company
3 as otherwise provided by law.
4 (5) The account administrator shall Notify account
5 holders in writing of changes in the Federal and State tax
6 status of contributions made to a medical care savings
7 account.
8 Section 7. Regulations.
9 (1) The Insurance Department and the Department of
10 Revenue shall promulgate regulations to implement, administer
11 and enforce this act.
12 (2) The Insurance Department may receive, investigate
13 and settle complaints about medical care savings accounts and
14 account administrators or it may refer complaints to other
15 appropriate agencies.
16 Section 8. Applicability.
17 This act shall apply to tax years beginning January 1, 1997,
18 and tax years thereafter.
19 Section 9. Repeals.
20 All acts and parts of acts are repealed insofar as they are
21 inconsistent with this act.
22 Section 10. Severability.
23 The provisions of this act are severable. If any provision of
24 this act or its application to any person or circumstance is
25 held invalid, the invalidity shall not affect other provisions
26 or applications of this act which can be given effect without
27 the invalid provision or application.
28 Section 11. Effective date.
29 This act shall take effect in 180 days.
30 SECTION 2. LEGISLATIVE INTENT. <--
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1 IT IS THE INTENT OF THE GENERAL ASSEMBLY TO EXTEND TO MEDICAL
2 CARE SAVINGS ACCOUNTS ESTABLISHED IN THIS COMMONWEALTH PURSUANT
3 TO THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF
4 1996 (PUBLIC LAW 104-191 U.S.C.) EXEMPTION FROM STATE INCOME
5 TAX.
6 SECTION 3. TREATMENT OF CONTRIBUTION, INTEREST AND
7 REIMBURSEMENTS.
8 FOR A MEDICAL CARE SAVINGS ACCOUNT ESTABLISHED IN COMPLIANCE
9 WITH THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF
10 1996 (PUBLIC LAW 104-191, U.S.C.), THE CONTRIBUTION TO AND
11 INTEREST EARNED ON AN ACCOUNT AND ACCOUNT FUNDS REIMBURSED TO AN
12 ACCOUNT HOLDER FOR ELIGIBLE MEDICAL EXPENSES ARE EXEMPT FROM
13 PERSONAL INCOME TAXABLE UNDER ARTICLE III OF THE ACT OF MARCH 4,
14 1971 (P.L.6, NO.2), KNOWN AS THE TAX REFORM CODE OF 1971.
15 SECTION 4. MANDATED BENEFITS.
16 HIGH DEDUCTIBLE PLANS SHALL BE SUBJECT TO ANY PROVISION OF
17 LAW REQUIRING A MINIMUM HEALTH INSURANCE BENEFIT OR
18 REIMBURSEMENT. HOWEVER, NOTHING SHALL PROHIBIT OR PREVENT THE
19 APPLICATION OF DEDUCTIBLES OR COPAYMENTS FOR THESE MINIMUM
20 BENEFITS BY THE INSURER ISSUING THE HIGH DEDUCTIBLE PLAN.
21 SECTION 5. EFFECTIVE DATE.
22 THIS ACT SHALL TAKE EFFECT JANUARY 1, 1997.
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