THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY FOLMER, BROWNE, ALLOWAY, EARLL, ERICKSON, PICCOLA, PILEGGI, WONDERLING AND M. WHITE, MARCH 2, 2009

REFERRED TO BANKING AND INSURANCE, MARCH 2, 2009  

AN ACT

Authorizing employees of the Commonwealth and political

subdivisions to establish health savings accounts; and

providing for the requirements of health savings accounts and

for tax exemption under certain circumstances.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Short title.

This act shall be known and may be cited as the Government

Employee Health Savings Account Act.

Section 2.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Deductible."  The total deductible for an eligible

individual and all the dependents of that eligible individual

for a calendar year.

"Dependent."  The spouse or child of an eligible individual

as defined in section 152 of the Internal Revenue Code of 1986

(Public Law 99-514, 26 U.S.C. § 152).

"Eligible individual."  An individual taxpayer, including an

employee of an employer who is a government employee, who

contributes to a health savings account on the employee's behalf

and who:

(1)  Must be covered by a high deductible health plan

individually or with a dependent.

(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.

(v)  Tort liabilities.

(3)  Establishes or on whose behalf the health savings

account is established.

"Employer."  The Commonwealth and any political subdivision

that employs an individual.

"Government employee."  An individual employed by the

Commonwealth or a political subdivision.

"Health savings account" or "account."  A trust or custodian

established in this Commonwealth pursuant to a health savings

account program exclusively to pay the qualified medical

expenses of an eligible individual or the individual's

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:

(i)  unless it is in cash; or

(ii)  to the extent such contribution, when added to

the previous contributions to the account for the

calendar year, exceeds 100% of the eligible individual's

deductible or $2,600 for an individual or $5,150 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)  The eligible individual's interest in the account is

nonforfeitable.

"Health savings account program" or "program."  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 the

employer. The total annual contribution may not exceed the

amount of the plan's higher deductible or the amounts listed

in paragraph (1)(ii) of the definition "health savings

account" or "account."

"High deductible."  The term means:

(1)  In the case of self-only coverage, an annual

deductible increased each year by a cost-of-living adjustment

that is not less than $1,000 and the sum of the annual

deductible and other annual out-of-pocket expenses required

to be paid under a plan for covered benefits and that does

not exceed $5,000.

(2)  In the case of family coverage, an annual deductible

increased each year by a cost-of-living adjustment of not

less than $2,000 and the sum of the annual deductible and

other annual out-of-pocket expenses required to be paid under

a plan for covered benefits and that does not exceed $10,000.

A plan shall not fail to be treated as a high deductible plan by

reason of its failure to include a deductible for preventive

care or, in the case of a network plan, for having out-of-pocket

expenses that exceed these limits on an annual deductible for

services provided outside the network.

"High deductible health plan."  A health coverage policy,

certificate or contract that provides for payments for covered

benefits that exceed the higher deductible.

"Qualified medical expense."  An expense paid by a taxpayer

for medical care described in section 213(d) of the Internal

Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 213(d)).

Section 3.  Applicability and scope.

(a)  General rule.--The provisions of this act shall apply

also to taxpayers who do not receive preferred Federal tax

treatment for a health savings account under section 223 of the

Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §

223).

(b)  Annual limitation on deposits.--For taxable years

beginning after December 31, 2008, a resident of this

Commonwealth or an employer shall be allowed to deposit

contributions to a health savings account. The amount of deposit

shall not exceed the amount of the plan's high deductible, nor

$2,600 for an individual policy and $5,150 for a family policy.

(c)  Tax exemption.--Except as provided in section 5,

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 the act of March 4, 1971 (P.L.6, No.2), known as the Tax

Reform Code of 1971.

Section 4.  Distribution of funds from health savings accounts.

(a)  General rule.--A trustee or custodian of a health

savings account shall utilize the funds held in the health

savings account solely for the purpose of paying the qualified

medical expenses of the eligible individual or the individual's

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 or 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.

(b)  Restriction of use of funds.--Funds held in a health

savings account may not be used to cover expenses of an eligible

individual or the individual's dependents that are otherwise

covered, including, but not limited to, a medical expense

covered pursuant to an automobile insurance policy, workers'

compensation insurance policy or self-insured plan or another

employer-funded health coverage policy, certificate or contract.

Section 5.  Withdrawals from health savings accounts.

(a)  General rule.--Subject to the provisions of this

section, an eligible individual may withdraw money from the

individual's health savings account for any purpose, other than

a purpose described in section 4(a).

(b)  Tax consequences of certain withdrawals.--Subject to the

provisions of subsection (c), if an eligible individual

withdraws money from the individual's health savings account 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 under the act

of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code

of 1971, 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 the Tax Reform Code of 1971.

(c)  Effect of bankruptcy.--The amount of disbursement of any

assets of a health savings account pursuant to a filing for

protection under 11 U.S.C. (relating to bankruptcy) 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 the disbursement is not subject to

taxation under the Tax Reform Code of 1971 and subsection (b)

does not apply.

(d)  Transfers between spouses or former spouses.--The

transfer of an eligible individual's interest in a health

savings account to an eligible individual's spouse or former

spouse shall not be considered a taxable transfer made by such

eligible individual, notwithstanding any other provision of this

act and this interest shall, after the transfer, be treated as a

health savings account with respect to which the spouse is the

eligible individual.

(e)  Effect of eligible individual's death.--Upon the death

of the eligible individual, the trustee or custodian shall

distribute the principal and accumulated interest of the health

savings account to the estate of the deceased.

(f)  Effect of changed employment.--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 20.  Effective date.

This act shall take effect in 60 days.