PRINTER'S NO. 1207
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
902
Session of
2017
INTRODUCED BY FOLMER, MENSCH, VULAKOVICH, MARTIN, DiSANTO,
STEFANO AND BROWNE, SEPTEMBER 26, 2017
REFERRED TO BANKING AND INSURANCE, SEPTEMBER 26, 2017
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." 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
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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
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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.
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(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.
(3) 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 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, 2015, 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
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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 money 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.--Money 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
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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 who is an
eligible employee becomes employed with a different employer
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that participates in a health savings account program, the
employee may transfer the employee's health savings account to
that new employer's trustee or custodian or to an individually
purchased account program.
Section 6. Effective date.
This act shall take effect in 60 days.
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