REPORT TITLE: 
Medical savings accounts
DESCRIPTION:
Establishes a medical savings accounts pilot project for
legislators and legislative employees only.

 
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HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                     A BILL FOR AN ACT

RELATING TO MEDICAL SAVINGS ACCOUNTS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:


 1      SECTION 1.  The legislature finds that Congress passed the
 
 2 Health Insurance Portability and Accountability Act of 1996 which
 
 3 creates a pilot program for federal tax-free medical savings
 
 4 accounts.  Eighteen states now have legislation creating state
 
 5 tax-free medical savings accounts.
 
 6      Medical savings accounts are tax-deferred savings accounts
 
 7 designated for health care.  Deposits to a medical savings
 
 8 account, up to an established maximum, and the interest earned,
 
 9 are not taxed if used for qualified medical expenses.  Funds
 
10 withdrawn for other reasons are fully taxed as income, and in
 
11 most cases, a penalty is imposed.  Money remaining in the account
 
12 at the end of the year may accumulate to pay future medical
 
13 bills.  Medical savings accounts operate in conjunction with a
 
14 high-deductible, catastrophic health insurance policy.  The money
 
15 in the medical savings account may be used to pay for health-
 
16 related costs not covered under the insurance policy.  The new
 
17 federal law creates a four-year pilot program of 750,000 medical
 
18 savings accounts annually.  They will be available to self-
 
19 employed people and employees of small businesses who are covered
 

 
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 1 under an employer-sponsored high-deductible plan.
 
 2      The purpose of this Act is to establish a medical savings
 
 3 account pilot program for payment of medical expenses of state
 
 4 legislators, legislative employees, and their dependents only.
 
 5 This account would function like a prepaid health plan with a
 
 6 $1,500 to $2,250 deductible for individual legislators or
 
 7 legislative employees and $3,000 to $4,500 deductible for
 
 8 families.  Contributions, whether from the state legislature or
 
 9 the policyholder, are deductible from gross income up to sixty-
 
10 five per cent of the deductible for individuals and seventy-five
 
11 per cent for families.  Money in the account may be withdrawn
 
12 tax-free to pay most medical expenses, including insurance
 
13 premiums.  Nonmedical withdrawals will be subject to a fifteen
 
14 per cent penalty.  After age sixty-five, the money can be
 
15 withdrawn for any reason.
 
16      SECTION 2.  Chapter 235, Hawaii Revised Statutes, is amended
 
17 by adding a new part to be appropriately designated and to read
 
18 as follows:
 
19                "PART    . MEDICAL SAVINGS ACCOUNT
 
20      §235-A  Short title.  This part may be cited as the Medical
 
21 Savings Account Act.
 
22      §235-B  Definitions.  In this part:
 
23      "Account administrator" means any of the following:
 

 
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 1      (1)  A national or state chartered bank, a federal or state
 
 2           chartered savings and loan association, a federal or
 
 3           state chartered savings bank, or a federal or state
 
 4           chartered credit union;
 
 5      (2)  A trust company authorized to act as a fiduciary;
 
 6      (3)  An insurance company authorized to do business in this
 
 7           State under chapter 431 or a health maintenance
 
 8           organization authorized to do business in this State;
 
 9      (4)  A dealer, salesperson, or investment adviser registered
 
10           under chapter 485;
 
11      (5)  A certified public accountant registered under chapter
 
12           466;
 
13      (6)  An attorney licensed to practice in this State; and
 
14      (7)  An employer, if the employer has a self-insured health
 
15           plan under the federal Employee Retirement Income
 
16           Security Act of 1974 (ERISA).
 
17      "Deductible" means a deductible of not less than $1,500 and
 
18 not more than $2,250 for individuals and not less than $3,000 and
 
19 not more than $4,500 for families.
 
20      "Dependent" means the spouse of the participating legislator
 
21 or legislative employee or a child of the legislator or
 
22 legislative employee if the child is any of the following:
 
23      (1)  Under nineteen years of age, or under twenty-three
 

 
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 1           years of age and enrolled as a full-time student at an
 
 2           accredited college or university;
 
 3      (2)  Legally entitled to the provision of proper or
 
 4           necessary subsistence, education, medical care, or
 
 5           other care necessary for the health, guidance, or well-
 
 6           being of the child and not otherwise emancipated, self-
 
 7           supporting, married, or a member of the armed forces of
 
 8           the United States; and
 
 9      (3)  Mentally or physically incapacitated to the extent that
 
10           the child is not self-sufficient.
 
11      "Domicile" means a place where the participating legislator
 
12 has a true, fixed, and permanent home and principal
 
13 establishment, to which, whenever absent, the individual intends
 
14 to return.  Domicile continues until another permanent home or
 
15 principal establishment is established.
 
16      "Eligible medical expense" means an expense paid by the
 
17 taxpayer for medical care described in section 213(d) of the
 
18 Internal Revenue Code of 1986, as amended, medical insurance
 
19 premiums, dental and long-term care expenses of the legislator or
 
20 legislative employee and dependents, and taxes that are owed on
 
21 these medical care savings accounts.
 
22      "Legislative employee" means a person who is employed by the
 
23 legislature on a permanent or temporary full-time basis.  The
 

 
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 1 term shall include legislative session staff.
 
 2      "Legislator" means the individual elected to the state
 
 3 legislature either as senator or representative for whose benefit
 
 4 or for the benefit of whose dependents a medical care savings
 
 5 account is established.  
 
 6      "Medical savings account" or "account" means an account
 
 7 established in this State pursuant to a medical savings account
 
 8 program to pay the eligible medical expenses of a legislator,
 
 9 legislative employee and their respective dependents.  The
 
10 account shall carry the name of the legislator, the legislative
 
11 employee, a designated beneficiary or beneficiaries, and shall be
 
12 designated by the account administrator as a "medical savings
 
13 account".
 
14      "Medical savings account program" or "program" means a
 
15 program that includes all of the following:
 
16      (1)  The purchase by the State of a qualified deductible
 
17           health plan for the benefit of a legislator or
 
18           legislative employee and their dependents.
 
19      (2)  The contribution on behalf of a legislator or
 
20           legislative employee into a medical care savings
 
21           account by the state of all or part of the premium
 
22           differential realized by the state based on the
 
23           purchase of a qualified deductible health plan for the
 

 
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 1           benefit of the legislator or legislative employee.  The
 
 2           state may contribute all or part of the deductible of
 
 3           the plan purchased pursuant to paragraph (1).
 
 4      (3)  An account administrator shall administer the medical
 
 5           savings account from which payment of claims is made.
 
 6           Not more than thirty days after an account
 
 7           administrator begins to administer an account, the
 
 8           administrator shall notify in writing each legislator
 
 9           or legislative employee on whose behalf the
 
10           administrator administers an account.
 
11      "Qualified deductible health plan" means a health coverage
 
12 policy, certificate, or contract that provides for payments for
 
13 covered benefits that is purchased by the state for the benefit
 
14 of a legislator or legislative employee for whom the state makes
 
15 deposits into a medical care savings account.
 
16      §235-C  Program offer.(a)  For tax years beginning after
 
17 December 31, 1999, the state, except as otherwise provided by
 
18 statute may offer a medical care savings account program to the
 
19 members and employees of the state legislature.
 
20      (b)  Contributions to an account, interest earned thereon,
 
21 and money paid out for eligible medical expenses shall be exempt
 
22 from this chapter.
 
23      (c)  Before making any contribution to an account, the state
 

 
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 1 shall inform all of the members or employees of the legislature,
 
 2 in writing, of the federal and state tax consequences of
 
 3 contributions made pursuant to this part.
 
 4      §235-D  Use of account moneys.(a)  The account
 
 5 administrator shall utilize the moneys held in a medical savings
 
 6 account solely for the purpose of paying the medical expenses of
 
 7 the legislator, the legislative employee or their respective
 
 8 dependents.  Moneys held in a medical savings account may not be
 
 9 used to cover medical expenses of the legislator, legislative
 
10 employee or their respective dependents that are otherwise
 
11 covered, including but not limited to medical expenses covered
 
12 pursuant to an automobile insurance policy, workers' compensation
 
13 insurance policy, or another health coverage policy, certificate,
 
14 or contract.
 
15      (b)  The legislator or legislative employee may submit
 
16 documentation of medical expenses paid by the legislator or
 
17 legislative employee to the account administrator, and the
 
18 account administrator shall reimburse the legislator or
 
19 legislative employee from the legislator's or legislative
 
20 employee's account for eligible medical expenses.
 
21      §235-E  Withdrawals from account.(a)  A legislator or
 
22 legislative employee may withdraw from the legislator's or
 
23 legislative employee's medical savings account, for any purpose
 

 
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 1 and without penalty, any unused funds in the account on the last
 
 2 business day of the calendar year; provided that any legislator
 
 3 or legislative employee, aged sixty-five or older, may withdraw
 
 4 money from the legislator's or legislative employee's account for
 
 5 any use at any time without penalty.  Withdrawals by a legislator
 
 6 under this section shall be considered income.  Withdrawals,
 
 7 except as provided in this part, shall be subject to a 10%
 
 8 penalty in addition to any tax imposed.
 
 9      (b)  Upon the death of the legislator or legislative
 
10 employee, the account administrator shall distribute the
 
11 principal and accumulated interest of the medical savings account
 
12 to the estate of the legislator or legislative employee.
 
13      (c)  If the legislator leaves public office and becomes
 
14 employed with a different employer that participates in a medical
 
15 savings account program, the legislator may transfer the
 
16 legislator's medical savings account to that new employer's
 
17 account administrator.
 
18      (d)  If the legislative employee leaves legislative
 
19 employment and becomes employed with a different employer that
 
20 participates in a medical savings account program, the
 
21 legislative employee may transfer the legislative employee's
 
22 medical savings account to that new employer's account
 
23 administrator
 

 
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 1      §235-F  Reporting requirements.(a)  The insurance
 
 2 commissioner shall require the following information to be
 
 3 submitted at least annually regarding medical savings account:
 
 4      (1)  The name of the legislator or legislative employee
 
 5           holding the account;
 
 6      (2)  The legislator's or legislative employee's address;
 
 7      (3)  Deposits made during the tax year;
 
 8      (4)  Withdrawals made during the tax year; and
 
 9      (5)  Any other information deemed relevant by the
 
10           commissioner.
 
11      (b)  The insurance commissioner shall report to the
 
12 legislature on or before January 1, 2000, with respect to the
 
13 following:
 
14      (1)  The availability of deductible health care coverage
 
15           under medical savings account programs and the market
 
16           share of those programs;
 
17      (2)  The results of a survey of legislature, legislator, and
 
18           legislative employee satisfaction with medical savings
 
19           account programs; and
 
20      (3)  The results of a loss ratio study relative to medical
 
21           savings account programs.
 
22      §235-G  Repeal date.  This part is repealed on January 1,
 
23 2004."
 

 
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 1      SECTION 3.  In codifying the new parts added to chapter 235,
 
 2 Hawaii Revised Statutes, by section 2 of this Act, the revisor of
 
 3 statutes shall substitute appropriate section numbers for the
 
 4 letters used in the new sections' designations in this Act.
 
 5      SECTION 4.  Statutory material to be repealed is bracketed.
 
 6 New statutory material is underscored.
 
 7      SECTION 5.  This Act, upon its approval, shall apply to
 
 8 taxable years beginning after December 31, 1999.
 
 9 
 
10 
 
11                         INTRODUCED BY:___________________________
 

 
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