House Bill 1213

(COMMITTEE SUBSTITUTE)

AN ACT TO AMEND SECTION 71-9-3, MISSISSIPPI CODE OF 1972, TO REVISE THE DEFINITION OF MEDICAL SAVINGS ACCOUNTS TO INCLUDE HEALTH SAVINGS ACCOUNTS; TO CREATE A NEW SECTION TO BE CODIFIED AS SECTION 71-9-11, MISSISSIPPI CODE OF 1972, TO PERMIT THE ESTABLISHMENT AND MAINTENANCE OF HEALTH SAVINGS ACCOUNTS AND TO EXEMPT CONTRIBUTIONS FROM GROSS INCOME UNDER THE STATE INCOME TAX LAW; TO CREATE NEW SECTIONS TO BE CODIFIED AS SECTION 71-9-13 AND 71-9-15, MISSISSIPPI CODE OF 1972, TO PRESCRIBE THE REQUIREMENTS OF AND RESTRICTIONS ON HEALTH SAVINGS ACCOUNTS; AND FOR RELATED PURPOSES.

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

SECTION 1. Section 71-9-3, Mississippi Code of 1972, is amended as follows:

71-9-3. As used in this chapter:

(a) "Account administrator" means a state chartered bank, savings and loan association, credit union or trust company authorized to act as a fiduciary and under the supervision of the

Department of Banking and Consumer Finance or the Department of Savings Associations, as appropriate; a national bank, national lending association or federal savings and loan association or credit union authorized to act as a fiduciary in this state; an insurer licensed and admitted to do business in this state; a third party administrator licensed by the Mississippi Commissioner of Insurance; or an employer, if the employer has a self-insured health plan meeting federal ERISA requirements.

(b) "Account holder" means a resident individual or an employee for whose benefit a medical savings account is established.

(i) Legally entitled to the provision of proper or necessary subsistence, education, medical care, or other care necessary for his or her health, guidance or well-being and not otherwise emancipated, self-supporting, married or a member of the Armed Forces of the United States; or

(ii) Mentally or physically incapacitated to the extent that he or she is not self-sufficient.

(d) "Domicile" means a place where an individual has his or her true, fixed and permanent home and principal establishment, to which, whenever absent, he or she intends to return.

(e) "Eligible medical expense" means an expense paid by a taxpayer for medical care described in Section 213(d) of the Internal Revenue Code.

(f) "Health savings account" means a trust or custodian established in this state in accordance with a health savings account program exclusively to pay the eligible medical expenses of an account holder or his or her dependents, but only if the written governing instrument creating the account meets the following requirements:

(i) Except in the case of a rollover contribution, no contribution shall be accepted unless it is in cash; or, to the extent such contribution, when added to the previous contributions to the account for the calendar year, exceeds one hundred percent (100%) of the account holder's deductible or Two Thousand Six Hundred Dollars ($2,600.00) for an individual or Five Thousand One Hundred Fifty Dollars ($5,150.00) per family, whichever is lower;

(ii) The trustee or custodian is a bank, an insurance company or another person approved by the Commissioner of Insurance;

(iii) No part of the trust assets shall be invested in life insurance contracts;

(iv) The assets of the account shall not be commingled with other property except as allowed for under Individual Retirement Accounts; and

(v) Eligible individual’s interest in the account is nonforfeitable.

(g) "Health savings account program" means a program that includes all of the following:

(i) The purchase by an eligible individual or by an employer of a high deductible health plan; and

(ii) The contribution into a health savings account by an eligible individual or on behalf of an employee or by his or her employer. The total annual contribution may not exceed the amount of the plan’s higher deductible or the amounts listed herein.

(h) "High deductible health plan" means a health coverage policy, certificate or contract that provides for payments for covered benefits that exceed the higher deductible.

(i) "Higher deductible" means a deductible of not less than One Thousand Five Hundred Dollars ($1,500.00) but not more than Two Thousand Two Hundred Fifty Dollars ($2,250.00) for individual health coverage, and not less than Three Thousand Dollars ($3,000.00) but not more than Four Thousand Five Hundred Dollars ($4,500.00) for health coverage provided to an individual and his or her dependents, in tax year 1994. Beginning after 1998, such deductible limits thereafter shall be adjusted annually in fifty-dollar increments for increases in the cost of living, as measured by the medical costs component of the Consumer Price Index.

(j) "Medical savings account" means an account established to pay eligible medical expense of the account holder and his or her dependents and includes the term "health savings account" as defined in paragraph (f) of this section.

(k) "Medical savings account program" means a program that includes all of the following:

(i) The purchase by an employer of a qualified higher deductible health plan for the benefit of an employee and his or her dependents or the purchase by a resident individual of a qualified higher deductible health plan for his or her benefit or for the benefit of his or her dependents, or both;

(ii) The payment on behalf of an employee into a medical savings account by his or her employer or payment into a medical savings account by a resident individual on his or her behalf of at least sixty-six and two-thirds percent (66-2/3%) of the premium reduction realized by the purchase of a qualified higher deductible health plan; and

(iii) An account administrator to administer the medical savings account and the reimbursement of eligible medical expenses therefrom.

(l) "Qualified higher deductible health plan" means an accident and health insurance policy, certificate or contract that:

(i) Is purchased by an employer for the benefit of an employee or by a resident individual for his or her benefit; and

(ii) Provides for payment of covered expenses that exceed the higher deductible, but shall not exceed the maximum out-of-pocket expenses of Three Thousand Dollars ($3,000.00) for individual coverage and Five Thousand Five Hundred Dollars ($5,500.00) for family coverage.

(m) "Resident individual" means an individual who has a domicile in this state.

SECTION 2. The following shall be codified as Section 71-9-11, Mississippi Code of 1972:

71-9-11. (1) The provisions of Sections 2 through 4 of this act shall apply also to taxpayers who are not receiving preferred federal tax treatment for a health savings account under Internal Revenue Code Section 223.

(2) For taxable years beginning after January 1, 2005, a resident of Mississippi or an employer shall be allowed to deposit contributions to a health savings account. The amount of deposit for 2005 shall not exceed the amount of the plan’s high deductible, or Two Thousand Six Hundred Dollars ($2,600.00) for an individual policy or Five Thousand One Hundred Fifty Dollars ($5,150.00) for a family policy.

(3) Except as provided in Section 4 of this act, or except as otherwise provided by law, the principal contributed to and the interest earned on a health savings account and money reimbursed to an eligible individual or an employee for qualified medical expenses shall be excluded from the taxable gross income of the account holder under Section 27-7-15.

SECTION 3. The following section shall be codified as Section 71-9-13, Mississippi Code of 1972:

71-9-13. The trustee or custodian shall utilize the funds held in a health savings account solely for the purpose of: (a) Paying the qualified medical expenses of the eligible individual or his or her dependents;

(b) Purchasing a health coverage policy certificate, or contract, for an eligible individual who is receiving unemployment compensation, is exercising continuation privileges under federal law or is purchasing a long-term care insurance contract; or

(c) Paying for health insurance other than a Medicare supplemental policy for those who are Medicare eligible. Funds held in a health savings account shall not be used to cover expenses of the eligible individual or his or her dependents that are otherwise covered, including, but not limited to, medical expenses covered under an automobile insurance policy, workers’ compensation insurance policy or self-insured plan or another employer-funded health coverage policy, certificate or contract.

SECTION 4. The following section shall be codified as Section 71-9-15, Mississippi Code of 1972:

71-9-15. (1) Notwithstanding subsections (3), (4), (5) or (6) of this section, an eligible individual may withdraw money from his or her health savings account for any purpose other than a purpose described in Section 3 of this act.

(2) Subject to subsection (3) of this section, if the eligible individual withdraws money for any purpose other than a purpose described in Section 3 of this act at any other time, all of the following apply:

(a) The amount of the withdrawal is considered taxable gross income of the account holder under Section 27-7-15 in the tax year of the withdrawal.

(b) Interest earned on the account during the tax year in which a withdrawal under this subsection is made is considered taxable gross income of the account holder under Section 27-7-15. (3) The amount of disbursement of any assets of a health savings account pursuant to a filing for protection under Title 11 of the United States Code, 11 USCS 101 et seq. 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 a disbursement is not considered taxable gross income of the account holder under Section 27-7-15 and subsection (2) of this section does not apply.

(4) The transfer of an eligible individual’s interest in a health savings account to an eligible individual’s spouse or former spouse under a divorce or separation instrument shall not be considered a taxable transfer made by such eligible individual, and such interest shall, after such transfer, be treated as a health savings account with respect to which such spouse is the eligible individual.

(5) Upon the death of the eligible individual, the trustee or custodian shall distribute the principle and accumulated interest of the health savings account to the estate of the deceased.

(6) 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 5. This act shall take effect and be in force from and after its passage.