Even though the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (which includes new tax provisions allowing the establishment of Health Savings Accounts (“HSAs”) starting in 2004) was only signed into law on December 8, 2003, the Treasury and IRS have already so far issued a fairly good round of guidance pertaining to the new HSAs. As you may recall, the first guidance that was issued regarding HSAs was Notice 2004-2. As predicted, the Treasury and IRS have issued some additional guidance pertaining to HSAs today. The Treasury Department has issued its press release regarding the guidance here. You can read Secretary of Treasury John Snow’s prepared remarks regarding HSAs here in which he states:
An individual can only make a contribution to a HSA if the individual is covered by a High Deductible Health Plan and no other coverage. Generally a High Deductible Health Plan only pays for benefits after the deductible is met. Our guidance states that this deductible applies to prescription drug coverage as well as other types of health coverage. Therefore, a plan that provides first-dollar benefit coverage for prescription drugs by either a flat dollar amount or percentage co payment for all prescription drug expenses, even those underneath the deductible will not be considered a high deductible plan and a person covered by such a plan could not make a contribution to an HSA.However, we understand that some have been selling such policies to individuals thinking that the individuals could make contributions to an HSA. We have provided transition relief so that those people who purchase a high deductible health plan with a separate lower deductible prescription drug policy will be able to contribute to contribute to an HSA in 2004 and 2005. We do not want to penalize those people who bought products thinking that they could contribute to an HSA.
The guidance issued by the Treasury and the IRS is as follows:
- Notice 2004-23: HSAs can only be established by eligible individuals, who must have coverage by a high deductible health plan (“HDHP”). Generally, an HDHP cannot provide benefits before the deductible is satisfied, but there is an exception for benefits for preventive care. The guidance provides a safe harbor list of benefits that can be provided by an HDHP, generally clarifying that traditional preventive care benefits – such as annual physicals, immunizations and screening services – are preventive care for purposes of HSAs, as well as routine prenatal and well-child care, tobacco cessation programs and obesity weight-loss programs. The guidance also clarifies that preventive care generally does not include treatment of existing conditions.
- Notice 2004-25: Prior guidance provided that HSAs may only reimburse medical expenses incurred after the HSA is established. However, many individuals eligible to establish HSAs have been unable to locate trustees or custodians will and able to open HSAs at this time. The guidance provides that for 2004, an HSA established by an eligible individual on or before April 15, 2005 may reimburse expenses incurred on or after the later of January 1, 2004 or the first day of the first month that the individual became an eligible individual.
- Revenue Ruling 2004-38: Prior guidance noted that an eligible individual must be covered by an HDHP and generally no other health plan that is not an HDHP. This guidance clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA.
- Revenue Procedure 2004-22: The guidance provides transition relief to those individuals covered by both an HDHP and by a separate health plan or rider that provides prescription drug benefits before the deductible of the HDHP is satisfied. Under the relief, such individuals continue to be eligible to contribute to HSAs before 2006.
For those with questions regarding HSAs, the IRS has set up an e-mail address – hsainfo@do.treas.gov – as well as a voice mailbox at 202-622-4HSA. You can also access information on their website regarding HSAs here.
(Access an earlier post regarding HSAs here.)