BP BHEAD INT S

AN ACT Relating to medical care savings accounts; adding new sections to chapter 43.72 RCW; and creating a new section.

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

NEW SECTION. Sec. 1. It is the intent of the legislature that there be established medical care savings accounts for use by all residents. It is the legislature's intent that the governor and the Washington health services commission seek changes from the federal government that will exempt the contributions to the accounts from taxation. Until the state is successful in gaining the needed federal changes, the contributions are subject to federal income taxation.

NEW SECTION. Sec. 2. Sections 1 through 7 of this act shall be known as the medical care savings account act.

NEW SECTION. Sec. 3. As used in this chapter:

(1) "Account administrator" means:

(a) A state-chartered bank, savings and loan association, credit union, or trust company authorized to act as fiduciary and under the supervision of the department of financial institutions or a national banking association or federal savings and loan association or credit union authorized to act as fiduciary in this state;

(b) An insurance company authorized to do business in this state pursuant to Title 48 RCW or a health care corporation;

(c) A broker-dealer, commodity issuer, or investment advisor regulated by the department of financial institutions or a federal investment company registered under the investment company act of 1940, Title I, chapter 686, 54 Stat. 789, 15 U.S.C. 80a-1 to 80a-64;

(d) A certified public accountant licensed to practice in this state pursuant to Title 18 RCW;

(e) An employer if the employer has a self-insured health plan under ERISA; or

(f) An employer that participates in the medical care savings account program.

(2) "Account holder" means the resident individual who establishes a medical care savings account or for whose benefit a medical care savings account is established.

(3) "Deductible" means the total deductible for an employee and all the dependents of that employee for a calendar year.

(4) "Dependent." For the purposes of this chapter:

(a) "Dependent child" means an individual's unmarried natural child, stepchild, or legally adopted child, who is either (i) younger than age nineteen, or (ii) younger than age twenty-three and (A) is a full-time student at an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on, or (B) is pursuing a full-time course of institutional on-farm training under the supervision of an educational organization described in (a)(ii)(A) of this subsection.

(b) "Family" means an individual or an individual and the individual's spouse, if not legally separated, and the individual's dependent children. For purposes of eligibility determination and enrollment in the plan, an individual cannot be a member of more than one family.

(c) "Family dependent" means an enrollee's legal spouse, if not legally separated, or the enrollee's dependent child, who meets all eligibility requirements, is enrolled in the plan, and for whom the applicable premium has been paid.

(5) "Eligible medical expense" means an expense paid by the taxpayer for medical care described in section 213(d) of the internal revenue code as in existence on the effective date of this act.

(6) "Employee" means the individual for whose benefit or for the benefit of whose dependents a medical care savings account is established. Employee includes a self-employed individual.

(7) "ERISA" means the employer retirement income security act of 1974, P.L. 93-406, 88 Stat. 829.

(8) "Higher deductible" means a deductible of not less than two thousand dollars for an individual and not less than three thousand dollars for a family for 1994. This minimum and maximum shall be adjusted annually by the health services commission to reflect increases in the implicit price deflator for the United States as defined and officially reported by the United States department of labor.

(9) "Medical care savings account" or "account" means an interest bearing account established in this state pursuant to a medical care savings account program to pay the eligible medical expenses of an employee or account holder and the dependents of the employee or account holder, and insured by the federal deposit insurance corporation.

(10) "Medical care savings account program" or "program" means one of the following programs:

(a) A program established by an employer that previously provided a health coverage policy, certificate, or contract 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.

(ii) The contribution on behalf of an employee into a medical care savings account by his or her employer of the premium differential realized by the employer based on the purchase of a qualified higher deductible health plan for the benefit of the employee. The employee may contribute into the account in addition to a contribution by the employer all or part of the difference between the employer's contribution and the maximum contribution as determined pursuant to this subsection (10)(a)(ii). A contribution under this subsection (10)(a)(ii) shall not exceed three thousand six hundred dollars for 1994. For each year after 1994, this maximum shall be adjusted annually by the health services commission to reflect increases in the implicit price deflator for the United States as defined and officially reported by the United States department of labor.

(b) A program established by an employer that did not previously provide a health coverage policy, certificate, or contract 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.

(ii) The contribution on behalf of an employee into a medical care savings account by his or her employer of the premium differential realized by the employer based on the purchase of a qualified higher deductible plan for the benefit of the employee. The employee may contribute into the account in addition to a contribution by the employer all or part of the difference between the employer's contribution and the maximum contribution as determined pursuant to this subsection (10)(b)(ii). A contribution under this subsection (10)(b)(ii) shall not exceed three thousand six hundred dollars for 1994. For each year after 1994, this maximum shall be adjusted annually by the health services commission to reflect increases in the implicit price deflator.

(i) The purchase by the account holder of a qualified higher deductible health plan for the benefit of the account holder and his or her dependents.

(ii) A contribution by the account holder not to exceed three thousand six hundred dollars for 1994 into a medical care savings account. For each year after 1994, this maximum shall be adjusted by the health services commission to reflect increases in the implicit price deflator for the United States as defined and officially reported by the United States department of labor.

(11) "Qualified higher deductible health plan" means a health coverage policy, certificate, or contract that provides for payments for covered benefits that exceed the higher deductible and that is purchased by an employer for the benefit of an employee for whom the employer makes deposits into a medical care savings account or by an account holder.

NEW SECTION. Sec. 4. (1) For tax years beginning after 1994, both of the following apply:

(a) An employer, except as otherwise provided by statute, contract, or a collective bargaining agreement, may offer a medical care savings account program to the employer's employees.

(b) A resident individual may establish a medical care savings account program for himself or herself or for his or her dependents.

(2) An employer that offers a medical care savings account program shall inform before making any contributions all employees in writing of the federal tax status of contributions made pursuant to sections 1 through 7 of this act.

(3) Upon agreement between an employer and account holder, an account holder may have his or her employer contribute either to the account holder's medical care savings account or continue to make contributions under the employer's existing health insurance policy or program.

NEW SECTION. Sec. 5. (1) An account administrator shall administer the medical care savings account from which the payment of claims is made and has a fiduciary duty to the person for whose benefit the account administrator administers an account.

(2) Not more than thirty days after an account administrator begins to administer an account, the account administrator shall notify in writing each employee and account holder on whose behalf the account administrator administers an account of the date of the last business day of the account administrator's business year.

(3) The account administrator shall utilize the funds held in a medical care savings account for the purpose of paying the medical expenses of the employee or account holder or his or her dependents or to purchase a health coverage policy, certificate, or contract. Funds held in a medical care savings account shall not be used to pay medical expenses of the employee or account holder or his or her dependents that are otherwise reimbursable including but not limited to medical expenses payable pursuant to an automobile insurance policy, worker's compensation insurance policy or self-insured plan, or another health coverage policy, certificate, or contract.

(4) The employee or account holder may submit documentation of medical expenses paid or withdrawn under section 6 of this act by the employee or account holder in the tax year to the account administrator, and the account administrator shall reimburse or pay the employee or account holder from the employee's or account holder's account for eligible medical or other expenses under section 6 of this act.

(5) If an employer makes contributions to a medical care savings account program on a periodic installment basis, the employer may advance to an employee, interest free, an amount necessary to cover medical expenses incurred that exceed the amount in the employee's medical care savings account at the time the expense is incurred if the employee agrees to repay the advance from future installments or when he or she ceases to be an employee of the employer.

NEW SECTION. Sec. 6. (1) Funds in an individual medical care savings account may only be used to pay medical expenses for the individual and dependents, except for the following circumstances:

(a) Tuition at a two-year or four-year accredited college or university for the individual or the individual's dependents; or

(b) The purchase of the individual's first home.

(2) Withdrawals made under subsection (1) (a) or (b) of this section shall not reduce the account balance below a sum equal to the individual's deductible and may not exceed fifty percent of the remaining funds.

(3) Withdrawals made under subsection (1) (a) or (b) of this section are not subject to section 7(2)(a) of this act.

(4) Withdrawals made under subsection (1) (a) or (b) of this section must be repaid to the account with interest equal to the amount earned on the account within ten years.

NEW SECTION. Sec. 7. (1) Subject to subsection (3) of this section, if an employee or account holder withdraws money from his or her medical care savings account for any purpose other than a purpose in section 5(3) or 6 of this act only on the last business day of the account administrator's business year, the withdrawal is subject to subsection (2) of this section.

(2) Subject to subsection (3) of this section, if the employee or account holder withdraws money for any purpose at any time other than the last business day of the account administrator's business year, the following applies:

(a) The administrator shall withhold from the amount of the withdrawal and on behalf of the employee or account holder shall pay a penalty to the internal revenue service equal to ten percent of the amount of the withdrawal; and

(b) Interest earned on the account during the tax year in which a withdrawal under this subsection is made is income for purposes of federal income tax until federal law changes to permit account funds to accrue tax free.

(3) The amount of a disbursement of any assets of a medical care savings account pursuant to a filing for protection under Title 11 of the United States Code, 11 U.S.C. 101 to 1330 by an employee, account holder, or person for whose benefit the account was established is not considered a withdrawal for purposes of this section and subsection (2) of this section does not apply.

(4) Upon the death of the employee or account holder, the account administrator shall distribute the principal and accumulated interest of the medical care savings account to the estate of the employee or account holder.

(5) If an employee is no longer employed by an employer that participates in a medical care savings account program and the employee, not more than sixty days after his or her final day of employment, transfers the account to a new account administrator or requests in writing to the former employer's account administrator that the account remain with that administrator and that account administrator agrees to retain the account, the money in the medical care savings account may be utilized for the benefit of the employee or his or her dependents subject to sections 1 through 7 of this act and remains exempt from taxation pursuant to sections 1 through 7 of this act. Not more than thirty days after the expiration of the sixty days, if an account administrator has not accepted the former employee's account, the employer shall mail a check to the former employee at the employee's last known address equal to the amount in the account on that day and that amount is not subject to the penalties under subsection (2) of this section. If an employee becomes employed with a different employer that participates in a medical care savings account program, the employee may transfer his or her medical care savings account to that new employer's account administrator. If an account holder becomes an employee of an employer that participates in the medical care savings account program, the account holder may transfer his or her account to the employer's account administrator.

NEW SECTION. Sec. 8. The health services commission shall report on or before January 1, 1998, to the appropriate committees of the house of representatives and senate on the following:

(1) The availability of health care coverage under and market share of medical care savings account programs;

(2) Results of a survey of employer and employee satisfaction with medical care savings account programs;

(3) The results of a loss ratio study relative to medical care savings account programs.

NEW SECTION. Sec. 9. Sections 1 through 7 of this act are each added to chapter 43.72 RCW.