The Internal Revenue Service is giving residents of states with strict health insurance benefits mandates a temporary chance to set up health savings accounts.[@@]
For now, when the IRS decides whether a health insurance plan qualifies as an HSA-compatible “high-deductible” plan, it will ignore state-mandated health benefits, according to IRS Notice 2004-43.
Shoshanna Tanner, the IRS associate chief counsel who wrote the notice, says the transition relief period will end Jan. 1, 2006.
President Bush brought HSAs to life Dec. 8, 2003, when he signed the Medicare Prescription Drug, Improvement and Modernization Act. One MPDIMA section lets eligible taxpayers who buy high-deductible health insurance policies exclude HSA contributions from taxable income and spend HSA cash on qualified expenses without paying income taxes on the distributions.
The minimum 2004 HSA deductible is $1,000 for individuals and $2,000 for families.
The high-deductible coverage requirements of the HSA section of MPDIMA are strict because the authors wanted to give HSA holders a strong financial incentive to hold down health care costs. But the HSA section does let high-deductible plans offer coverage for “preventive care” with a low deductible or no deductible.
The IRS is responsible for deciding what qualifies as preventive care, Tanner writes.
“Several states” now require that health plans provide certain benefits with a low deductible or no deductible, Tanner writes.
Plans that include the state-mandated no-deductible and low-deductible benefits do not qualify as HSA-compatible health plans, but, because the HSA law and the IRS high-deductible plan regulation are so new, “these states have had insufficient time to modify their laws to conform,” Tanner writes. “It is appropriate to provide transition relief.”
The IRS has posted a copy of Notice 2004-43 at http://www.irs.gov/pub/irs-drop/n-04-43.pdf